Landed Cost Models Presented by Greg Andrews February

Landed Cost Models Presented by Greg Andrews, February 14, 2008

Agenda o o o Define landed cost Discuss landed cost modeling Look at different types of landed cost models Drill down into a high tech sector model Summary Questions and Answers

What are Landed Costs? o Before we get into examples of landed cost models, we must first define landed cost?

Landed Cost-Definition o Google = 372, 000 listings

Landed Cost - Definition o Commonly, the total cost of a landed shipment, including purchase price, freight, insurance, and other costs up to the port of destination, in some instances, it may also include the customs duties, taxes, and fees levied on the shipment (logistics focused) n Source Business Dictionary. com 020508

Landed Cost – Better Defined o Total landed cost is the sum of all costs associated with making and delivering products to the point where they produce revenue – usually your customers door. o Great definition, but how do you get your arms around such a task? n Source Inbound Logistics. com, Robert Bianco, 3 PL Line, Jan, 2006

When should we look at Landed Costs? o o o Before a product launch? Before deploying a product overseas to offshore manufacturing Before we change a distribution network? Before we choose an alternate mode of transportation Before we choose an alternate gateway or port?

Who should be looking at Landed Costs? o o o o o C-Level Managers Finance Supply Chain Operations Planning & Forecasting Outsourced Manufacturing Internal Manufacturing Procurement Finished Goods-Raw Material Distribution Logistics-Transportation-Compliance Managers

Is there a “One Size-Fits All Model”? o A recent survey conducted by Penn States Center for Supply Chain Research found that of the six global companies surveyed, n n None of the six companies included every category in landed cost decisions The companies had over $10 billion in sales, and represented the metals, industrial, chemical, high tech, and pharmaceutical industries. o Source Supply Chain Digest, November 13, 2007

Landed Cost Model “Oversight” o o o Tend to be freight, transportation, logistics centric Tend not to focus on “ALL” costs Disparate models, do not measure across all discrete functions – channels Cost savings in one area often result in cost increases in another area depending on the industry and supply chain strategy can be quite complex Akin to “herding a room full of wet cats” how do you get them all to go in one direction

What cost factors should go into the model? o Logistics-Transportation o Freight n n o Duties, Taxes, Fees n n o Ocean, Air, Truck Fuel Surcharge Brokerage VAT Forwarding Customs Duty-Fees Manufacturing o Material Purchase n o Labor n n n o Raw material, Suppliers, Vendors Assembly Quality Audit Configuration Shipping Export documentation Testing n n Test equipment Duty, Taxes, Fees

What about miscellaneous or hidden costs? o Incidental Costs? o Travel Expenses n n n o Expedites n n o Air Fare Hotel and travel expenses Contract Manufacturing (soft) expenses rolled into the cost of the product End of Quarter/End of year demand Unexpected Spikes in Demand Sensitivity Analysis o Risk-Supply Chain Disruptions n n o A Port Strike on the West Coast A power Blackout at your CM An Earthquake disrupts communication Your Air Cargo Carrier cannot provide adequate capacity Cycle Time n Do you weigh time in transit against promise to customer

What are my first steps? o o o o Think Strategically View your supply chain as a whole, rather than a series of discrete functions Your goal is to reduce the cost of that whole Think outside the box Nothing is sacred, everything is up for grabs Once you have conceived a strategic approach for lowering total landed cost it is time to model it Run various “what if scenarios” n Source: Inbound Logistics. com, Robert Bianco, 3 Pl Line, January 2006

Let us look now at several different models o o o Process Flow-Cost Factor Model Logistics-Import Model Logistics-Export Model Finance-Change in Mode of Transport Outsourced vs Internal Mfg. Model

Process Flow/with Cost Factors Identified Process Flow – Cost Factor Model

Logistics-Import Model-Ocean-Inland Trucking Logistics Import Model

Logistics Export Model

Finance Model – Change In Mode of Transport Finance – Change of Model

High Tech Outsourced Vs Internal Manufacturing Model Outsourced Manufacturing Spreadsheet

Summary-Conclusion o o o Is my model the “Holy Grail” ? not quite A model’s quality depends on the quantity and quality of the data it is built upon It depends on the cooperation of cross-functional team participation It is time-dependent, the more complex your supply chain, the longer it takes to develop a model Every supply chain process or function you compromise from the model affects other processes either positively or negatively Supply chains are perpetually changing, so the right model today can easily be wrong tomorrow n Contributing source: Inbound Logistics. com, Robert Bianco, 3 PL Line, January, 2006

Questions, Answers?