Why Supply Chain Execs Struggle To Analyze Costs

Supply chain managers are less than impressed with the current solutions in place for cost analysis. New research from the Association for Supply Chain Management (APICS) and the Institute of Management Accountants (IMA) finds these professionals are struggling to grasp the insight they need into how much their companies spend on goods and services.

Costing systems, as researchers explained in their report “Working Together to Enhance Supply Chain Management with Better Costing Practices,” enable supply chain professionals to assess the total cost of making a product, taking into account the added spend throughout the supply chain.

Analysts surveyed supply chain professionals about the current cost analysis tactics they use. While these managers don’t exactly hate the tools in place, on average, respondents “only slightly agreed, on average, that the costing information they received was effective,” the report stated.

According to the survey, supply chain managers are forced to rely on information from the finance department to assess costs. The APICS and IMA also noted that supply chain executives are largely forced to rely on reporting systems oriented outside of their own departments that often oversimplify the costing analysis process. Costing models are outdated and, at a deeper level, accountants and finance executives are reluctant to adopt new tools and practices that could heighten the effectiveness of cost analysis.

In response, researchers are pushing for supply chain managers to establish deeper relationships with finance and accounting team members in an effort to promote a stronger flow of data between departments. Supporting that initiative, the report also suggests enhancements to IT infrastructure.

“Supply chain professionals rely on cost information when making decisions, but have indicated a need for that information to be more accurate and effective,” explained AIPCS CEO Abe Eshkenazi, CSCP, CPA, CAE in a statement. “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.”

PYMNTS breaks down the data in the APICS and IMA report to uncover supply chain executives’ sentiment of their current cost analysis procedures – and where they’re looking to improve them.

44 percent of supply chain professionals cite a lack of operational data as the largest barrier to having access to useful information in the cost analysis process. According to researchers, “providing information only in financial, and not operational, terms is a common failure of accounting systems, resulting in non-actionable information and missed opportunities to generate needed conversations.” Finding highlights where focusing data streams solely from the accounting department could lead to shortcomings in the cost analysis process.

39 percent say inadequate technology and software is their biggest hurdle, while the survey also found that more than a quarter are concerned about accountants’ and financial professionals’ resistance to change as preventing them from upgrading their cost analysis processes. More than a quarter also said it is too much effort to obtain useful costing information.

One-third of supply chain professionals agree they heavily rely on the finance staff to provide the data they need to analyze costs and make business decisions. An additional 27 percent said they use “some information” from the finance staff. About a quarter noted that their organizations have their own supply chain cost analysis units.

4.87: the average rating, on a scale from 1-7, of how much the finance staff is viewed as a “full business partner” in the decision-making process. Supply chain executives ranked their finance teams, with 7 being in most agreement, in regard to their participation in making decisions. On average, supply chain professionals rated 4.92 when asked whether their organizations’ finance or accounting staff is “very responsive” to requests for specific cost information.