This article is relevant if you need a mechanism to automatically apply NetSuite landed costs against purchased freight or other related costs.

Background

I have written a number of articles about NetSuite landed costs that have helped our readers think about how to capitalize costs beyond the material product purchase order price. Most illustrate automation concepts. Consider these references:

• 2016 Article: Offer: Superior NetSuite Landed Cost Practice with Late Vendor Bills
• 2016 Article: How To: Add Packaging Costs to Standard NetSuite Inventory Items
• 2017 Article: Track NetSuite Inventory In-Transit with Freight Containers and Automated Landed Costs
• 2017 Article: Finally: Capitalize NetSuite Inventory Costs with Item Consumption Landed Costs
• 2018 Article: Learn how to Reliably Measure NetSuite Gross Profit and Margin
• 2021 Article: Best Practice on Shipping Charge Handling in NetSuite Dropships

In this article, I discuss a landed cost model where organizations plan their own inbound receipt logistics and thus use freight-based purchase orders to drive allocated freight charges into the value of inventory as it is received.

NetSuite Landed Cost Considerations

Note, I have seen many organizations attempt to track actual landed costs against item receipts. The primary challenges of tracking actuals have to do with the fact that actual costs may take significant time to be known; vendors may present their bills well past the time that services were rendered.

In a mature accounting operation, the goal is to get the financial books closed as soon as possible. To close the books in a timely fashion means to use good judgment to record accruals through the use of estimates. You can’t close the books if you use actual vendor bills to apply landed costs because item receipts are in previous accounting periods — costs must be updated requiring the accounting periods to be open. Furthermore, when you apply landed costs on back-dated item receipts, the revised cost must roll through inventory ledgers including affecting all cost of goods sold and other work order build transactions.

Thus, the best practice is to use landed costs estimates to drive inventory capitalization — and it is one of the indications of how better-planned organizations scale their operations.

The Estimated Purchased Freight Model to Apply NetSuite Landed Costs

In many organizations, it may be difficult to plan inbound freight when third parties are utilized to produce specific inventory logistics. However, if you can plan your inbound freight logistics, you likely can estimate your freight costs in advance. Consider a situation where multiple supplier purchase orders are being used to acquire goods overseas.  Furthermore, consider the goal to fill a freight container full of purchased inventory to maximize the value of the cost of freight across all the goods.

In this situation, you may be able to negotiate with freight carriers the costs to fill that container.  A purchase order may be issued to the freight company to plan and memorialize the commitment to acquire freight services.

Sean G., a senior consultant on the Prolecto Resources team, worked with one of our clients under this model. He invented the following practice:

1. Product Purchase Orders: order goods as you normally would from product suppliers.
2. Freight Purchase Orders: issue a freight-based purchase order to the freight provider.
3. Link Freight to Product Purchase Orders: create a link to related product purchase orders (as many as needed) that you expect to be served by the freight service (click image to see cross-reference example).

With this information, the following is possible:

1. Anticipated Product-based Purchase Order Landed Costs: with freight purchase orders linked to product purchase orders, you can now anticipate (estimate) how much freight costs to apply to the purchased goods. We record this value on a custom field on the product purchase order in anticipation of item receipts (click image to see calculated estimated landed costs and the method to gather anticipated costs).
2. Pro-Rate based On Item Receipt Inventory Value: apply the pro rata amount of estimated freight landed cost to respective product-based item receipts depending on how much was received versus what was purchased.  In other words, if a partial item receipt is recorded, use that portion’s percentage against the estimated landed costs (click image to see a partial value be applied to the landed cost allocation).

We call this a simplified model because of the way that freight purchase orders are linked to overall product purchase orders.  This model worked well for our client and was very simple to apply and automate.

Get Automated Landed Costs Applications

Given the number of different ways we have helped our clients estimate and automate landed costs, we have put this algorithm into a bundle to make it easier to distribute to our clients.  We do not charge our clients for any of our existing software or algorithms — instead, we use our previously developed software to act as a jumpstart template to solve client-specific requirements.

If you found this article relevant, feel free to sign up for notifications to new articles as I post them. If you are ready to tackle your automated NetSuite landed costs challenge, let’s have a conversation.

Marty Zigman

Holding all three official certifications, Marty is regarded as the top NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 30 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to set up a conversation.

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