What's the easiest way to compare global and local sourcing costs?

1 What is total landed cost?

Total landed cost is the sum of all the costs associated with sourcing, transporting, and delivering a product or service from a supplier to your location. It includes the purchase price, freight, insurance, customs duties, taxes, and any other fees or charges that may apply. By calculating the total landed cost of each supplier, you can compare them on an equal basis and see which one offers the best value for your money.

2 How to calculate total landed cost?

In order to calculate the total landed cost of a supplier, you need to gather and add up all the relevant cost elements for the product or service you are sourcing. These costs may vary depending on the type, origin, destination, and quantity of the product or service, but some common ones include the purchase price in their currency, currency conversion based on the exchange rate at the time of purchase, freight and insurance for transporting the product or service, customs duties based on the tariff rate and value of the product or service, taxes such as sales tax or value-added tax, and fees and charges for services or documents related to the sourcing process.

3 How to compare total landed costs?

Once you have calculated the total landed cost of each supplier, you can compare them by using a simple formula: TLC difference / TLC of local supplier x 100. This will give you the percentage difference between the total landed cost of the global supplier and the local supplier. For example, if the total landed cost of a global supplier is $120 and the total landed cost of a local supplier is $100, the formula would be: (120 - 100) / 100 x 100 = 20%. This means that the global supplier is 20% more expensive than the local supplier.

4 How to use total landed cost analysis?

Total landed cost analysis is a useful tool to compare global and local sourcing costs, but it is not the only factor to consider. You also need to evaluate other aspects of the suppliers, such as their quality, reliability, flexibility, responsiveness, innovation, and sustainability. You may be willing to pay a higher total landed cost for a supplier that offers superior performance, service, or value in these areas. Conversely, you may avoid a supplier that has a lower total landed cost but poses risks or challenges in these areas. Therefore, you should use total landed cost analysis as a starting point, not an end point, in your sourcing decision.

5 How to improve total landed cost analysis?

Total landed cost analysis is not a static or fixed process. It is a dynamic and ongoing process that requires constant monitoring and updating. You need to keep track of the changes in the costs and benefits of your suppliers, as well as the market conditions, customer preferences, and competitive pressures that affect your sourcing strategy. You also need to look for opportunities to reduce or optimize your total landed costs, such as negotiating better prices, terms, or discounts with your suppliers, consolidating or diversifying your shipments, choosing the most efficient or effective transportation mode, or taking advantage of tax incentives or exemptions. By doing so, you can improve your total landed cost analysis and make smarter and more profitable sourcing decisions.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?