According to Lisa, many companies overlook trade finance and inventory carrying costs in global sourcing. It's critical to understand the finance cost, she suggests, in the global sourcing equation. Yet even more fundamental to total cost management is looking at basic price decomposition on a local basis. These include the cost of raw materials (e.g., scrap steel, alloying elements in the metals area), energy (electricity, coal, etc.) and wages / financial cost elements (e.g., analysis costs, wages including SS taxes, depreciation and financial charges).
When it comes to total landed cost models for global sources, understanding supplier profit is not as easy as it might first appear. Consider the importance of taxes on value-added components, profit, overhead and sales costs. Moreover, when factoring into account both supplier profit and total cost, it is also essential to look at other cost decomposition elements ranging from export agent fees, export duties, basic rebates and cost/price FOB. Lisa suggested in the discussion that the expertise inside many organizations to look at these individual total cost areas often exists in different areas of the organization, but are often not brought together well by a single team.
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- Jason Busch