As a result of major advancements in both policy and technology over several decades, international trade and foreign investment have become central to overall economic growth. Governments have successfully negotiated international agreements that are responsible for reducing many long-standing barriers to trade and foreign investment, ultimately promoting the flow of goods and services between nations. Due to the elimination of many different barriers to trade and investment, large corporations have established foreign factories as well as production and marketing activities with foreign partners, essentially creating a true borderless economy. In addition to foreign policies, emerging technologies have also played a key role in the globalization of the world’s economy by making it easier than ever to communicate with people across the world. Specifically, advancements in information technologies have provided many with access to a variety of tools for gathering information to help identify and pursue various economic opportunities. Consequently, globalization has made it attractive for businesses to establish importing and exporting operations. Exporting represents a major component of the overall health of a nation’s economy, where countries are rich with unique skills and resources. Importing is also important as domestic businesses often look internationally for resources that are either a) not readily available domestically or b) inexpensive elsewhere, that will help to drive down their cost of goods sold and increase profit margins.
This post outlines specific functionality that one should reasonably expect from Food Distribution Software.
The food distribution industry is very unique in a number of different ways. With numerous standards and regulations set by governing bodies in place, as well as an overall level of quality that must be upheld to customers, it is important to employ a software system designed specifically for food wholesalers and distributors. Most software packages have similar standard inventory and accounting functionality that users have come to expect in a true ERP software system. However, it is the additional food industry specific features such as lot tracking, landed cost tracking, multiple units of measure, and flexible pricing that make a system optimized for the food industry.
- Lot Tracking
- Landed Cost Tracking
- Multiple Units of Measurement
- Flexible Pricing
This facilitates robust product traceability functionality in order to keep records of which customers received specific groups of items or shipments. The supplier and the date that items were purchased are also referenced, allowing managers to track an individual group of products throughout the supply chain, ultimately from supplier to end customer. This functionality is especially important to food distributors as it is a key competency in achieving FDA/ISO/CFIA compliance. Many companies in the food distribution industry rely on lot tracking to track internal and external lot numbers, manage best before and expiry dates, as well as simplify product recalls and warnings in case of an emergency.
Landed Cost Tracking
Landed cost tracking allows a food distribution company to account for all the costs associated with getting inventory from a supplier to their warehouse. This allows a company to arrive at its ‘true inventory costs’, which may include duty, brokerage, freight, insurance, and storage, in addition to the cost of the inventory itself. Landed cost tracking provides important information to business owners and decision makers when making purchasing and pricing decisions, as well as aids in maintaining target gross margins by accounting for the total inventory cost, and not just a sub-section of it.
When your business decides to take the crucial step to invest in wholesale inventory software, it is imperative that you make a thoughtful and well-informed decision that satisfies your business’s specific needs. With an abundance of features and customizable options available, achieving this task can sometimes be overwhelming. Although no two companies are exactly the same, there are several popular features that add value to basic inventory software and allow companies to better manage all business operations. These include; landed cost tracking, barcode scanning, sales rep applications, and lot tracking.
Landed Cost Tracking
Landed cost refers to the total cost of an inventoried product, taking into account expenses incurred to collectively purchase, transport, and import goods. Costs accounted for include such items as border fees, duties, taxes, transport costs and insurance, to name a few. Software that effectively manages landed costs has the ability to automatically account for and reconcile the costs mentioned above in order to arrive at the true cost of the goods. This ultimately enables businesses to protect margins and make better purchasing and pricing decisions.
As with any large corporate investment, implementing new accounting and inventory ERP software is a time and resource consuming process. Although this can be daunting when first starting the search process, the benefits gained from properly implementing an automated, all-in-one system, to manage all your business processes across departments will almost always outweigh the costs. For businesses moving from mostly manual processes or an introductory system, it can be exciting to learn about all the new advantages to be gained from the functionality and components offered by a more sophisticated system. However, there are a lot of efficiencies to be gained right from the start when upgrading to a proper system even before adding in all the bells and whistles that come as additional components. It may seem counterintuitive for a vendor to be down-selling the product, but there are various reasons why wanting to implement too many components from the get-go can be a bad idea.
Consider the Costs
Many ERP systems will provide functionality such as inventory, accounting, contact management, order entry and processing and warehouse management as part of their base offering. In most cases, additional components that are more unique to specific types of businesses can be added – but at an additional cost. These types of components include: barcode scanning, eCommerce integration, lot tracking, and landed cost tracking, and are not necessarily needed by every company. Even companies who claim they need specific components such as sophisticated barcode scanning, may be able to benefit from a less expensive option. This is why it is important to speak with vendors who will spend the time needed to learn about your business, in order to offer guidance on what components you could use, as opposed to vendors who try to upsell their product. Fully evaluating which additional components your business actually needs, vs. wants, may dramatically impact the overall software cost.
How do I calculate my true cost (“landed cost”) of products? This is a question we frequently hear, and it’s based mainly on three areas of uncertainty:
- What costs should I take into account?
- What if I only get the true costs on invoices long after the shipment arrives?
- How do I apportion these costs across multiple items on the same shipment (and deal with currency exchange rates)?
Although proper landed cost tracking software will be able to do the calculations for you, let’s take a quick look at each of the above questions, and try to demystify the Landed Cost Formula.
1. What costs should I take into account?
Beyond the obvious – the price I’m paying the supplier of the products I’m purchasing – the basic rule of thumb is to include all costs directly incurred in getting those purchased products into your warehouse. This would typically include, at a minimum, freight costs. For imported products, there’s often duty and brokerage costs. Others include insurance, storage costs, purchasing agency commissions and other regulatory fees.
2. What if I only get the true costs on invoices long after the shipment arrives?
With factors like freight, that’s often the case. In order to calculate a true landed cost at the time you receive a shipment, you’d have to use estimates for many of the non-supplier costs. For so many business reasons, it’s critical that you have a very clear idea of likely costs before you incur them, so any well run business should have no real problems coming up with estimates that are very close to the actual costs. Then the key is to have a good process for reconciling the actual bills (when they arrive) against the estimates you’ve used – something that a good ERP Inventory Accounting Software system should facilitate.
3. How do I apportion these costs across multiple items on the same shipment?
The best approach to apportion a cost factor over multiple different products on the same shipment is to use the calculation method that most closely mirrors the way that cost is constructed. For example, duty is usually very simple, as it’s a straight percentage of the value – so that’s how you’ll apply it, using the appropriate percentage(s). Freight would typically be pro-rated based on either weight or cube, depending on how the carrier charges for transportation. And it is of course important to factor in currency exchange rates, because it’s not uncommon for importers to be incurring costs in two or more currencies. For currency conversion, assuming you have not hedged currencies, the guidelines say to use the exchange rate on the date of receipt of the goods.
Example of a Landed Cost Formula:
Facts for 100 Widgets received as part of a shipment:
- Supplier cost: $25 per unit
- Duty applicable at 2%
- Freight cost for the entire shipment was $1,200 – and the widgets represent one quarter of the shipment by cube
In this case the formula for each unit would be:
$25 + (2% X $25) + (($1,200 X 25%) / 100) = $28.50