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Accurate Costing Information Lacking in Supply Chain

Supply chain and finance departments need to work more closely and adopt costing practices that are progressive and focused on informing internal decisions.

Supply chain professionals aren’t getting the cost information that they need according to a recent survey from APICS and the Institute of Management Accountants.

In the study, "Working Together to Enhance Supply Chain Managment with Better Costing Practices." upper management supply chain professionals  were asked to assess the impact of issues relating to costing systems and practices.

“Supply chain professionals rely on cost information when making decisions, but have indicated a need for that information to be more accurate and effective,” said APICS CEO Abe Eshkenazi. “This report highlights the necessity for supply chain and finance departments to work more closely and adopt costing practices that are progressive and focused on informing internal decisions.”

The report uncovers common barriers to creating useful costing systems and presents a solution that more closely aligns the supply chain and accounting and finance business units.

“From the supply chain perspective, an effective managerial costing system has clear value,” said IMA Vice President of Research and Policy Raef Lawson.“It enables better make-or-buy decisions, defines landed versus delivery costs and determines the realistic cost of holding inventory.”

Costing information also plays a critical role in sales and operations planning. Among those surveyed, supply chain managers agreed, on average, that the benefits of improving their costing systems exceed the investment.

When asked what prevents them from utilizing current costing information, 44% of supply chain managers cited a lack of operational data. Instead, costing information is often reported in exclusively financial terms, making it more difficult to leverage.

According to respondents, the secondary and tertiary barriers to useful costing information are inadequate technology and software (39%) and a resistance to change by accounting and finance personnel (30%).

According to the report, there are three root causes of why supply chain professionals are not receiving adequate costing information:

1. An overreliance on external financial reporting systems: Many organizations rely on externally-oriented financial accounting systems that employ oversimplified methods of costing products and services to produce information supporting internal business decision making.

2.Using outdated costing models: Traditional cost accounting practices can no longer meet the challenges of today’s business environment but are still used by many accountants.

3. Accounting and finance’s resistance to change: With little pressure from managers who use accounting information to improve data accuracy and relevance, accountants are reluctant to promote new, more appropriate practices within their organizations.

The report details various steps supply chain professionals can take to improve costing systems within their organizations. One strategy presented is for supply chain managers to strengthen their relationship with accounting and finance to foster greater information flow between the two departments. Other solutions call for greater IT infrastructure and increased demand from top-level management for updated costing practices.

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