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Landed cost application overview

4–6 minutes
Summary: Articles List

Business requirement

When we purchase stocked items, the K-user company can face different agreements of splitting the landing cost and the ownership transfer with the sellers. Sometimes, the ownership is transferred when the company receives the product at the destination, and the vendor fully supports the cost. On the contrary, we can have some cases where the buyer supports all the landing charges, and the ownership is transferred when the product leaves the original warehouse. Between these extremes, we can find different variants of grey where the charge and the ownership transfer can be split. For more details and to have an idea of the different “colorimetry” cases, you can consult the international delivery convention standard at this link: https://en.wikipedia.org/wiki/Incoterms.

Based on the business case handled, the k-user requirement can be translated on different ranges of exigence requests to track the ownership transfer, inventory stock value, product availability date, vendor invoice posting and cost absorption.

Architecture solution

From an architectural point of view, we have a bunch of things to consider. If we analyze the requirements, there are different dimensions to consider during our solution design:

  • Shipment information: the shipment is structured by different elements that the k-user wants to trace. Typically, at least to understand which product is linked with which shipment and purchase order. But about the shipment, it’s preferable to track the container and the carrier, to have a piece of more accurate information about the shipment structure;
  • Warehouse and ownership transfer: the ownership transfer is a matter of warehouse on-hand and inventory value. When the product is in transit, we should put the items in a good-in-transit warehouse, and this warehouse should not be included in the inventory stock value.

Then, in the second stage, when the company becomes the effective product owner, those products must be considered in the inventory stock value because they become yours. So, we will move the product from the good-in-transit warehouse to the destination warehouse.

It’s important to analyze the situation properly with the warehouse and MRP team because if the products are moved to the destination warehouse, they may not still be available to satisfy the company’s demand. For example, the products can still be in the ship vessel.

From the D2S perspective, the solution can be to put the items in a specific transfer attribute (like location or status) to indicate that this product is unavailable. Then, when the items effectively arrive, transfer them to the proper receipt attribute (location or status) to unblock the availability.

  • Availability date: It’s not mandatory, but sometimes the K-user wants to track the shipment journey. The competitive advantage of this tracking is to update the stock availability date on the purchase order. That increases the precision of an MRP calculation because item availability coverage is calculated with higher precision and helps prevent incidents.
  • Costing tracking and absorption: From the financial stream, we have three things to analyze for each landing charge: who supports and absorbs the charge, who receives the third-party invoice (typically carrier), and shall we perform some accruals to trace the invoice to be received?
    • Cost absorption: The generic rule to follow is that when the charges are the competence of your k-user company, we want the landing charge to be absorbed by the items purchased. That is because we want to include those items in the cost of sales. However, this is not always true because it depends on the user costing model requested. This generic rule is correct whether the costing model differs from the standard cost. Otherwise, if the costing model is based on the standard cost, the landing charge should be considered as a variation amount (because the cost of a good sold applied is set by standard cost value);
    • Landing charge invoice: Whether it’s the K-user company that supports the landing charge, we simply post the invoice from different vendors (purchase vendor, carrier, broker, etc…). Alternatively, if the charge is supported by the purchase’s vendor, we need to deduct the charge amount from its vendor invoice;
    • Accrual: It’s necessary only if the company should post the third-party invoice. We need to accrue the expense in order to trace the invoice to be received.

D365FO solution:

The Landed cost module can cover these business requirements. Considering the business case’s complexity and the module configuration variability, we will expose the topic in different articles. Go through these different links to read the topic of your interest:

  • Shipment structure and information: A brief review of the shipment’s elements and the information traced;
  • Let’s get started with landed cost module: It contains the basic configuration and process to set and run the landing cost. The other article can be considered as an extension and focus on a specialized topic;
  • Landing charge absorption: How to apply a landing charge and trigger the absorption it;
  • Landing auto-cost: How to set the system to recognize the cost in your shipment automatically.
  • Landing cost estimate: How to see the estimation of the landing charge applied by the system;
  • Landing standard cost: how to apply the standard cost to the landing module;
  • Landing third-part invoicing: How to perform the invoice to receive accrual and post the third-part invoice (like the carriers);
  • Tracking journey: Basic concept to understand you to track the landing journey and the upgrade of the available date on the purchase order line;
  • Landing under and overt delivery: How to handle the difference between quantity received and invoice quantity: https://daxmsdynamics365.wordpress.com/2023/12/21/landing-under-over-delivery/
  • Landing materials receipt without WMS: how to handle the receipt of the material without the WMS;
  • Landing materials receipt with WMS: how to handle the receipt of the material with the WMS;

Source and additional materials

A brief resume, and thanks for my online source::

A special grateful mention goes to my colleagues who helped me better understand this module. Thanks to William Maitland, Isaac Serhan and Alessandro Raco for their explanations!

One response to “Landed cost application overview”

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