When people talk about the “cost” of a product, they often mix up two numbers: FOB cost and landed cost. They sound similar, but they’re not the same.
Think of FOB cost as the price your supplier charges you for the product itself. If you order 1,000 water bottles and the supplier sells them to you at $2.50 each, that’s your FOB cost: $2.50 per bottle. It doesn’t matter if those bottles are coming from Los Angeles or Shenzhen—the FOB cost is just the supplier’s unit price on the purchase order.
Now compare that to landed cost. That same shipment of bottles might cost you another $1.00 per unit once you add freight, import duties, and trucking to your warehouse. So your landed cost is $3.50 per bottle ($2.50 FOB + $1.00 in extras). FOB tells you what the supplier charged. Landed tells you what it really cost you to get the goods ready to sell.
This is where things get tricky in an inventory system. Let’s say you create a purchase order with your supplier for those bottles at $2.50 each. Two weeks later, they send back a confirmation saying the new cost is $2.65. If your system only updates the PO, but your FOB cost for the SKU stays stuck at $2.50, your reporting is instantly out of sync:
Your profit margins will look better than they really are.
Your COGS (cost of goods sold) will be understated.
And someone in finance will eventually spend hours reconciling the mismatch.
That’s why it makes sense to have FOB cost auto-update whenever you change the price on a purchase order. The PO is your commitment—the source of truth for what you agreed to pay. If the supplier updates the price and you approve it, your system should carry that change forward so your cost data is always right.
The landed cost side doesn’t work that way. Freight invoices might not come in until weeks later. Customs fees might vary shipment by shipment. Those costs usually get layered in after the fact, sometimes spread across multiple POs or containers. Landed cost is more complex, and it’s okay for it to lag.
But FOB cost? That one is simple. It’s the supplier’s number on the PO. And if your system updates it automatically, you can trust that your margins, COGS, and inventory valuation all line up with reality—no manual adjustments required.