In the world of sourcing, most sourcing managers make purchase decisions based on the estimated target margin of a product. Target margin is calculated using the expected retail minus the estimated landed cost. Unfortunately, the estimated landed cost is not the product’s total cost to the organization.
When making purchasing decisions, sourcing managers need to look at all factors that go into delivering a product, from the factory to the store. The entire cost that encompasses all aspects of the delivering the product is called “total cost to serve.”