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Supply Chain Touchpoints Part 6: The Right Cost
Posted on January 15, 2019 by
The cost of purchases varies hugely based on how inbound merchandise navigates through the supply chain processes discussed in this blog series. Yet most retailers operate restrictive accounting systems dating back to the brick-and-mortar age that assumes all shipments are created equally.
The cost of purchases varies hugely based on how inbound merchandise navigates through the supply chain processes discussed in this blog series. Yet most retailers operate restrictive accounting systems dating back to the brick-and-mortar age that assumes all shipments are created equally. We want to devote this blog to opportunities that accrue when retailers tightly integrate the standalone processes that manage every element of the supply chain cost.
Landed Cost systems pull together the costs associated with brokers, duties, currency fluctuations, freight, etc. Usually these are aggregated and compared against pre-order estimates. To track these costs better, you need a robust feed from the Product table to specify the physical attributes and value of the merchandise being taxed or transported. To provide a framework for analysis, these landed costs should be assigned to purchase order line items and destinations. Otherwise, retailers who have become so dependent on off-shore resources are ill-informed of their true costs and consequently limited in their corrective action.
From a data integration perspective, Accounts Payable is much more than a process to pay suppliers. It’s where many transactions occur that affect the cost of purchases. These include claims, cost and quantity discrepancies, fines, currency fluctuations, pass-through costs, trade discounts, allowances, and returns. Most retailers tied AP with the product line item information on their purchase orders. But the outcome of adjustments is not typically fed back to compute true purchase costs at the channel/product level. This again is flying blind.
Calculating and estimating freight costs is, broadly speaking, a function of the cubic feet of the merchandise in the product category, destination, shipment method and cargo value. In a typical supply chain, it is inconsistent in terms of which of the many parties pays the freight: supplier, shipper, third party logistics, customer, or retailer. Independent of whether the freight cost shows up on your expense line, prudent retailers should be measuring how much it cost to move goods. Well integrated retailers will feed the freight software with accurate information from their product and location tables. Customer shipments require an integration to the customer table. And because freight is a highly-manageable cost, the backend should provide the opportunity to analyze freight cost in any number of ways.
There are many, many points in the supply chain where discrepancies occur: too late, too early, too much, too little, wrong destination, bad quality, wrong cost, etc. The sheer volume and complexity has led some retailers to utilize software to manage discrepancies from discovery through to resolution. To be effective, such software must accept data from anywhere where discrepancies may occur. And data feed to analytics can provide enormous insight into recurring problems with suppliers, shippers, shipping methods, etc.
For retailers who design their own products, Reverse Auction is a valuable tool. They post their design specification on line and invite manufacturers, fabricators, and others to bid. Smart retailers are integrating the data from the product table and supplier table to facilitate the Reverse Auction process.
International trade carries with it many risks – loss, failure to pay, damage, etc. As in every other fee in the survey, costs are determined based on data that can found in your enterprise tables. Integrate the data so it flows seamlessly. Otherwise you compound the discrepancy management problem with errors caused internally. Also, the amount and cost of insurance varies considerably with the type of shipment, country of origin, type of merchandise, etc. Analysis on the backend will point you to make more informed trade-off decisions.
The complexity of international trade usually requires the intervention of a broker whose fees are typically dependent on the value of the shipment. Usually software plays a role in these computations and, as such, are highly subject to change, audit, currency fluctuation, and occasional corruption. Smart retailers are accurately estimating and tracking broker fees by leveraging information from their product and location tables.
Import and export duties are calculated based on the country of origin or destination, cost value of the shipment, and the type of product. Unified commerce complicates this picture as many customer orders are shipped across national boundaries. As we’ve been stressing, with international trade, the cost value itself is anything but static. It makes sense to tighten the integration between customs-calculating software, actual duties, and the other sources of cost components. Furthermore, the international trade climate can at times become volatile due to currency fluctuations, trade wars, labor strikes, wars, and other catastrophes. Unified retailers will tie back these duties through data integration and analytics to the selling channel and product.
You have traveled through the five quintiles of supply chain touchpoints: Product, Quantity, Place, Time and Cost. We’ve identified close to 50 processes where data integration is vital to getting the right merchandise, at the right quantity, at the right time, place, and cost. Digital commerce and international trade have added many layers of complexity that impede the competitive advantage of all but the largest retailers. As we’ve pointed out throughout this series, data integration is the only practical path for retailers who need to compete in this environment. You can’t replace the old systems. It would be too disruptive and expensive. You can’t approach data integration in the old, all-hands-on-deck approach. It’s time to elevate the conversation about data integration to the level of all-important enterprise strategies.
We at RIBA view data integration projects through the lens of an enterprise architecture. We hope this blog series on supply chain touchpoints will in some way add to your understanding of the problem and opportunities in this area.
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