Re-Cook Your Books

Aug. 1, 2003
Do your duty. It doesn't just keep you honest, it lets you win.

Asset managers in this country have a pretty poor performance record. Most don't have an accurate bead on what's in inventory — corporate or warehouse. If you resemble that remark, your company is probably getting along okay. But okay won’t be good enough for long.

First, some background. According to a study by WhereNet, more than 70 percent of companies it surveyed still rely on manual techniques to locate and track physical assets. Every respondent stated their current asset management data are inaccurate, and that by the time an asset or inventory item is located, scanned, and downloaded into their inventory system, its status has changed.

Ron Giuntini, executive director of the OEM Product-Services Institute, had an even bleaker picture of the art of asset management to share with me.

“Very few companies have their act together,” he told me. “I always tell my clients it's not how good you are, it's how screwed up your competitors are. You may only have 98 percent accuracy, but your competitors probably have 95 percent, so you're looking great.”

In this era of corporate accounting scandals, where cooking the books has burned several star-CEOs, you can do your company a favor by showing the execs how state-of-the-art material handling practices in the warehouse can fix or maintain their corporate books.

Believe me, there are a pack of watchdogs out there hunting asset mis-managers. I got a call the other day from an organization called TeleTruth. It's on the case of Verizon, the telecommunications giant, for its alleged long history of faulty asset management. According to TeleTruth, the Federal Communications Commission (FCC) conducted audits in the 90s to get the Bell companies to clean up their accounting records.

Turns out, the FCC was unable to verify 20 percent of Verizon's and some of the other Bell companies' accounting records. In those days, the Bells' rates were based in part on their assets. Those assets were wildly inflated, according to TeleTruth. Whether those bad numbers were the product of cheating or just poor management, the result was unjustifiably high rates for consumers.

According to an article in Forbes magazine, the FCC abandoned an equipment audit of the Bells after the telecoms agreed to a compromise known as CALLS, the Coalition for Affordable Local and Long Distance Service. The result was flat “all-you-can-eat” calling plans.

“The property that Verizon has on hand is very dynamic,” says Daniel Berninger, of the TeleTruth advisory board. “Things go in and out of service, get lost, get broken, so it takes a great deal of effort to do asset management. If you don't work hard on that, put bar codes on everything and do your annual property audits, you get the craziness we observed.”

A Verizon spokesman told me the company is using bar codes now, but that the value of assets is no longer relevant to rates anyway. Still, TeleTruth believes if the actual value of all those telecom assets in inventory years ago is learned, the Bells will be forced to pay refunds and lower prices. You know what they say about paybacks.

Managers of public companies can look forward to more such scrutiny. The latest regulation to watch is the Sarbanes-Oxley Act (SOA), which requires these companies to certify their financial statements. Supply chain managers, take note: Section 404 of the Act requires that you articulate how you establish and maintain control, and they want those reports to start by the end of your fiscal year ending on or after June 15, 2004. (Go to for more information.)

Even if you're privately held, I urge you to document and assess your critical supply chain processes, make corrections and do a report on the results. You'll be more competitive for it.

Tom Andel, chief editor [email protected]

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