Wednesday, August 24, 2016

OMNICHANNEL AND THE SUPPLY CHAIN THAT DRIVES IT VS ACCOUNTING



The initial days of generally accepted accounting principles were about manufacturing and labor costs.  Today the largest company in the world is a retailer.  E-commerce firms—Amazon, Alibaba, Flipkart, are and others are e-tailers that dominate news, while brick and mortar retailers struggle.  Omnichannel is the buzzword.  

Sourcing of products and sales of products are global.  Retailing is transforming into a delivered service.  Stories of inventory issues run across retail niches, brands, and stores.  The common thread here is supply chain management.

Yet as all this is going on, ancient accounting rules prevent these same companies from properly measuring their supply chain costs.  

Look at financial statements—
·         Freight is on the monthly profit and loss.
·         Inventory is on the annual balance sheet.
·         Service—the hallmark of the omnichannel customer experience—is not on any statement.

Against this, how can firms properly address supply chain needs?  Inventory is defined as an asset.  Yet to lean, excess inventory is a waste.  To supply chains, excess inventory creates problems—from warehousing to service.  

So the question and challenge is how can corporations take needed steps to transform their supply chains for omnichannel and lean by increasing compress time and creating inventory velocity when accounting rules and banks/investors run counter to what is required and reward firms for excess inventory?  The world has changed; ways of doing business have changed; accounting rules have not kept up with the change.