Oracle Landed Cost Mgmt (LCM) Overview
|Oracle Landed Cost Management||INL||9004|
Oracle’s Landed Cost Management application is a new product released on EBS r.12.1.
Landed Cost Management enables organizations to gain insight into all of the “real”costs associated with acquiring products including broker, terminal, insurance, and transportation fees as well as duties and taxes. These costs are initially estimated and updated with actual amounts as they become known allocating them to shipments, orders, and products. Cost methods and inventory valuations are accurately maintained providing better visibility into an individual product’s profitability and an organization’s outstanding exposure. This data provides better insight for product forecasting and budgeting and provides clear evidence of the detailed accumulation of expenses for regulatory requirements and reporting.
1. Charge Management
Many of the charges that apply to landed costs can be complicated in their application, maintenance, and ongoing tracking. These charges are received in a variety of formats at different points during a fulfillment process. These points include product creation, sourcing, order creation, shipping, receiving, and invoicing. Organizing and tracking these charges as soon as they are incurred is key to a company fully understanding their outstanding liabilities.
Oracle Landed Cost Management collects an unlimited number of estimated charges and allows users to configure how charges should be 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 and sends adjustments to backoffice applications.
2. Advanced Pricing for Charge Templates
When organizations try to obtain estimates for a particular charge, they can typically identify standard business rules for when these charges should apply. Oracle’s Landed Cost Management application allows users to enter lists of estimated charges and conditions as to when these charges should apply by using Advanced Pricing. This enables a template of charges to automatically be applied to a receipt. It removes the need for a charge reference spreadsheet or document often found in organizations dealing with complex supply chains and minimizes error prone steps of manually entering charges during a transaction. Once these estimated costs are applied by Advanced Pricing, users have the ability to verify and update them via Oracle Landed
Cost Management’s Charge Management functionality. Ultimately, Oracle Landed Cost Management uses these components to calculate the estimated landed cost.
3. Landed Cost Calculation
Most organizations struggle to find the “real” costs required to take a product to market, to source a product overseas, or to do business with a particular vendor or customer.
Knowing the total actual landed cost of goods provides powerful insight in today’s competitive global markets. When companies use this landed cost information strategically, they can control overall product margin and optimize profitability. Some companies can only estimate this landed cost at best, while others can calculate estimated or actual costs. Often times, this is done in a semi-automated fashion in different places, making it difficult to compare estimates with actuals.
The Oracle Landed Cost Management engine provides the ability to calculate the estimated landed cost based on charges manually assigned and automatically allocated based on the configuration in the charge management repository. It recalculates applicable taxes and can be configured to exclude recoverable tax amounts. 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.
4. Product Cost Dashboard
Financial flows do not mirror physical supply chain transactional flows. Landed cost management helps to link these two flows together and provides visibility and traceability from one to the other. With Landed Cost Management’s dashboard pages, companies can see the real time accrual updates for a particular receipt or shipment.
They can validate the accuracy of a supplier’s estimate by comparing estimated and actual costs and can see the percentage of a particular cost component for a particular item. Additionally, users can make use of all the flexible Oracle and E-Business Suite tools in order to meet their own customized reporting requirements.
5. Tax Recovery
Many countries impose high tariffs on items as they pass through the supply chain. This can sometimes reach into the double digits. As a result, tax recoverability becomes extremely important when organizations are making sourcing decisions and automating inbound flows. Oracle Landed Cost Management factors in tax recoverable amounts in the landed cost calculation, so that estimated and actual landed cost calculations do not overstate the true tax costs.
6. Integration to EBS Supply Chain and Backoffice
Almost all organizations struggle to provide their backoffice systems visibility into estimates of accrued liabilities that are then updated with actual amounts when they become known. This is particularly the case when organizations have a large portion of their trade done across borders or have a complex supply chain. Oracle’s Landed Cost Management is integrated with Oracle E-Business Suite’s financial and supply chain applications to provide this visibility and make implementation straightforward. Oracle Landed Cost Management provides the estimated landed cost to E-Business Suite Inventory Receiving, which then automatically forwards it on to E-Business Suite Cost Management module. Once actual costs are obtained and shared with Accounts Payable, variances are effectively communicated to E-Business Suite Cost Management module.
6.1. Procurement Integration
Procurement Information is often the baseline information used to itemize expected shipment or receiving lines on which extended supply chain charges will be applied. Landed Cost Management provides visibility into E-Business Suite Procurement data in order to build expected shipments for charge application and subsequent landed cost estimation calculations. When manually entering expected shipments the reference information provided by Procurement saves time and decreases errors that might occur without automated access to this information. Once available in Landed Cost Management, expected values received from procurement such as quantity and price can be edited for estimated cost calculation purposes. Furthermore, all the necessary data is provided to help arrive at an accurate three way match once an
invoice for a PO line or charge is entered into Accounts Payable.
6.2. Receiving Integration
It is difficult to gain insight into charges associated with the acquisition of items through an extended supply chain. Often, organizations are not aware of them until an invoice is received. Companies need better visibility into these charges. Additionally, many regions require that all expenses be accounted for at an
item/product level upon receipt. In order to comply with these requirements and provide an accurate calculation of product related expenses, these extended costs need to be estimated and applied to an item at the time of receipt.
Oracle’s Landed Cost Management’s integration with EBS Inventory’s Receiving module enables Receiving to view LCM’s estimated shipments and receive against them. It further calls LCM for a total cost estimation calculation for all receipts whether they originate in LCM or in Receiving itself. These estimations are then forwarded to E-Business Suite Cost Management module in order to update inventory valuations and accounting.
6.3. Cost Management Integration
When organizations are able to estimate landed costs, they often do not communicate those estimates to their backoffice system. This is because they lack an automated method to update these estimates with actual values once they are received. This prevents them from fully utilizing the estimated information in their reporting and decision making processes.
After actual values are received and the true landed cost is calculated in Landed Cost Management, any variances between the actual and the estimate are determined.
Those variances are updated to E-Business Suite Cost Management module which in turn updates the proper accounts and valuation.
6.4. Accounts Payable Integration
Few Accounts Payable applications provide a mechanism to apply and match an unlimited number of charges to a particular procured item line or group of lines.
This means that accurate actual landed cost calculations might be difficult to automatically calculate. Additionally, this prevents tying an actual charge back to any record of an earlier estimated landed cost calculation.
Oracle Accounts Payable allows for unlimited numbers of charges to be entered and applied to procured line items and allows line items to be applied and associate to recovered line items. This information is forwarded to Landed Cost Management which in turn calculates the Actual Landed Cost. These values are compared with earlier estimates to determine if a variance should be communicated to Costing and ultimately to the General Ledger.