Landed Cost at a glance

Moustafa Abdulrahman
Oracle Fusion SCM Consultant
Mo012st@gmail.com
Why do we need landed cost?
And how does it work?
How to set it up?
Demo.
Why do we need LC?
When you procure something and it arrives at your destination, during that from the supplier to the
inventory, it could accumulate charges while it’s on the way..so these charges could be shipment or
duties or carrier fees or broker fees etc etc..
So you want to have the right evaluation and you want to capture all the additional expenses..one other
part is to help you with the profitability analysis and choosing the right supplier..
Once you have that info captured in the system, you can do a lot of analysis and make a lot of
decision..sourcing or pricing or final costing or profitability analysis as I said earlier, in the cloud there is
the so-called multi-dimensional cube
So we have this cube in our cloud and we use across our several products specially the financial ones..to
do our financial reporting or we use it in cash management or projects and it keeps the records of the
multi-dimensional values on the freight, so you capture the data by dimension and it is coming from
HYPERION and it’s called S-SPACE Cube..recently accquried by Oracle..we’ll see some parts of analysis
available..

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Let us take a simple example,if you have a material PO and you have 40 LAPtops and 20 printers that
you need to buy and you created a PO with two lines as demonstrated..
Now you have to bring the laptops and printers to your location and to bring you have created a service
PO with UPS for the freight, and another service PO with G-Capital for insurance services..
And then bring them to my, if I look at the cost of the laptop, it won’t be 4000 anymore as it’ll take parts
from the freight and parts of the insurance..so how do you associate those POs with the material PO so
these expenses you are encuring? This is what landed cost does..
In LCM we create something called “Trade Operation”
The main purposes of creating it is to link things up..so you kind of distribute these costs to the original
PO and the “Trade Operations” are going to have “Charges” so you have 2 charges..one is the freight
and the other is the charges..so it’ll be like this demonstration:

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And once you are done with this, you are good to go with the LC and when you receive the material PO
this is what is going to be the accounting like:
So this is ok and normal and it’s like any normal receipt accounting you know..now when you receive the
service PO this is going to be the entry:
Now along with it,if I didn’t have any trade operation, this would have been the only entry, but now you
have to distribute the service PO among the item PO (500 for example has to be divided) , so as you can
see the laptop took the bigger piece 400 and the printers took 100 as they took it according to their
values..and if you don’t implement the trade operation you won’t get these additional entries..and not
only that but it’s also going to update the item cost..

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Now you receive another PO from GE
And it’ll get divided also the same way the previous PO was divided..
So that is the estimated costs until you get the invoice but the invoice may vary sometimes,subsequently
you will receive the invoices from suppliers and estimated costs are going to match but if they vary,

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So this additional 100 or 200 should go to inventory as an additional charge so when you the invoices
you are going to match them and that is how you are going to link them up with the trade operation and
you will see the following:
How do you deal with cases when you don’t have service POs?
When you create a trade operation,you’ll specify some estimates so for instance you’ll specify 10% of
item cost and insurance of 20% of the cost..and when I associate this particular trade operation you’ll
share it among the PO.
So it’ll get distributed like this:

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And when you receive the goods,these costs are going to affect the receipt and therefore the costing of
the item..
What is the setup?
It is a very simple setup, you have trade PO and you have trade operation and you have invoice and how
would you map this invoice to the trade operation? Is by some references so when you create this
charge in the trade operation I’ll give it a reference (shipping reference or insurance reference) so you
populate it then the matching will happen automatically..but some cases you won’t have these
references ahead of the time so in which cases you can do this mapping..so this is what we call
reference types,charge names and trade operations templates and cost elements mapping so let us go
and do these setups first and create material PO and do an estimation etc..
So you go to Landed Cost through the home page..and once you go there you have some analytics..go to
the tasks, before we create a trade operation let us go to FSM..
So you have to create the charge names first,then you create the reference types..

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And routes is nothing but when you are entering the freight you want to capture through which route
you are bringing the material, so you can say you are bringing it from China or HK..
The only objective in LC is the “trade operation” you can create it via “Manage Trade Operations
Template”
Click and open the already defined one..
So this is how the template would look like
When you come down,this is where you are going to add the charges..so let us take a look at it..

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Charge name: has it’s own FSM task.
Charge Basis: how do you want to divide the costs among the items, so in our case it’s going to be
according to the price of the item..and then you give the “Rate” on the right based on the item
amount.If you choose “Aggregate” then you can provide some particular amount and it’s then defined
by something called “Allocation Basis” if you had a Service PO then you’ll just enable it and apply it..
When you come down there is “Charge Reference” and when you create a trade operation based on this
template you are going to populate some values..
Down the botton in the “Assignment Rules” you can restrict the “Trade Operation Template”
What is the next step after “Trade Operation Template”?
Now you have to create a “Trade Operation” and a material PO then later invoices..
1-Create a Material PO.
Don’t receive it until you associate it as you want the estimated charges to echo in your inventory..
2-Create a trade operation.
Go back to LC screen and press on tasks then click on “Manage Trade Operations”

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Then “Create Trade Operation” and choose the “Create from template” option
Use your proper template..

