A model of total landed cost for global supply chain management

The recent economic trends has pushed companies to move their operations globally. One of the key decisions concerns the allocation of the final demand according to the available production facilities. To support this decision, the estimation of the total landed cost is suggested. The studies identified in literature limit their scopes in terms of products/markets and costs considered, while a wide perspective on the costs should be considered to reach a satisfactory solution. The purpose of the study is to build a comprehensive total landed cost model for the estimation of the costs related to tactical configurations (i.e. scenario analysis) in a case study The research takes a constructive approach (Kasanen et al., 1993). Starting from the needs expressed by the managers of a case study, it aims to build a tool to answer to these needs and contribute to the literature on the topic. For the scope of the research, fourteen people throughout the organization were actively involved in the process for the collection of qualitative and quantitative data. As result of the study, a model of the total landed cost for tactical planning is provided to the company. The model evaluates the effects of production allocation decisions on the following costs: transportation (inbound and outbound), customs, handling, inventory carrying costs, hidden costs and production costs. Its internal validity was tested and discussed with the future users of the application. As a result, it is shown that considering the total landed cost improves management’s understanding of the profitability and robustness of their decisions. The validity and the limits of the approach are discussed. Finally, the study identifies new areas for future research.