Trade and Global Sourcing Summit: Total Cost Management and Landed Cost Models (Dispatch 6)

The third panel, featuring MetalMiner's Lisa Reisman and Echo Logistics' Sean Devine, is now underway at International Trade Policy Breaking Point (join us live via: this link). Perhaps the most pragmatic discussion for global sourcing professionals as part of this event, the exchange between these two experts is focused on total landed cost models. As part of the discussion, Sean is fundamentally challenging the concept of effective risk management in supply chain and accurate total cost models, given the inherent uncertainty in managing even basic line items in total cost (which can have material variability and uncertainty). Lisa, in contrast, is focusing on explaining the basics of total landed cost.

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.

If you'd like a copy of the Spend Matters / MetalMiner total cost model, please drop us a line or sign up for the event (it's available for download immediately).

- Jason Busch