I\u00a0received a great question on a webinar I did today:\u00a0 \u201cWhat\u2019s the difference between a should cost model and a landed cost model?\u201d<\/p>\n
This is a fun question to answer.\u00a0 These two things could be the same in a certain application.\u00a0 But how they are typically constructed and used in practice makes them distinct.<\/p>\n
A should cost model is most commonly used to determine if a supplier\u2019s price is fair in situations where there are too few suppliers for competitive bidding to yield that conclusion.\u00a0 It is designed to answer what a product or service \u201cshould cost\u201d when there isn\u2019t enough information to estimate that intuitively.<\/p>\n
A should cost model usually goes into great detail about the cost components of a product or service.\u00a0 For example, for a piece of furniture, a should cost model would include line items for the cost of wood, the cost of fabric, the cost of hardware, the cost of labor, the cost of packaging, the cost of shipping, the cost of overhead, and the amount of supplier profit.\u00a0 As such, a should cost model can be appropriate for both domestic and international purchases.<\/p>\n
A landed cost model is more typically used in international procurement transactions.\u00a0 The \u201clanded\u201d moniker implies that goods are landing via airplane or boat in a different country from which they were shipped.\u00a0 Landed cost models are designed to determine costs associated with a product when the cost of international logistics are factored in.\u00a0 Because competing suppliers are in different countries and logistics costs vary based on the country of export, landed cost models can be used to guide supplier selection.<\/p>\n
Landed cost models don\u2019t usually provide much detail about the cost of each component of a product.\u00a0 They often just have one line item covering the final cost of the finished\u00a0product itself.\u00a0 The other line items go into detail on\u00a0the costs of the international logistics involved in getting the goods from the supplier\u2019s country to the buyer\u2019s country:\u00a0 inland freight in the supplier\u2019s country, export duties, transportation between countries, import duties, inland freight in the buyer\u2019s country, the cost of third parties such as customs brokers and\/or freight forwarders, etc.<\/p>\n
So, while should cost models and landed cost models both are used to help procurement professionals estimate the expenses for purchased products, there are some key differences between the two.\u00a0 Apply the right title to the right model and look smart!<\/p>\n","protected":false},"excerpt":{"rendered":"
I\u00a0received a great question on a webinar I did today:\u00a0 […]<\/p>\n","protected":false},"author":12,"featured_media":4057,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-3582","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"\n