Wednesday, May 13, 2015

SUPPLY CHAIN MANAGEMENT VS ACCOUNTING

An issue that holds back supply chain effectiveness is accounting for supply chain costs and operations.

Think of this---
  1. Inventory is on the Balance Sheet.  A once-a-year statement.
  2. Freight and warehousing is on the Profit & Loss.  A monthly statement.
  3. Other supply chain costs are treated in different ways.
  4. There is no item listed on any financial document for "service" which supply chain is responsible for.
So--
* There is no concise treatment of supply chains that run from suppliers' factories to customers warehouses or to store floors.
* Balance Sheet and P&L are two different statements.
* Accounting considers inventory as an asset.  Lean considers excess inventory as a waste; accounting still considers it an asset.
* In-transit inventory, which is a factor for firms that source internationally, may be treated as  off-the-books until they reach the US or the distribution center/factory. That excludes significant dollars of inventory.

The result is an improper recognition and treatment of supply chains be CFOs, CEOs, and COOs.  Mistreatment of costs hinders performance.  The impact of that is often ineffectively designed and operated supply chains--which impact corporate results.  Yet no other function is as complex and long as supply chain management.  And no other function interacts with so many areas of the company and with so many external participants and stakeholders as supply chain management.