Supply Chain Needs More Accurate Costing Information
Supply chain professionals need more accurate and effective cost information to help their decision-making, highlighting the need for supply chain and finance departments to work more closely together. They also need to adopt progressive costing practices that are focused on informing internal decisions.
That’s according to a joint research report from APICS, the professional association for supply chain management, and IMA, the association of accountants and financial professionals in business.
Costing information also plays a critical role in sales and operations planning. Among those surveyed, supply chain managers agree, on average, that the benefits of improving their costing systems exceed the investment.
When asked what prevents them from utilizing current costing information, 44 percent of supply chain managers cite a lack of operational data. Instead, costing information is often reported in exclusively financial terms, making it more difficult to leverage.
The secondary and tertiary barriers to useful costing information are inadequate technology and software (39 percent) and a resistance to change by accounting and finance personnel (30 percent), according to respondents.
The report cites three root causes why supply chain professionals are not receiving adequate costing information:
- Relying too much 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.
- Using outdated costing models: Traditional cost accounting practices can no longer meet the challenges of today’s business environment, but many accountants still use them.
- 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.