Introduction
As consumer brands navigate the end-of-year rush and while simultaneously engaging in inventory planning for the year ahead, rising operational costs and shifting market conditions — including volatile freight rates, tariff discussions, and higher warehousing expenses — place pressure on operations and finance teams to optimize every decision. However, purchasing the right products in the right quantities to avoid overstock (or understock) requires a clear understanding of the true cost of producing, carrying, and delivering those products.
Landed costs, which are often calculated and used primarily for accounting purposes, can drive smarter inventory decisions by revealing operational inefficiencies, guiding demand forecasts, and reducing waste during high-stakes or seasonal periods. By analyzing SKU-level landed costs, brands can make more strategic decisions to protect margins and improve profitability during high-stakes periods.
This blog post explores how businesses can leverage landed costs to uncover hidden opportunities, mitigate financial risks, and align inventory strategies with operational resilience and profitability.
SKU-Level Landed Cost Insights: A Catalyst for Inventory Optimization
1. Uncover Cost Reduction Opportunities
Performing a SKU-level landed cost analysis can help brands understand the detailed breakdown of product costs, identifying unexpected cost drivers and uncovering opportunities for cost reduction. Often, something as simple as inefficient packaging can incur unintended downstream costs in the form of bloated freight and warehousing fees that erode margins if left unchecked.
For example, Unilever redesigned its packaging for personal care products like shampoos and body washes to address inefficiencies in shipping and storage. By switching to thinner, lighter materials and adopting more compact bottle shapes, Unilever significantly reduced packaging bulk, allowing for more efficient palletization and transportation. This adjustment lowered freight costs by enabling smaller, lighter shipments, cut material usage by 15%, and improved warehouse efficiency. Beyond cost savings, the initiative also aligned with sustainability goals by reducing transportation emissions and streamlining storage.
This example illustrates how analyzing SKU-level landed costs can reveal actionable opportunities to optimize logistics and cut expenses. By identifying freight and warehousing as key cost drivers — with packaging inefficiencies serving as a major contributor — Unilever was able to focus its cost reduction efforts, achieving significant savings while enhancing operational efficiency and sustainability. Similarly, brands leveraging landed cost data and breakdowns can uncover opportunities to refine packaging design, shift production strategies, or negotiate better supplier terms, protecting margins and improving profitability without compromising product quality.
2. Identify and Eliminate Deadweight SKUs
Deadweight SKUs are products that fail to deliver meaningful profitability due to hidden costs that outweigh their revenue contributions. These costs, such as inflated freight charges, high storage fees, or slow turnover rates, can render products unprofitable even when sales performance appears reasonable. Left unaddressed, deadweight SKUs tie up working capital, inflate warehousing expenses, and obscure the true financial health of a product portfolio.
Landed cost analysis at the SKU level provides the clarity needed to identify and eliminate these underperforming products. By capturing a comprehensive view of costs — including production, freight, customs, and storage — businesses can identify where expenses exceed revenue contributions. For example, products that incur excessive freight charges due to inefficient packaging or require additional storage because of slow sell-through rates can be flagged as unprofitable. With this insight, companies can make informed decisions to adjust inventory strategies, such as discontinuing specific SKUs or negotiating lower shipping rates.
Take Hasbro as an example: in early 2024, the global toy company announced plans to eliminate 50% of its SKUs, which collectively accounted for only 2% of its revenue. These low-performing products drove up warehousing and handling costs, resulting in excess storage fees of approximately $10 million annually. By streamlining its portfolio, Hasbro not only cut costs but also freed up resources to focus on higher-margin, faster-moving products. This realignment highlights the critical role of data-driven decision-making in optimizing inventory and driving profitability.
Eliminating deadweight SKUs empowers brands to redirect capital and operational focus to products that generate sustainable profitability. By leveraging SKU-level landed cost insights, brands can optimize their assortment planning to ensure their product portfolios align with financial goals and maximize resource efficiency.
