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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 cost
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-Rece iving” and “Service”. If you
use LCM in the “Pre-Receiving” mode, you estimate the total cost of

LCM Process Flow for “Pre-Receiving” mode 1. the “PreReceiving” mode gives you more control over the estimated cost by shipment and the “Service” is more automated.purchasing the item before the receipt and then perform the receipt in the LCM shipment workbench. Goods are received in the LCM shipment workbench 5. is the ability to simulate the cost of purchasing an item. The receipt in the “Service” mode is performed in the standard Inventory receipt window. Goods are received in the LCM shipment workbench 3. Analysis is performed to compare estimate cost to actual cost LCM Process Flow for “Service” mode 1. Transportation and handling cost are accrued 6. Purchase order is created 2. Transportation invoices are matched to estimates 5. Variances are imported into Cost Management to update inventory cost 8. Analysis is performed to compare estimate cost to actual cost LCM Data Flows .1.3. Variances are imported into Cost Management to update inventory cost 6. This feature allows you to play with different purchasing scenarios and see the total cost of each scenario. Transportation invoices are matched to estimates 7. the system will automatically calculate the estimated cost of purchasing the item (based on formulas you setup). Purchase order is created 2. In a nutshell. Transportation and handling cost are accrued 4. Also new in R12. If you are using LCM in the “Service” mode. Transportation and handling cost are reviewed and adjusted 4. Transportation and handling cost are estimated 3.

.Service Mode So if you are interested in more accurate material overhead rates for your inventory.LCM Data Flow Mode Pre-Receiving LCM Data Flow . the you should consider using Landed Coat Management.