Network design primarily drives the structure of the income statement, whereas network operations primarily drive the structure of the balance sheet. Together network design and network operations can have a profound impact on both the income statement and the balance sheet of each trading partner. For some reason the term landed cost does not seem to be used unless import/export is involved, but the truth is that even domestic products have landed costs. Once the product BOM is partitioned across two or more trading partners, some elements of the product will incur landed costs. There are new incremental costs for freight, information processing, and cash flow processing that did not exist when the single trading partner was vertically integrated.

This section explores the central idea that the drive to reduce direct labor and direct material costs tends to partition the product BOM manufacture across several (nominal) trading partners, whereas the principles of maximizing velocity and minimizing variability tend to consolidate the product BOM manufacture within one trading partner. This is because changing the Country Of Origin can significantly reduce labor cost, material cost, duty expense, and income tax expense. On the other hand, reducing the number of organizations that touch a process, reducing the number of steps in the process, and reducing the variability of the process will accelerate the velocity of the process flow. This is the network design tradeoff between landed cost and velocity-variability, which is plotted on the value circle.