How to calculate total delivered cost?

Calculating Total Delivered Cost: A Comprehensive Guide

Delivering a product to customers involves more than just manufacturing. The total cost extends beyond production expenses and encompasses all expenditures incurred from raw materials procurement to final transportation. Understanding and calculating Total Delivered Cost (TDC) is crucial for businesses to optimize supply chains, reduce costs, and enhance profitability.

Components of Total Delivered Cost:

TDC consists of various expenses that contribute to the total cost of delivering a product. These components include:

• Raw Material Costs: The cost of acquiring the raw materials used in production.
• Production Costs: The expenses incurred during manufacturing, including labor, equipment, and overhead.
• Packaging Costs: The cost of materials used to protect and contain the product during shipping.
• Transportation Costs: The cost of moving the product from the production facility to the distribution center and ultimately to the customer. This includes truck, rail, or air freight.
• Storage Costs: The cost of storing the product at warehouses or distribution centers before delivery.
• Freight Forwarding Costs: The cost of hiring a third-party logistics provider to manage transportation and customs clearance.
• Insurance Costs: The cost of insuring the product against potential damage, theft, or loss during transportation.

Importance of Calculating TDC:

Calculating TDC provides businesses with several benefits, including:

• Accurate Costing: It ensures that all costs associated with delivering the product are accounted for, leading to more accurate pricing and profitability analysis.
• Supply Chain Optimization: By identifying the cost drivers, businesses can pinpoint areas for improvement, reduce waste, and optimize their supply chain operations.
• Improved Customer Service: Understanding TDC allows businesses to set realistic delivery timelines and provide customers with accurate cost information.
• Competitive Advantage: Optimized TDC can give businesses a competitive edge by reducing overall costs and improving operational efficiency.

Formula for Calculating TDC:

The formula for calculating Total Delivered Cost is:

TDC = Raw Material Costs + Production Costs + Packaging Costs + Transportation Costs + Storage Costs + Freight Forwarding Costs + Insurance Costs

Conclusion:

Total Delivered Cost is a comprehensive metric that encompasses all expenses associated with delivering a product. By understanding the components of TDC and implementing strategies to optimize them, businesses can make informed decisions, reduce costs, and enhance supply chain efficiency. Accurate calculation of TDC is essential for business planning, pricing, and maintaining a competitive advantage.