Oracle Applications: LANDED COST MANAGEMENT

Over View:

Oracle LCM helps to manage the estimated cost and actual landed cost for an item purchased from the supplier. During the time when an item is acquired from the supplier, the “Real” cost associated includes insurance, transportation, handling, storage costs, container fees, and import or export charges.

LCM is used in two situations like:

1. Landed cost as a Pre Receiving Application

2. Landed cost management as a service.

Landed Cost as a Pre Receiving Application:

This helps us to determine and calculate the estimated landed costs before the receipts of items into inventory. Partial receipt is not allowed as this is a standard functionality of LCM.

Landed Cost Management as a service:

This process is actuated after the receipt of the item into the inventory. Here we do create and match the invoices against those receipts, this price information is used to calculate the actual landed costs for the item.

With the Help of Oracle Landed Cost Management the estimated cost and actual landed cost of the item could be analysed. This gives you valuable information about the landed cost for an item and where cost improvement can made.

Features of LCM:

Charge Management:

This collects an unlimited number of estimated charges and enables to configure those charges to the shipment lines or the shipment groups. The charges are applied based on Weight, quantity, or the value of the items being traded. These are governed by the behaviour as how they should be included in the total landed cost calculation. On receiving the actual amount, charge management helps to review the earlier estimate with the new value recorded.

Landed Cost Calculation:

Oracle LCM helps us to calculate the estimated landed cost based on charges assigned manually and automatically based on the configuration of charge lines. Calculation of Landed cost is done by prorating the actual invoices and proportional taxes as to obtain the variances between what was estimated to that charged.

Shipments Workbench:

Financial flow and physical supply chain don’t mirror each other. Oracle LCM provides visibility and traceability by linking both these flows. Using LCM workbench we could view the real time accrual updates towards a particular receipt or shipment and helps us to estimate the percentage particular cost component associated for a particular item.

Benefits of Using LCM:

1. Maximize profit by analysing the real product cost and determines to reduce cost in certain areas. This even helps to sink the estimated cost in line with the actual cost and also monitor product performance against profitability targets.

2. Increase Competitiveness by understanding the various charges levied from various sources and pick the lower cost foreign locations and price the goods with good understanding of the charges associated.

3. Increases Visibility by capturing all the acquisition and material cost factors helps the organization to link their product supply flows with the financial processing and reporting.

4. Compliance is ensured by having a confident financial report and cost declarations.

Integration of Oracle LCM with other Modules:

Purchasing:

The extended supply chain charges are based on the Purchase order shipment lines. This provides visibility in purchasing module for Purchase order data to build expected shipments for charge application and subsequent landed cost estimations calculations resulting in error elimination as being automated. The estimated cost calculation could be performed. Helps In three way match at AP level.

Oracle Purchasing (Receiving):

The estimated landed cost for LCM shipment is dependent on receiving transaction. Later the estimated cost is transferred to cost management to update inventory valuations and accounting.

Oracle Payables:

Invoices created in Oracle Payables provide the actual cost information that supports the actual landed cost calculations that occur in Landed Cost Management.

Oracle Advanced Pricing:

Advance pricing helps to automate the application of required charges, fees, duties and taxes for LCM shipments.

Oracle Landed Cost Management as a Pre-Receiving Application

Oracle LCM can be used as Pre-Receiving Application. The estimation of Landed cost is required before the entry of Receipts. On finalization of the landed cost, information is passed to Receiving during the receipt of the items based on the LCM shipments. LCM enabled receiving doesn’t allow to change the quantity so as to enhance the misallocation of charges in costing. Receipts are generated using the estimated Landed cost.

LCM calculates the estimated landed cost for the shipment as follows:

Price and taxes for the item on the associated purchase order.

Charges generated through the integration with Oracle Advanced Pricing or manually entered in Landed Cost Management.

After invoices are created and matched to the receipt of the item in Oracle Payables actual price information is passed to Landed Cost Management using two concurrent programs (Matches Interface Import and Submit Pending Shipments)

HIGH LEVEL PROCESS FLOW OF

1. Purchase order for an item is created by selecting the ship-to organization that has pre-receiving in LCM enabled organization. Ensure is done to see that the match option is at Receipt for each purchase order line.

2. Approve the purchase order

3. Create a shipment for the items referenced on the purchase order using the Landed Cost Management Shipments Workbench

4. Create shipment lines for the items referenced on the purchase order using the Landed Cost Management Shipments Workbench.

5. Generate charges for the shipment using the Landed Cost Management Shipments Workbench.

6. Manage charges for the shipment using the Landed Cost Management Shipments Workbench. View or change charges that were created through the generate charges process. Add new charge lines for the shipment.

7. Manage associations for the shipment using the Landed Cost Management Shipments Workbench

8. Validate the shipment (price tolerance and so on) using the Landed Cost Management Shipments Workbench.

9. Calculate estimated landed cost for the shipment using the Landed Cost Management Shipments Workbench. The Calculate process performs the validation process during its processing. Hence, the Validate process does not need to be run separately.

10. View the estimated landed cost that was calculated using the Landed Cost Management Shipments Workbench.

11. Submit the estimated landed cost for the shipment using the Landed Cost Management Shipments Workbench. At this point you will no longer be able to modify the estimated landed cost for the shipment.

12. Create Receipt, by selecting the operating unit and the source type as LCM.

13. Quantity fields are disabled to prevent the partial receipts, as pre-receiving application is used. This is to overcome the misallocation of charges in costing.

14. After the delivery, of items, the following steps occur:

1. Item cost for the item is updated in Inventory with the estimated landed cost.

2. Accounting accrual entries for the receipt are created using the estimated landed cost.

15. Create an invoice for the receipt

16. Match the invoice to the receipts

17. Validate the invoice.

1. After invoice validation the actual invoice information is populated into the Landed Cost Management interfaces.

18. Run the Matches Interface Import concurrent program using Landed Cost Management. This program imports the matched information from the Landed Cost Management interface tables into definitive tables. This process also sets the Landed Cost Management shipments with Pending Matching field to Yes. At this time, the actual landed cost calculation has not been performed yet. Oracle recommends that this program be scheduled to run periodically in order to not require any user intervention.

19. Run the Submit Pending Shipments concurrent program using Landed Cost Management. This program performs the submit process again and calculates the actual landed cost for the Landed Cost Management shipment. After this process completes successful you can view the actual landed cost using the Shipment Hierarchy and Landed Cost Detail pages in Landed Cost Management.

Profile Options:

For LCM :

INL: Weight UOM Class: Weight

INL: Volume UOM Class: Volume

INL: Quantity UOM Class: Quantity

INL: Default Currency Code for QP Charges Generation: USD

INL: Default Currency Conversion Type for QP Charges Generation: Corporate

INL: Default Shipment Type for Open Interface: ST-5873

For Advanced Pricing :

QP: Licensed for Product = Purchasing (This profile option is enabled only on user level )

QP: Blind Discount Option = yes

QP: Pricing Perspective Request Type = Purchase order