3. Avoid Overstock During Seasonal Peaks
Seasonal peaks pose significant financial risks for brands, especially when businesses import goods in bulk to meet anticipated demand. Pressure to meet demand often leads to overstocking, which ties up capital, inflates storage costs, and can lead to costly markdowns if products fail to sell through (especially for seasonal SKUs). In particular, seasonal freight surcharges and peak season warehousing rates compound cost issues for products that were low margin to begin with during the rest of the year, resulting in significant financial strain and turn an otherwise profitable season into one of eroded margins and misallocated capital.
Breaking down costs at the SKU level can help brands evaluate which products are worth stocking during peak periods and which pose a risk to profitability. For instance, products with low margins that are subject to high shipping surcharges may yield negligible returns, especially if demand projections are uncertain. A comprehensive landed cost analysis might make you rethink rush shipping new products or late POs just to meet a promotional push and can similarly highlight SKUs where peak freight costs or import duties erode profitability, enabling businesses to adjust reorder quantities, stagger shipments, or focus on higher-margin alternatives.
Landed costs can also inform strategic decisions about promotional strategies during seasonal peaks. Discounting slow-moving inventory might reduce or eliminate the margin on each individual sale, but if the inventory is incurring high carrying costs, it might actually be worth it. Armed with a clear understanding of total costs, businesses can evaluate more holistically which promotions are financially viable and which should be avoided.
By integrating landed cost data into seasonal planning, businesses gain the clarity needed to align inventory decisions with profitability goals and cash flow constraints. This proactive approach helps brands prioritize high-margin SKUs, reduce the risks associated with overstock, and optimize inventory investments, ensuring seasonal opportunities drive growth without compromising financial health.
4. Align Inventory with Channel Economics
Landed costs provide essential insights for aligning inventory with channel strategy to maximize profitability. Each sales channel has unique costs, and understanding the true expenses of getting products to customers helps businesses make informed decisions about where and how to manage inventory.
For example, Fulfilled by Amazon (FBA) is ideal for high-margin, fast-moving SKUs, where high storage fees are offset by faster turnover and proximity to demand hubs. Prioritizing these products for FBA can reduce transportation costs and lead times while improving efficiency. However, low-margin SKUs or items with high freight costs may not be viable in FBA, where extended storage durations can quickly erode profitability and bulky packages lead to exponentially higher shipping fees. These products are often better suited for alternative fulfillment options or channels that balance costs more effectively.
Landed cost data also reveals how SKU profitability varies across channels like direct-to-consumer (D2C) versus retail or wholesale. In D2C channels, higher shipping costs, returns, and last-mile delivery expenses may disproportionately impact low-margin SKUs, making them less profitable than in bulk wholesale orders. For retail and wholesale, landed costs tied to duties or consolidated shipping may be more manageable when spread across larger order volumes. Analyzing these dynamics helps businesses identify which SKUs align best with each channel, enabling brands to optimize margins while meeting diverse channel requirements.
Aligning inventory decisions with channel-specific economics ensures that every product contributes to overall profitability. Products with high landed costs may thrive in wholesale channels with bulk ordering and longer lead times to keep these cost components more manageable, while others are better suited to D2C platforms or FBA. By tailoring strategies to channel requirements, businesses can streamline inventory flow, avoid unprofitable placements, and strengthen their multi-channel sales performance.
Conclusion
In an era of rising operational costs and shifting market dynamics, landed cost is more than just another financial metric — it serves as a strategic lens for consumer brands to uncover operational inefficiencies, drive smarter inventory purchasing, eliminate underperforming SKUs, and navigate supply chain complexities. Whether preparing for seasonal peaks or managing multi-channel strategies, incorporating landed cost data into decision-making empowers brands to mitigate risks and prioritize products that protect and enhance the bottom line.
Mandrel’s platform simplifies the complexities of landed cost analysis, using AI to automate data capture and cost allocation to provide real-time, SKU-level insights. By leveraging Mandrel’s capabilities, brands can confidently align inventory strategies with financial goals using comprehensive, actual inventory cost data, ensuring they remain agile and competitive in today’s fast-moving consumer landscape.