Total Valuation
Financial calculation determines the total expense of bringing flax fiber to the mill door, including the purchase price, shipping, insurance and customs duties. The raw material landed cost provides the actual basis for pricing the finished yarn and fabric. This figure is more accurate than the simple purchase price because it accounts for the logistical expenses of the global supply chain.
Expense Aggregation
For a Chinese mill importing flax from France or Belgium, the raw material landed cost includes sea freight, port handling fees and inland transportation. Fluctuations in currency exchange rates and fuel surcharges are also factored into the final calculation. When the cost of transport rises, the mill must decide whether to absorb the expense or pass it on to the buyer.
This metric is used to compare the value of different suppliers regardless of their location.
Margin Protection
Maintaining a detailed record of these costs allows the mill to set realistic sales targets and manage its cash flow. Because fiber is the largest single expense in linen production, the raw material landed cost is the most influential variable in the mill’s financial health. It is the starting point for all manufacturing cost accounting.