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If you have a route that you have created previously from the FSM task just put it.
Click on “Save” , choose one of the charges and press “Edit”

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Go ahead and put some values..
Make sure the “Automatically Associate on match” option is checked..
Press “Save and Close”
Move to the second one and populate some reference as well..
Now since your trade operation is ready, click on “Actions” - update status

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Now the next step is that you have to do the association “Save and Close” before you leave, now the
Purchasing module has to expose it’s POs to LCM so you have to run a program..that actually picks the
POs from purchasing and exposes them to LCM so that you can associate that and without it you won’t
be able to take a look at things..
Navigate to tasks-”Manage Landed Costs Processes”, there are 4 programs in LCM
Make as demonstrated some sort of events and associate the events with the ESS jobs..in our case we
have to run “Prepare Material Purchase Order Data” so submit it by clicking “Schedule Process”,then all
available POs are going to land on LCM..hover over to “Overview” and then to the small tab of
“Processes”
Then click on “Review Purchase Orders for Landed Cost” by clicking on “tasks”
Enter your PO# then you’ll be able to find it..hover back to “Manage Trade Operations” and click on the
desired PO

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Now click on “Associate Default Material Purchase Orders”
Then query the PO#
And you can associate it now with the whole PO or a specific line..

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So now both lines have been associated with the charges..
The next step is to allocate..so go to “Actions” and click on”Allocate Charges”

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Then the amounts are allocated on the PO lines..if the column of the values is not visible hover to
“Actions”---“View Columns” etc
Go ahead and click “Save and Close”
You can requeery and look at the portions

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But they are all still estimated charges..only when you get an invoice then it becomes “Actual”, now go
and receive the PO.
So now go and receive the PO..
Now we need to move all the distributions of receipt and costing so we need to run their ESS jobs.
1-Transfer Transactions from Receiving to Costing. (Receipts Actions)
2-Transfer Transactions from Inventory to Costing. (Putaway Trans)
Now we need also to bring distributions from LC so hover back to LC and click on tasks then “Manage
Landed Cost Processes” then choose “Allocate Charges”

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So now you have data from receiving,inventory,LC all this data sitting in my interface in cost
management, now you have to create distributions..
So for that you have to go to both, “Cost Accounting” and create it’s distributions and “Receipt
Accounting” and also create it’s distributions..
1-go to costing and then “receipt accounting” and then tasks then “Create receipt accounting
distributions”
Choose the proper BU.
2-go to costing then “cost accounting” then tasks then “Create Cost accounting distributions” (it’ll take a
while) let us take a look at some entries..
Now go and take a look at the “Receipt Accounting Distributions”

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Now track the item if you want by expanding the “Search”
Now note the accounts
On the same page review the landed cost accounts
Note that these are the same accounts in this drawing:

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Now after the request is over,review the cost accounting distributions

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Now it’s done and you can review the accounts..
Now go and create your invoices..navigate to payables, let us create an invoice for the freight and
another for insurance..make the amount anything you want..note that you have to populate the
reference

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Now populate the reference..

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Enable the landed cost and click on “References” and choose “Charge Name”
What kind of reference you need to add?

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It has to be exactly as the one we have in the trade operation!!!!
Click “Save”
Click on “Invoice Actions” then “Validate” then “Post to Ledger”
Now track that posting to complete..this invoice data has to be exposed to costing,same way with the
others..
Theres an ESS job which is called “Transfer costs to cost Management” transfer cost info from payables
to the cost management..
Now let us switch back to “costing” so we need to associate that invoice with the trade operation..go to
tasks then “Manage Landed Cost Processes” and run “Prepare Invoices”

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Then go and run “Manage Charge Invoice Associations” from tasks.
Now the invoice has been associated and it’s all because we populated the refernces in the invoice, if
you don’t you can manually associate it!!

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Now let us take a look at our trade operations, hover to “Manage Trade Operations”
You can see that the mark shows that shows that the invoices are associated but not yet allocated..so
the association is just linking up the allocation is related to the amount..so let us go ahead and allocate
that..hover to “Manage Landed Cost Processes”
run “Allocate Charges” then hover back to “Manage Trade Operation” and look at the graph..

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You can see the actual and expected..so now the more important job is clearing the account..hover to
receipt accounting then “Create Receipt Accounting Distributions” and then we can the final accounting
and cost accounting and cost element
Go to “Review Receipt Accounting Distributions”

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note the new lines that came to picture..

Landed Cost at a glance

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