Improve Landed Cost Visibility

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© GT Nexus, Inc. How to Automatically Collect, Assemble, Track and Measure Global Supply Chain Cost Actuals as They Occur Improve Landed Cost Visibility A STRATEGIC IMPERATIVE FOR MANUFACTURERS

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How to Automatically Collect, Assemble, Track and Measure Global Supply Chain Cost Actuals as They Occur

Transcript of Improve Landed Cost Visibility

Page 1: Improve Landed Cost Visibility

© GT Nexus, Inc.

How to Automatically Collect, Assemble, Track and Measure Global Supply Chain Cost Actuals as They Occur

Improve Landed Cost Visibility

A STRATEGIC IMPERATIVE FOR MANUFACTURERS

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Global supply chains require goods to pass through many stages before they reach the point of delivery. While manu-facturers may have found unit costs suffi cient in planning for profi tability in the past, today’s environment requires much more data — most of it from outside the manufacturer’s four walls.

What’s often poorly projected as “overhead costs” can include fees that shipments incur in transit, at customs, and inland before delivery. These costs vary greatly on the back of demand changes and growing lead times, causing a large discrepancy in actual vs. estimates and plaguing manufacturers with hours of reactive, manual data collection.

Companies need to fi ll in the blank space where landed costs can decrease a product’s margin with real-time analytics. Without this, they will struggle to understand the true price of the products they are sourcing.

Impact of Poor Supply Chain Cost AnalyticsWithout a way to calculate the costs that add up due to un-predictable demand and long lead times, manufacturers end up making decisions based on very little real-time informa-tion. Managing suppliers this way is diffi cult; if the true costs of sourcing a product do become clear, it is only long after the fact.

In this scenario, manufacturers are forced to resort to:

Piecing together information on actual costs and lead times

Choosing suppliers based on unit cost alone

Guessing at product margins based on past data

Collecting and managing data manually

Attempting to make leap-of-faith target delivered unit costs

The Root of the ProblemThere is a widening gap between projected landed costs and end-of-year actual recaps. This happens when shipments enter the information “black hole” — the month or two in which goods travel through an extended supply chain, often across borders, and no data is available on their activity. During this time, they may be picking up drayage, consolidation, deconsol-idation, and agent fees that were not included in the margin calculation. When the product fi nally reaches its destination, those fees are noted — however, there’s no way of knowing how they break down at the unit level or if the next shipment will incur the same costs.

1. Costs from many sources in different formats

When a manufacturer has a list of supply chain partners and cost information in many different charges, currencies, and other data types it must deal with several issues:

Reconciling the different units, formats, and currencies

Tracking down late or incomplete information

Attempting to compare estimates with incongruent data

2. Diffi culty assigning cost to specifi c product

Charges can come in on varying levels, from order to ship-ment to bill of lading. Often these costs are collected after the fact and never tracked back to the product line. As a result, manufacturers are forced to work with:

Limited information on the SKU level

Documented costs that are impossible to break down and allocate to individual products

© GT Nexus, Inc.

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Companies can’t see all the costs associated with a landed product, so they make decisions based on unit cost alone.

The Challenge

FirstCost

Freight

Duties

FirstCost

Freight

Duties

"Overhead"Drayage

ConsolidationFees

TypicalCost

RecapActualCosts

AgentFees

DeconsolidationFees

Margin Loss

Traditional approaches to determining landed cost often uncover “surprise” costs after the product is delivered — too late to make corrective adjustments.

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Plant

Plant

NetworkConnectivity

Agility

Customers

Customer

DC / Warehouse

Plan

Actual At-Risk DelayDynamic ETA

B

A

Sense more accurately

Operate more efficiently

Respond faster

Make better decisions

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The SolutionTraditional software leaves a signifi cant information gap in the time a shipment leaves origin to the time it’s delivered. This missing data lowers the accuracy of any cost or profi t projec-tions and makes it diffi cult to compare suppliers.

Manufacturers can counter this effect by adopting a cloud-based platform that allows them to pull real-time data on their supply chain costs from their network of logistics partners. This allows them to monitor actual costs as they are incurred, mea-sure them against targets, and audit fi nancial performance.

A cloud-based solution automates the capturing of supply chain costs and connects data to the SKU level. Managers can then use tactical day-to-day operational reports for orders and shipments in motion to make essential supply chain decisions. Landed cost data becomes a strategic analytical tool for trend-ing and measurement.

Measure landed cost data on a cloud-based platform.

Track actual costs and lead times as they occur

Automate allocation process to apply costs to the correct level (SKU, shipment, business line)

Use analysis engine to compare actual against target estimates

How to use it to improve landed cost estimates:

1. Understand the total cost components of a SKU/item

2. Compare cost estimates to actual cost per item

3. Make more informed sourcing decisions by taking actual product margin into account

4. Make adjustments to course correct in real-time

Value PropositionsWith good analytics, managers can decide to change production strategies, bring on new suppli-ers, and estimate landed costs based on high-quality data from their supply chain network. They will have the tools to:

1. Increase profi tability

Lower COGS by accurately measuring total cost of a part

Improve labor effi ciency and lower admin costs by eliminating manual processes

2. Improve sourcing activity and target costing

Accurately measure total cost and actual lead times against estimates to plan for the future

Collaborate with partners on reducing costs and lead times

3. Capture end-to-end supply chain costs including trans-portation costs, handling fees, brokerage fees and document fees for better margin visibility

Automate landed cost determination (no more spreadsheets)

Save time and resources by reducing re-keying of cost data in AP/GL systems

Supply Chain Cost Analytics and the Networked CompanyTo understand true landed costs and how they impact mar-gins, companies must transform themselves from silo-based, inward-facing corporate operators to interconnected, highly agile business network orchestrators.

It’s impossible to predict mar-gins on the SKU level without real-time data from supply chain partners. Cloud changes that, fi lling the information “black hole” with actual costs as they are incurred.

From order to delivery, costs must be accurately captured and factored into expected product margins.

Against targets/plansFinancial liabilities

Landed costActual vs. target cost

Charges/invoicesFinancial performance

$ $ $$

$ $ $

Monitor Measure Audit

OnOrder

InProduction

InTransitAt Origin DeliveredIn

Customs Inland

Measure

Actual Costs