When deciding whether to make a component internally or to outsource production, evaluating the landed cost of the component is crucial. Here’s the rationale:
Comprehensive Cost Assessment: Landed cost includes the total cost of a product once it has arrived at the buyer's doorstep, encompassing purchase price, shipping, customs, duties, taxes, insurance, currency conversion, and handling fees.
Informed Decision-Making: By evaluating the landed cost, a company can compare the true cost of internal production versus outsourcing, ensuring a comprehensive analysis that includes all hidden and indirect costs.
Cost Efficiency: Understanding the landed cost helps in making cost-efficient decisions that consider not just the immediate purchase price but all associated costs, leading to better financial outcomes.
References
Ellram, L. M., Tate, W. L., & Billington, C. (2008). Offshore outsourcing of professional services: A transaction cost economics perspective. Journal of Operations Management.
Chopra, S., & Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and Operation. Pearson.
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