Managing costs effectively across business operations helps maintain healthy profit margins. Beyond the base price listed on a purchase order, a variety of additional expenses contribute to the total cost of acquiring goods. As goods move through the supply chain from the supplier to the warehouse, businesses may incur freight charges, customs duties, tariffs, and various handling fees. Together, these are known as landed costs, representing the total expense of bringing inventory into stock. Tracking landed costs contributes to the cost of goods sold (COGS) and affects inventory valuation by allowing businesses to increase their inventory’s asset value.

NetSuite’s Landed Costs feature provides end-to-end capabilities for managing these costs, enabling businesses to track the additional expenses incurred when purchasing inventory. With real-time visibility, companies can make more informed decisions around pricing, procurement, and overall operations.

Landed costs in NetSuite

NetSuite offers two ways to manage landed costs: Actual and Estimated.

With either method, companies can create predefined cost categories (shipping charges, freight costs, import fees, customs and duty, taxes, insurance, and handling charges) to organize different landed cost expenses incurred during procurement. These categories can then be linked to existing or new noninventory items, which must be marked to Track Landed Cost by checking the appropriate checkbox on the item record. Each cost category is linked to a temporary expense account, which is ultimately cleared once the cost is assigned to inventory in NetSuite.

Landed cost can be recorded at various stages of the procurement and inventory process, including item receipt, vendor billing, or inventory adjustments. NetSuite offers flexible allocation methods for eligible items based on weight, quantity, or value, depending on the nature of the cost. For example, freight charges are often allocated by weight, as heavier items typically incur higher shipping costs. The cost allocation method selected affects how the cost is applied to inventory valuation, which in turn impacts financial reporting and COGS.

The Actual method records the true landed costs assigned to inventory, reflecting the actual expenses incurred. NetSuite allows them to be tracked at the transaction header level and by line items, though only one cost allocation method can be applied per transaction. From an accounting standpoint, this method is most feasible when vendor bills are received at the same time or, ideally, before item receipts. However, in instances where bills arrive after the accounting period has closed and costs cannot be immediately matched to inventory, NetSuite’s Estimated method provides an effective approach.

The Estimated method uses templates to automatically calculate landed cost estimates on purchase orders, item receipts, and standalone vendor bill transactions as items are received. This method is also especially helpful for large and/or frequent orders, as it significantly reduces the need for manual input. The templates can be configured to have multiple cost categories, each assigned a different allocation method. Estimated landed costs can only be tracked by line and are determined by the allocation method and cost factor, which can be updated as needed. As estimated costs are applied before actual bills are received, this approach helps maintain accurate inventory valuation in real time.

Key benefits

• Accurate profit margin: NetSuite gives businesses a complete view of all costs tied to getting inventory into stock. With this visibility, they can price products more accurately, protect profit margins, and avoid undercharging. This insight also shows which products are most profitable and supports strategic decision-making about inventory and future product planning. 
• Streamlined processes: Recording landed costs directly in NetSuite eliminates the need for manual entries, as all related expenses automatically flow into item receipts, vendor bills, and inventory records, reducing the risk of human error. 
• Support for global operations: For businesses operating overseas, NetSuite simplifies the complexity of cross-border transactions by tracking related international expenses. Its multicurrency capabilities also help ensure that exchange rate fluctuations are accurately reflected in financial records.
• Enhanced compliance and transparency: NetSuite allows businesses to track and separate specific costs, which makes reporting clearer and enables compliance with trade and tax rules. Having a clear audit trail within the system also helps with providing documentation for internal reviews or external audits.

Use cases

NetSuite’s landed cost management is ideal for:

• Companies that outsource warehousing and fulfillment to 3PLs
• Retailers managing inventory across multiple stores or regional warehouses
• Manufacturers sourcing materials internationally
• Businesses that order inventory from a vendor but use a separate freight company for shipping
• E-commerce companies handling international transactions and multiple currencies
• Wholesale distributors managing large, multi-SKU shipments
• Multilocation organizations needing consistent cost tracking across sites

NetSuite’s Landed Costs feature helps organizations improve inventory accuracy, gain deeper insight into profitability, and strengthen financial reporting. To learn more about how to set up Landed Costs for your business, reach out to CohnReznick’s NetSuite team for support.