COMPILED BY MILES Z. EPSTEIN, EDITOR, COMMERCE
NEW JERSEY’S TOP ACCOUNTING firms are using data to empower clients with inventory control challenges. From manufacturers to retailers to warehouses, protecting and managing inventory matters and impacts the bottom line in significant ways. Using the right software for physical and digital inventory control is critical, and more accurate inventory insurance coverage is also key. Here are case studies that show how addressing inventory is a proven path to efficiency and profitability.
BDO USA, LLP By Jeffrey Pratt, Managing Director, Supply Chain Leader
Considering the increased shift to e-commerce and growing concerns around how to optimize inventory to meet changing customer demands, businesses need to look beyond the four walls of their warehouse to take a more holistic view on inventory optimization. This means not only having solid systems to track physical inventory counts, but also taking a broad view of their inventory optimization strategies. We recently helped a client do just that. The team assisted a $700M+ global consumer products company with manufacturing and distribution operations located in New Jersey to help improve inventory accuracy through better cycle counting methods and warehouse management practices. We also helped them define new inventory management processes—including optimal stocking levels, locations and replenishment strategies, to reduce inventory investment, improve customer service and decrease costs. While some supply chain management strategies require technology to enable processes, many benefits are achievable using legacy systems. We’ve seen client reach 5 percent to 10 percent reductions in total supply chain inventory levels, improved customer fill rates of 2 percent to 5 percent, and profitability increases as much as 1 percent of overall revenue.
EisnerAmper LLP By Michael A. Aversa, CPA, Partner-in-Charge, Private Business Services Group
A New Jersey-based manufacturer sought our inventory advisory assistance in several areas. First, they had suffered a fire that damaged a significant amount of their inventory. If their inventory were understated, they would have had a difficult time getting reimbursed by their insurance company. Second, they were using a basic Excel spreadsheet to track inventory. However, this was neither flexible nor robust enough to accurately capture the movement of inventory. Finally, this client—like many companies—didn’t fully understand at which point they took ownership of inventory: at the shipping point or at the destination. This will be different on the sale versus the purchase side. After conducting an extensive audit, we recommended more accurate inventory insurance coverage that they could discuss with their insurance representative. We presented several software options that could better manage their inventory control process. And we suggested contract language that would better mitigate not recording inventory when title passes. The client was thrilled that they could now better manage inventory risk as well as increase the efficiency and cost-effectiveness of their inventory control process.
Goldstein Lieberman & Company LLC By Phillip Goldstein, CPA, Managing Partner
We believe process and technology aren’t opposing terms. Instead, the two must work together. One of our New Jersey clients, a distributor of retail products, was experiencing rapid and impressive growth. The company was eager to stay ahead of the demand for their products, but uncertain of the exact steps to take to manage their growth efficiently and, of course, cost effectively. They thought the solution was to immediately purchase the latest technology. We explained they first needed a comprehensive review of new technologies. How would the product distribution process be affected and protected? Would there be a way to measure performance of the new systems? How could they determine its effectiveness? We asked questions, got answers then assisted the company making deliberate process changes so that the new technologies could be effectively incorporated. The company introduced automation basics—bar codes and scanners. Next, they added real-time inventory tracking capabilities and minimum-time conveyor belt algorithms. Finally, they purchased software that streamlined the entire shipping process, affecting everything from route optimization to tracking goods to monitoring equipment. With process and technology working together, positive results were felt all the way down to the bottom line.
Mazars USA LLP By David Rim, Senior Manager
Sometimes, manufacturers do not place the same emphasis on tracking softer costs like labor and overhead. For example, a personal care products manufacturer saw their margins decrease year after year. The company’s manufacturing software had not been updated for over half a decade. Further complicating the issue was the growing product portfolio. A costing study was performed to see how accurate the system’s rates were, and how wide the fluctuations in profitability were among different product categories. This helps identify unprofitable or under-performing product categories and to have a better basis when quoting sales prices for customers. The company’s standard rates had changed drastically since the last update. Labor and overhead rates were more than double what the system was using to cost its inventory. The company knew its profitability had weakened, but now had identified which product categories required process improvements in their manufacturing process and what a break-even sales price looked like.
Sax LLP By Joshua Chananie, CPA, Partner-in-Charge, Manufacturing and Distribution
Inventory management might be the most critical key to success for a manufacturer or distributor. The most common and costly inventory management errors are attributable to one or more of these three issues: Departments are not fully integrated; employees are unequipped or inexperienced; and employees are using information that is incomplete or inaccurate to make business decisions. I recently came across a situation whereby a distributor was experiencing cash flow issues due to severe overstocking of inventory. The warehouse was exploding with product and management did not understand why so much product was being ordered. As we started looking at system reports, we focused on re-order quantity which is a critical benchmark and concluded that no one had adjusted the re-order quantities assigned to SKUs for years. So as the business changed, and the customer-base changed, reevaluating operations was ignored. The sales team had great metrics as to frequency and the number of SKUs that moved by customer which the purchasing team was able to then incorporate into the system. Fast forward six months, inventory levels have dropped almost 30 percent and the company is moving more toward being cash positive than cash strapped.
SobelCo By Michael LaForge, CPA, CGMA, Partner-in-Charge, Manufacturing Practice
When supermarkets think about protecting and managing their inventory, they typically worry about theft, spoilage and administrative errors. Since employee theft is a significant contributor to this “shrink,” we focus on this area, suggesting they hire carefully. We also suggest they rotate employees so that they don’t have the opportunity to become too comfortable in any particular department. Technology can help with this when security cameras are in place. In addition, we advise them to perform regular cycle counts to identify problems early and minimize losses. Internal controls matter so always ring up every item taken from inventory—whether it will be used for store supplies, consumed on the premises or donated to charity. And of course, do what grocers have been doing for over 150 years—rotate your stock. Taken together, these simple and straightforward steps afford our clients the ability to consistently and effectively protect and manage their inventory.
Withum By Joseph R. Riccie, CPA, Partner, Market Leader, Management Consulting Services
Our client, an industry global software company, needed to manage and protect their Digital Inventory Assets worldwide. Their process was manually intensive, taking days and many people to accomplish operational and compliance tasks. The company quickly outgrew its financial software and switched to Excel, but soon realized that adding more people and more Excel worksheets was not scalable and would only complicate matters. Our technology advisors demonstrated how eliminating Excel worksheets with a software solution (NetSuite in this instance) would seamlessly connect to customer contracts and monitor consumption. The outcome was the design of an operating structure where consolidation and reporting across many geographical views, using multiple foreign currencies, were now possible. Withum also used the software’s revenue recognition module to support the new ASC606 Revenue Recognition rules, which produced auditable reports. Even our client’s auditor, not Withum, was relieved to audit system-generated reports to validate revenue versus the multitude of Excel worksheets.