Landed Costs for Electronic Parts & Why They Matter for Hardware Teams

Introduction

Landed cost is an important concept to understand for anyone tasked with managing a supply chain, particularly in electronics, where the landed cost of a part can be much higher than the unit cost listed on a distributor’s website. Landed cost is the total cost of a product for a buyer or seller, including all transportation and associated fees. For an electronic component, the landed cost is all the costs incurred up until the part is placed onto a printed circuit board during the assembly process. In this post, we will discuss the various elements of landed cost for an electronic part.

Materials

This is the cost of the part itself. When you see pricing for a component on a distributor or manufacturer's website or receive a quote for purchasing a part, this is the price that you will see.

Transaction Fees

It is common to incur costs such as wire transfer or credit card processing fees when purchasing parts from overseas. For large, high-value purchases, escrow fees to protect the buyer and seller are common as well. For large purchases, transaction fees typically are not a major contributor to the landed cost but for smaller purchases they can add several percent to the landed cost.

Transportation

Because electronic components are typically physically small, transportation costs usually aren’t a major factor in the landed cost of an electronic component. However, if you are purchasing unusually large parts, such as specialty connectors or other electromechanical components, or the total purchase price of the parts is very low, the cost of transportation may make up a considerable portion of the landed cost, particularly if the parts are currently overseas and need to be shipped internationally.

Taxes and Duties

Many electronic components originate in China and are subject to a 25% tariff when they are imported into the United States.

If you are purchasing parts directly from a supplier in China, these tariffs, along with customs brokerage fees, will be charged directly to you (or the importer of record) when the parts are imported into the United States. If the total purchase price of the parts in a given shipment is less than $800, typically, no tariffs will apply (this is called the de minimis value), although there may still be some minimal customs fees.

If you are purchasing parts from a supplier outside of China, these tariffs will either be included in the listed price for the parts or, more commonly, you can expect to see them listed separately during the checkout process.

Sales tax can also add considerable cost depending on your taxable jurisdiction, although most hardware manufacturers have a resale or research & development exception that eliminates the requirement to pay sales tax when purchasing electronic components.

Insurance

Insurance is another important factor when calculating the landed cost of an electronic component. If you are buying low-value components or purchasing from an authorized distributor, this is typically something you don’t have to worry about. For high-value purchases of parts from overseas distributors or brokers, it can be important to arrange insurance to cover your costs in case the parts are lost in transit, never shipped by the supplier at all, or prove to be counterfeit or otherwise non-conformant once you receive them.

Inspection & Quality Control

Sometimes the parts that arrive aren’t the parts that you order. This is most frequently an issue when purchasing parts from non-authorized distributors and brokers, but even major authorized distributors will occasionally send the wrong part or the wrong quantity of parts. Performing quality control, part counts, and anti-counterfeiting inspections on incoming materials is critical to identify issues with parts as early as possible, not once those issues are holding up a production line or, worse, leading to failures or rework of completed circuit board assemblies. Whether you perform these inspections yourself, leave them to a contract manufacturer, or outsource them to a third-party logistics provider, they do carry a cost that needs to be factored into the landed cost for a part.

Handling & Material Preparation

Before they can be placed onto a circuit board, parts need to be prepared so that they are compatible with the requirements of the equipment and processes being used for assembly. This can include adding leaders and tails to cut-tape to ensure compatibility with pick-and-place feeders, performing MSL-reset bakes on moisture-sensitive parts that have not been stored properly, and reeling parts that need to be on reels. These steps can be a major hidden factor in the landed cost that is difficult to predict in advance without extensive historical data for each supplier. For example, even among major authorized distributors, some suppliers will properly store and track floor life exposure for moisture-sensitive parts so that they are assembly-ready as soon as they arrive, whereas others will expose those same parts to ambient conditions in unsealed bags, requiring an MSL-reset bake before the parts can be used.

Conclusion

Understanding what landed cost means for an electronic component supply chain is critical for OEMs and CMs, alike. Landed costs for electronic parts sourced from overseas can often be 50% or more than the parts' cost. Even when sourcing from major authorized distributors, unexpected tariffs and hidden inspection and material preparation costs can cause surprise landed costs. Without accurately predicting and tracking landed costs for each part in an electronic design, it is impossible for hardware manufacturers to know whether their margins are sufficient for a given project or to make informed supply chain management decisions.

Don’t feel like predicting and tracking landed costs yourself? Cofactr’s procurement and inventory management software automatically calculates, optimizes, and tracks true landed costs for you from the beginning of the design process through production.