Total Landed Cost

Related KPIs

Total Landed Cost Interpretation

High TLC values indicate inefficiencies in the supply chain, such as excessive shipping costs or tariffs. Conversely, low TLC values suggest effective cost management and operational efficiency. Ideal targets vary by industry, but organizations should aim to minimize TLC while maintaining quality and service levels.

• Below target threshold – Indicates strong cost control and supplier relationships
• At target threshold – Acceptable performance; monitor for potential increases
• Above target threshold – Signals need for immediate review and corrective actions

Common Pitfalls

Many organizations overlook the nuances of Total Landed Cost, leading to distorted financial insights and missed savings opportunities.

• Failing to account for all hidden costs can inflate TLC figures. Expenses such as warehousing, insurance, and customs fees often go untracked, skewing overall cost assessments.
• Neglecting to regularly review supplier contracts can result in outdated terms. Stagnant agreements may not reflect current market conditions, leading to unnecessary expenses.
• Over-reliance on historical data without considering market fluctuations can misguide forecasts. Changes in fuel prices or tariffs can significantly impact TLC, necessitating regular updates to models.
• Ignoring the impact of logistics inefficiencies can hinder cost reduction efforts. Delays in shipping or poor route planning can elevate costs, ultimately affecting the bottom line.

Improvement Levers

Optimizing Total Landed Cost requires a multifaceted approach that addresses both direct and indirect expenses.

• Conduct regular audits of supplier contracts to identify potential savings. Negotiating better terms can significantly reduce costs and improve overall TLC metrics.
• Implement advanced analytics to track and forecast shipping costs accurately. Utilizing data-driven insights can help anticipate fluctuations and adjust strategies accordingly.
• Enhance logistics planning by adopting technology solutions that optimize routes and reduce transit times. Streamlined operations can lead to lower shipping costs and improved customer satisfaction.
• Engage in collaborative planning with suppliers to align on cost-saving initiatives. Joint efforts can uncover efficiencies that benefit both parties and lower TLC.

Total Landed Cost Case Study Example

A leading consumer goods company faced escalating Total Landed Costs that threatened profitability. Over a year, TLC had risen by 15%, primarily due to increased shipping fees and tariffs. This situation prompted the CFO to initiate a comprehensive review of the supply chain, focusing on cost drivers and operational inefficiencies.

The company established a cross-functional task force to analyze TLC components and identify improvement areas. They implemented a new logistics management system that provided real-time visibility into shipping costs and transit times. Additionally, the team renegotiated contracts with key suppliers, securing better rates and terms that aligned with market conditions.

Within 6 months, the company achieved a 10% reduction in TLC, translating to significant savings across the board. Enhanced forecasting accuracy allowed for better inventory management, reducing excess stock and associated carrying costs. The initiative not only improved financial ratios but also strengthened relationships with suppliers, creating a more resilient supply chain.

By the end of the fiscal year, the company reported improved profitability and a stronger competitive position in the market. The success of this initiative underscored the importance of a holistic approach to Total Landed Cost, demonstrating that strategic alignment and data-driven decision-making can yield substantial business outcomes.