The new Dynamics 365 Landed Cost Module aims to improve freight importing through financial and logistical control across the inbound shipping process.
Organizations often have global supply chains with international suppliers, exposing them to high tariffs, long lead times, and expensive inbound transportation costs. In this environment, doing business in a cost effective and predictable way requires software designed to support users and their objectives. Specifically, finance and supply chain software included in the Dynamics 365 Landed Cost Module. Landed costs can add 20% to 40% or more to the base cost of goods and long lead times can add stress to the supply chain planning process. The complicated nature of global supply chains necessitate software to control logistics and finances during the importing process.
The Microsoft Dynamics Landed Cost Module in the Dynamics 365 Finance & Supply Chain solution has features that support the user in keeping track of their landed costs along a voyage. For a full list of features in this new module, visit: Microsoft’s Landed Cost Module page. This article will explain the importance of the new Microsoft Landed Cost Module, and how it supports global supply chains.
These Journey Template and Auto Cost features in the Dynamics 365 Landed Cost module allow users to define these values upfront, and then simply invoke them to quickly create accurate voyages. As actual landed costs are collected from supplier invoices, and service supplier contracts are updated, these estimates can be refined over time.
Microsoft ERP and WMS users engaged in international trade must deal with a list of new terminology and costs that directly affect global procurement. This starts with Incoterms that define the point of ownership change and which party pays for what transportation costs. Incoterms are defined by the International Chamber of Commerce (ICC) as “International Commercial Terms” of delivery. For a comprehensive list of Incoterms, there are numerous resources available. The most common ones are described here, in the order that indicates a progressive change of ownership from beginning of the transportation process to the end.
All subsequent Incoterms are a subset of those tasks and costs. For example:
There are other Incoterms used in international trade that cover several other less common scenarios, but those defined above are the most used. They range from zero responsibility by your supplier beyond their shipping dock at EXW, to a substantial part of the journey being covered by the supplier in CIF. As we move from EXW to CIF, the supplier is bearing more cost and more risk, as well as delaying the point of ownership change, and therefore the invoice due date. As with any business process, we can expect that our costs will go up to cover those risks and delays, and possibly the creation of transportation profit for the supplier. Therefore, to the extent the buyer can take responsibility earlier in this process and assume that risk, they will have more control and lower costs.
Another common scenario that buyers face while engaged in international trade is dealing with payment terms that dictate that the goods invoice is due at the point of ownership change based on the Incoterm. This means that buyers must pay for goods before they are received and counted. Furthermore, based on where that change of ownership occurs, the buyer will also be receiving invoices for all the other services not covered. These invoices could be from the goods supplier or several other vendors. The invoices are received over time with costs based on the entire shipment, each container, the vendor POs, or the goods themselves.
There is another common Incoterm that represents the complete absence of the buyer’s involvement in this process. As such, it is the costliest and provides the least control from buyer’s standpoint.
The tradeoffs between various Incoterms that define portions of the importation process that buyers choose to control will have a significant impact on their costs. The ability to post vendor invoices before physical receipt of goods, the ability to subsequently receive (owned) goods-in-transit, and the ability to adjust over/under deliveries after physical delivery and count verification, are all supported by added capabilities in Dynamics 365 Landed Cost.
Now that the impact of Incoterms have been established, we can move on to understanding duty calculation. Duties are derived from tariff schedules based on the Harmonized System (HS), or in the United States, Harmonized Tariff System (HTS) codes. These define duty rates on imported goods. To determine the duty cost for imported goods, a buyer needs to know several things about them. Those include:
Many organizations find it necessary to enlist the assistance of third-party agents or brokers in countries where they do a large amount of international procurement to coordinate their processes. These include consolidators that work across a number of local suppliers to combine multiple POs and goods into common containers to maximize the cube or weight to full container levels to reduce shipping costs. Moreover, organizing local transportation providers to get multiple suppliers’ goods to the port of exit to take advantage of favorable carriers, shipping rates, and sailing schedules. In addition, possibly handling payments to local carriers and port costs to consolidate those costs into a single invoice. These third-party agents take on many forms that will be discussed in a later article.
Duties represent a significant added cost to imported goods. The ability to define them for each of your products and the destination countries that you import into is a valuable feature of Dynamics 365 Landed Cost.
The Dynamics 365 Landed Cost Module provides the tools to manage this data, in totality, as Auto Costs providing the financial and supply chain visibility your finance organization will need to control costs. Auto Costs are typically defined:
Auto costs are based on a number of variables including the Incoterm, container type, service vendor and carrier rates, valid date ranges, etc.
Furthermore, the landed cost module provides financial visibility and invoice management across the landed cost business process. It will provide your supply chain managers, buyers, planners and sales personnel with complete visibility of availability of goods involved in a much longer lead time and more complex inbound transportation process with Journey Templates to identify all transport legs and activities, including their lead times.
The Dynamics 365 Landed Cost Module provides a comprehensive solution to an organization’s inbound logistics and landed cost needs.
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