- A recent joint report commissioned by APICS and the Institute of Management Accountants (IMA) called “Working Together to Enhance Supply Chain Management with Better Costing Practices” reveals the challenges behind creating useful costing systems, according to an APICS news release.
- After identifying the issue, the report concludes with several ideas for better alignment between the supply chain, the accounting department and the finance units.
- The issues identified by the report are: "an over-reliance on external financial reporting systems, using outdated costing models as traditional accounting practices can no longer meet the challenges of today’s business environment, and accounting and finance’s resistance to change," since neither department routinely experiences "pressure to promote new, more appropriate practices within their organizations."
Savings and procurement can go hand-in-hand, but for true cost efficiency, a top-down management approach is ideal.
Significant pressure to reduce costs weighs on procurement departments, yet when companies engage a more holistic approach involving cross-department communication, savings increase enormously. Even within hospital procurement departments, both management leaders and supply chain staff rally around a shared vision, forming a cohesive whole.
Therefore, the most effective means of containing costs involves communication between traditionally divided departments.
"As a first step, organizations must break down silos between the supply chain and accounting and finance teams," an APICS spokesperson told Supply Chain Dive. "Supply chain managers should take the lead in strengthening this relationship in order to set the stage for discussions about costing practices. Ultimately, it’s important for costing information users to demand more accurate and relevant data from their accounting and finance staff."
Yet despite the data that supply chain and procurement managers deserve a seat at the executives table in order to more efficiently manage savings, many C-Suite members resist this promotion.
"Executive awareness of the issue is a great place to start," according to the spokesperson. "Today’s businesses need more robust costing information to manage the performance and profitability of products, service lines, channels, customers and their supporting processes. This data is available and solutions exist, but top management must take the initiative, help accountants recognize the problem and require that they adopt more progressive costing practices."
Technology and data are also vital components in the move toward a more holistic process — if management doesn't have the data and transparency it needs to make changes, then those changes just aren't going to happen.
"Common complaints from supply chain professionals about poor costing systems include the inability to receive data in a timely manner, receiving inaccurate data and a lack of transparency from the finance team," APICS said. "The survey found that implementing an enterprise resource planning (ERP) system can help address these issues, as it enables better information flow between supply chain and accounting and finance. Greater IT infrastructure alone will not serve as a complete solution, however, unless more sophisticated costing practices are established in conjunction with an ERP system."