Use Landed Cost in Dynamics 365 Supply Chain Management to automatically capitalize tariffs and freight fees

Is your business impacted by recent tariff announcements? Managing the costs associated with importing goods is more crucial than ever for maintaining profitability. Dynamics 365 Supply Chain Management (D365 SCM), offers a powerful solution with its Landed Cost module, which automates the capture and capitalization of tariffs and freight fees. This blog will explore how the D365 SCM Landed Cost module simplifies this process, ensuring accurate cost management and improved financial visibility.

A component of the Microsoft Dynamics 365 Finance & Operations (D365 F&O) solution, Dynamics 365 Supply Chain Management (D365 SCM) is designed to optimize supply chain operations, utilizing AI, machine learning, and mixed reality to streamline production, transportation, and asset management. Whether used as a standalone solution to address specific challenges or integrated with Dynamics 365 Finance for a complete ERP system, D365 SCM can transform your supply chain operations.

Landed cost refers to the total expense of purchasing and delivering goods to their final destination. This includes the purchase price, transportation fees, customs duties, taxes, insurance, and other related costs. Accurately calculating landed cost is essential for businesses to determine the true cost of their products and set appropriate pricing strategies.

Dynamics 365 Supply Chain Management’s Landed Cost module is designed to streamline the process of capturing and capitalizing additional costs associated with importing goods. Here is how it works:

D365 SCM can automatically estimate the tariffs and freight fees using Auto costs. The estimated cost will then automatically be replaced with actual costs when the Invoice for the charge is posted. Auto costs can be applicable to one or more cost areas such as the entire Voyage, each shipping container, folio, an individual item, or group of items, or an order basis at the purchase order or transfer order level. Cost areas enable the system to apportion costs across the purchase order lines in a cost area.

For example here a 25% Duty has been set up to be automatically calculated for each voyage created regardless of shipping company or port.

The freight fee is charged per container; the container size and the port of entry also influence the estimated freight fee. In this example, we see two types of freight calculated per container. Each container size and port of entry combination has its own auto-cost setup. The applicable auto cost will be applied to the landed cost estimate when the Voyage costs are estimated.

If there are multiple shipping containers on a voyage, the freight will be applied for each shipping container and applied across all the items in the container.

This configuration ensures that all relevant charges are estimated in item cost; the automation removes the need for manual calculations, reduces redundant tasks, and decreases the risk of manual errors and omissions.

Once the additional costs are captured, D365 SCM allocates them to the appropriate inventory items. This allocation can be based on various criteria, such as weight, volume, quantity, or value of the goods. The system then capitalizes these costs, adding them to the inventory value. This ensures that the full cost of the goods is reflected in the financial records. The allocation types can be mixed, with each charge having a different allocation charge. In the above example, the Duties are allocated based on the value of the goods, while the freight fees are distributed by weight.

The applicable auto costs are applied to the cost of the item automatically. The estimated landed cost is added to the value of the item automatically when the purchase order is received. If the actual cost is known at the time the purchase order line is received, it will be used. The estimated costs are used as a placeholder until the invoice for the charges has been posted. Once the invoice for the charge has been posted, it will automatically make any adjustment needed to the value of the item. By automating the capture and capitalization of tariffs and freight fees, Dynamics 365 Supply Chain Management provides businesses with enhanced financial visibility. Accurate landed cost calculations enable better decision-making, improved pricing strategies, and more precise profit margin analysis.

• Better decision-making: With accurate and up-to-date cost information, businesses can make more informed decisions regarding pricing, sourcing, and inventory management. This helps with optimizing operations and maximizing profitability.
• Improved pricing strategies: Understanding the actual cost of goods allows businesses to set more competitive and profitable pricing strategies. This can lead to better market positioning and increased sales.
• Precise profit margin analysis: By having a clear picture of all costs involved, businesses can conduct a more precise profit margin analysis. This helps in identifying areas where cost savings can be achieved and profitability can be improved.

D365 SCM’s Landed Cost module also helps businesses stay compliant with international trade regulations. The system also provides detailed reports on all import-related expenses, making it easier to comply with customs requirements and audit processes. Dynamics 365 SCM improves traceability with comprehensive and organized records of all landed costs to ensure a smoother audit process.

Business users can expect the following benefits when using the Landed Cost module in Dynamics 365 SCM:

• Accuracy: Automated data capture reduces the risk of errors and ensures accurate cost calculations.
• Efficiency: Streamlined processes save time and reduce administrative burden.
• Visibility: Enhanced financial visibility supports better decision-making and strategic planning.
• Compliance: Comprehensive reporting helps maintain compliance with trade regulations.

Sample report:

Managing landed costs is a critical aspect of global trade, and the D365 SCM Landed Cost module offers a robust solution for automating this process. By capturing and capitalizing tariffs and freight fees, the D365 SCM Landed Cost module ensures accurate cost management, improved financial visibility, and compliance with international trade regulations. Embrace the power of D365 SCM to streamline your cost management processes and drive business success.

Contact Rand Group today to learn more about how Dynamics 365 SCM can transform your cost management strategies. As your trusted Dynamics 365 Supply Chain Management partner, Rand Group offers expert guidance and support to help you maximize the benefits of this powerful tool. Reach out to us for a personalized consultation and take the first step towards optimizing your landed cost management.