In Hot, Flat and Crowded, I read that the exact cost of oil delivered by air-borne tanker to the US military stations in Irak is… $42 per gallon. Here are the elements to add up:
Commodity price of oil + cost of delivery + cost of protection along the way + cost of casualties from transportation. The total is the fully-burdened cost (or total cost of ownership).
This calculation convinced the army to work on improving energy efficiency (e.g. improving thermal insulation of air-conditioned tents) and use renewable energy (solar and wind).
In a similar manner, many importers would be well advised to think of the fully-burdened cost of what they purchase. Here is an example.
One of my clients used to regularly supply a certain product to a European chainstore. Then the retailer pressed them for price reductions, so my client switched from one factory to another–the one that offered them the lowest price on the Canton Fair. The retailer should not notice the difference, so the development of the samples was a little long (to get the colors right). When production was launched, the timing was already tight. More delay: the printing factory takes too much time, another workshop that should have performed some of the work is actually full, etc.
In this case, the importer asked us to do in-process inspections. They knew there was some risk, and they cannot afford to cancel the order at the last minute. Inspections showed many quality issues. The factory accepted to sort out and re-make the defective goods: more delay, more inspections.
Once this whole mess is over, what will be the fully-burdened cost of this production? (In red are the elements that were not forecast from the beginning).
Prices on purchase order + a lot of time from their staff (during development and production) + in-line and final inspection fees (some of these fees will be re-charged to the factory) + air freight of 30% of the goods + import duties + a difficult negotiation with the retailer.