If you’re in any business where transportation costs and charges are a significant part of merchandise costs—there's a chance you might be looking for a way to allocate these costs to the inventory cost of your items, in order to get a more accurate landed cost.
A landed cost is the total price of a product once it's arrived at your warehouse. Depending on the type and size of your business, the landed cost can include purchase price and transportation costs, but it might also include tariffs, customs duties, broker fees and more. Knowing the true landed cost of your products gives you better visibility into product profitability.
But how can you ensure that your cost of inventory is correct and includes all components of the landed cost?
There are three paths to choose from depending on your business requirements and whether or not you’re using the advanced warehouse functionality in Dynamics 365 Finance and Operations (D365FO):
- Add miscellaneous charges
- Use standard transportation management (TMS) functionality in D365FO (it can only be used in conjunction with the advanced warehouse functionality in D365FO)
- Buy an independent software vendor (ISV) solution for inbound transportation management.
Below are some pros and cons of using standard TMS functionality for an inbound shipment in D365FO.
- Transportation costs can be allocated to each individual inventory item by weight, volume, mileage, zones and other criteria. For example, weight and volume parameters of an item can be defined on the item master. The system will allocate total transportation costs for each item proportionally to the item's total weight/volume in a container. Freight charges can be assigned to the load/container and automatically be distributed across multiple purchase orders and across multiple vendors in case of freight consolidation.
- TMS allows you to create transportation cost estimates that will be matched to actual freight invoices later. If using TMS for inbound shipments, the cost of received items include the estimated transportation cost. If you sell the received items before a purchase invoice or an actual freight invoice are received, your cost of goods sold include estimated landed cost components.
- If the landed cost includes transportation costs and fixed percentage charges on items (for instance, customs duties and any additional state tariffs), a combination of miscellaneous charges and TMS functionalities can be used. Customs duties and tariffs can be set up as fixed percentages and assigned to applicable inventory items and transportation costs can be allocated to inventory items.
- Create as many shipping routes as needed. For some companies a shipping route can include LTL route only and for other companies a shipping route can consist of multiple parts with different carriers (Ocean freight > Broker > Drayage > LTL). When a purchase order load for inbound shipment is created, select a shipping route from a list and assign the route to the load.
- Import a vendor’s advance shipping notice (ASN) into D365FO. There is a native ASN data entity that can be used to import ASN from a vendor.
- Ability to perform the three-way matching on purchase orders with landed cost. Since actual freight invoices and purchase invoices are processed differently in D365FO, you can perform the three-way match on a purchase order that includes multiple components of landed cost.
- Segregation of duties between a purchasing department and an accounts payable department. A purchasing department could be responsible for setting up transportation cost estimates and tracking variances between actual costs and estimates. An accounts payable department could be responsible for processing only vendor invoices and payments. TMS allows you to do so.
- Process actual freight invoices manually or automatically in batch. Depending on how many freight invoices you get, you can match estimated costs to actuals and record vendor invoices manually or automatically in batch.
- Extensive setup. To truly be effective using this approach for landed cost, there are a lot of prerequisite setups that must be completed before the landed cost allocation can be processed.
- Standard TMS doesn’t support in-transit cost accrual (unless items are received into an in-transit warehouse). Depending on your business needs, there are multiple workarounds to consider.
There are a lot of pros for using standard inbound transportation management in D365FO. Need extra help. Contact one of our expert consultants who are on stand-by to help walk you through the process.