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Oracle Landed Cost Management Overview

Posted on November 28th, 2012 by Sanjit Anand ||Email This Post Email This Post

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Oracle Landed Cost Management enables you to manage estimated and actual landed cost for an item purchased from a supplier .

Using Oracle Landed Cost Management you can determine the “real ” costs associated with acquiring items including insurance, transportation, handling, storage costs, container fees, and import or export charges.

Knowledge and visibility into these trade costs help organizations better evaluate new product plans, price their items, and negotiate contracts with both suppliers and customers.

Oracle Process Manufacturing Financials supports Landed Cost management (LCM), a web based application which is part of Oracle E-Business suite and a milestone for customers to track and control the cost of landed goods.

This product is being integrated with logistics, procurement, and financial applications to provide a comprehensive landed cost tracking solution.

Oracle LCM is integrated out of the box with following modules of Oracle EBS :

  • Oracle Purchasing
  • Oracle Inventory
  • Oracle Cost Management
  • Oracle Payables
  • Oracle Advanced Pricing
  • Oracle Transportation Management

Oracle’s Landed Cost Management application is a new product released on E-Business Suite r.12.1.

Using Oracle Landed Cost Management you can first estimate the landed costs for the items and then you can update those costs with the actual landed costs as they become known.

Oracle Landed Cost Management gives you the option to determine and calculate estimated landed costs before the receipt of the items into inventory (Landed Cost as a Pre-Receiving Application) or after the receipt of the item into inventory (Landed Cost Management as a Service). Then when you create and match invoices against those receipts this price information is used to calculate the actual landed costs for the item.

Within Oracle Landed Cost Management you can view the estimated and actual landed costs for an item side by side.

This gives you valuable information about the landed cost for an item and where cost improvement can made.

During the processing of landed costs using Oracle Landed Cost Management, inventory valuations for various cost methods are maintained providing better visibility into individual items profitability and an organizations outstanding exposure.

This data provides insight for item forecasting and budgeting and provides clear evidence of the detailed accumulation of expenses for regulatory requirements and reporting.

Features of Landed Cost Management

Oracle Landed Cost Management provides several features. A few of the key features are:

  • Charge Management : Oracle Landed Cost Management collects an unlimited number of estimated charges and enables you to configure how theses charges are applied to a shipment line, a group of lines within a shipment, or an entire shipment. It applies these charges based on weight, volume, quantity, or the value of the items being traded. These charges can be categorized by different cost factors which will ultimately govern the behavior in how they are included in a total landed cost calculation. Once actual amounts are received, Charge Management records the new value for comparison with the earlier estimates.
  • Landed Cost Calculation : The Oracle Landed Cost Management Calculation process provides the ability to calculate the estimated landed cost based on charges manually assigned and automatically allocated based on the configuration of the charge lines. It also calculates the actual landed costs by prorating the actual invoices and proportional taxes to obtain the variances between what was estimated and what was charged. Cost components summed in the calculation remain stored at the most granular level for detailed tracking of charge amounts while variances are updated to the appropriate accounts.
  • Shipments Workbench : It is common that the financial flows do not mirror the physical supply chain transactional flows. Oracle Landed Cost Management helps to link these two flows together and provides visibility and traceability from one to the other. With the Landed Cost Management Shipment Workbench, companies can view the real time accrual updates for a particular receipt or shipment. They can validate the accuracy of a suppliers estimate by comparing estimated and actual costs and can view the percentage of a particular cost component for a particular item. Additionally, you can make use of all the flexible Oracle and E-Business Suite tools to meet your own customized reporting requirements.

Benefits from Using Landed Cost Management

Using Oracle Landed Cost Management will provide your organization with several benefits. Oracle Landed Cost Management will help organizations:

  • Maximize Profits : By illuminating “real” product costs, organizations have the opportunity to identify areas for potential cost reduction. It also helps managers more accurately monitor product performance against profitability targets and ensure estimated costs are in line with actual costs.
  • Increase Competitiveness : When all of the charges, fees, duties and taxes are known, companies can more strategically source products and components from lower cost foreign locations. This also enables them to better justify contracts with vendors or potential customers. Ultimately, they can price goods with the full understanding of the charges associated with bringing an item to market.
  • Increase Visibility : Itemizing and tracking all acquisition costs and material cost elements as they apply to a product enables organizations to better link their product supply flows with their financial processing and reporting. In addition, tracking estimated costs as soon as they are known gives decision makers more insight into their exposure for budgeting and reporting purposes before invoices are ever received.
  • Ensure Compliance : Companies can feel more confident in their financial reports and their cost declarations. This includes accurately calculated taxes and consideration of those taxes whose recovery should be excluded from total cost calculations. Additionally, organizations will adhere to country specific requirements for product specific profitability documentation and income tax calculations.

Senario based Implementaion in Metal extraction Company

In typical metal extraction company like Iron and steel , these are type of Charges involved

  • Freight (Inbound and Supplier to Outside Processor)
  • Fuel
  • Vessel
  • Material Surcharges

Understanding the Landed Cost Management Setup Process

Before you can use the Landed Cost Management application you must set up the application. A part of the Landed Cost Management setup occurs in other Oracle E-Business applications and then some of the setup is performed within the Landed Cost Management application itself.

Since Landed Cost Management integrates with several Oracle E-Business applications these applications need to be implemented and set up as well before you can successfully use the Landed Cost Management application. The other Oracle E-Business applications that need to be set up are:

  • Oracle Inventory
  • Oracle Purchasing
  • Oracle Payables (required for actual landed cost calculation)
  • Oracle Cost Management [Conditionally Optional]
  • Oracle Process Manufacturing [Conditionally Optional]

The use of Oracle Landed Cost Management is optional for Oracle Discrete and Process manufacturing implementations.

Plus, Landed Cost Management can integrate with Oracle Advanced Pricing but it is not required.

Oracle recommends that you integrate with Oracle Advanced Pricing so automatic charge calculation will occur in the processing of landed costs. Otherwise, you will have to enter all of the charge lines manually.

Supports Two Basic Flow .

Landed cost management application supports two basic scenarios of receiving flows. First one is Landed Cost management as Pre-receiving and the other is Landed Cost management as Servicing. Details herewith:

LCM as Pre-receiving:

Before going in details, first understand two term

  • Estimated Landed Cost (ELC): Landed costs calculated at the time of receipt based on the one or more estimated charges are called estimated landed costs.
  • Actual Landed Cost (ALC): Landed cost calculations based on the actual invoice prices are called actual landed costs. You can calculate actual landed cost at the time of receipt, if all the invoices are available.

Under this senarios, LCM as Pre-receiving is used when we intend to calculate the Landed cost estimation before we receive the goods in Organization with reference to Purchase order.

The LCM Pre-receiving functionality has the flexibility of varying the item quantity and price defined in Purchase order.

The charges associated with the items are generated and validation is performed manually to derive the Estimated Landed Cost (ELC).

The Pre-receiving details from LCM module are passed on to the Receiving applications and receipt of goods and receiving transaction takes place for the same quantity.

LCM as Servicing:
This is scenario is used when the receipt of items into inventory happens followed by automatic creation of Estimated Landed Cost.

  1. The receipt happens with reference to Purchase order quantity and price, which cannot be changed like pre-receiving.
  2. This scenario is favorable when you assess that the landed cost of an item remains constant with known service providers without much variation to the charges.

The estimation of the item landed cost is also automatically calculated based on the purchase documents price and the charge amounts given by Advanced Pricing.

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