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Oracle Purchasing: Oracle Landed Cost Management is fully integrated with the Oracle
Purchasing Suite. When a purchase order is raised for an inventory organization, which has
landed cost available on it as a pre-receiving application, the approved purchase order can be
called and updated in LCM. In LCM, extra charges such as freight, miscellaneous charges, port
charges, and duties are added, which eventually update the cost of the goods that are to be
received in the inventory.
Oracle Payables: Oracle LCM is fully integrated with the Oracle Payables Suite. When the
actual invoices against the purchase order arrive and enter in to Oracle Payables, the actual cost
is transferred to Oracle LCM to see the difference that is raised between the actual and estimated
cost of the items.
Oracle Advanced Pricing: Oracle LCM is fully integrated with Oracle Advanced Pricing.
When Advanced Pricing is enabled, the cost and freight duties are automatically picked from
Advanced Pricing, and all shipments are updated directly.
Oracle Apps Tutorial: Overview of Landed Cost Management Module
Landed Cost Management (LCM) is a new module to Oracle EBS R12. The LCM module helps
companies record more accurate costs when purchasing inventory items. It accomplishes this by
allowing you to add shipping, taxes, duties, insurance, and handling costs to an inventory item.
This functionality is especially helpful in our global economy where your items can be sourced
from multiple countries and the transportation and handling costs can account for more than 40%
of the item’s total cost.
Challenge Before LCM
Before LCM, you could use material overheads to account for transportation and handling cost.
But the material overhead rates could only be based on the quantity received or on the value of
the item. The other limitation is material overhead rates cannot be vendor or shipment specific.
The material overhead rate (for each inventory organization) is the same regardless of the source.
Also there is no linkage between the material overhead applied to the item and the actual cost
booked in Accounts Payable is in the General Ledger. This makes it difficult to verify that the
transportation cost associated with a specific shipment is correct.
How does LCM overcome material overhead challenges
LCM gives you more control over how you can estimate and accrue transportation and handling
cost for a specific shipment. LCM uses the information from a purchase order along with
formulas in Advance Pricing to calculate shipping, taxes, duties, insurance, and handling costs.
These costs can apply to a specific item on the shipment (like duties) or can apply to the entire
shipment (like freight) and then allocated to the item. You can use an item’s weight and volume
in your calculations. If you have ever shipped something, you know that the shipping company
mainly cares about weight and volume. Something small and heavy will have the same shipping
costs as something big and light. You can also calculate and allocate cost to a group of items on a
purchase order. After you have estimated the transportation and handling cost for a purchase
order, these costs will be accrued when the purchase order is received. To verify if your
estimates are correct, you can match the invoices (in the Payables module) for shipping company
to estimates. This will give the detail you need to verify your estimates are correct. If your actual
transportation cost is different than your estimates, Oracle allows you to update the inventory
value with the differences.
How LCM Works
LCM can be setup to run in two modes: “Pre-Receiving” and “Service”. If you use LCM in the
“Pre-Receiving” mode, you estimate the total cost of purchasing the item before the receipt and
then perform the receipt in the LCM shipment workbench. If you are using LCM in the
“Service” mode, the system will automatically calculate the estimated cost of purchasing the
item (based on formulas you setup). The receipt in the “Service” mode is performed in the
standard Inventory receipt window. In a nutshell, the “Pre-Receiving” mode gives you more
control over the estimated cost by shipment and the “Service” is more automated.
Also new in R12.1.3, is the ability to simulate the cost of purchasing an item. This feature allows
you to play with different purchasing scenarios and see the total cost of each scenario.
LCM Process Flow for “Pre-Receiving” mode
1. Purchase order is created
2. Transportation and handling cost are estimated
3. Transportation and handling cost are reviewed and adjusted
4. Goods are received in the LCM shipment workbench
5. Transportation and handling cost are accrued
6. Transportation invoices are matched to estimates
7. Variances are imported into Cost Management to update inventory cost
8. Analysis is performed to compare estimate cost to actual cost
LCM Process Flow for “Service” mode
1. Purchase order is created
2. Goods are received in the LCM shipment workbench
3. Transportation and handling cost are accrued
4. Transportation invoices are matched to estimates
5. Variances are imported into Cost Management to update inventory cost
6. Analysis is performed to compare estimate cost to actual cost
LCM Data Flows
LCM Data Flow - Pre-Receiving Mode
LCM Data Flow - Service Mode
So if you are interested in more accurate material overhead rates for your inventory, the you
should consider using Landed Coat Management.