Swimming With Sharks 1

As a small manufacturer, getting your first order from a giant company like Walmart or Sears can be a dream come true.  But that dream can turn into a nightmare if you don’t have the right systems in place.

I worked with a company that landed a contract with an international department store chain.  One month’s order from them involved more of my client’s product than they had sold in the whole previous year.  It was a cause for celebration and the sales team threw a party.

Then the realities of all the logistical requirements hit home.  All of the skids had to include an RFID tag (radio frequency identification) to identify the contents of the skid to the department store’s computer system.  The truck had to show up at the receiving dock at exactly the right time.  All of the shipping documentation had to be sent electronically (by EDI – Electronic Data Interchange).  If anything went wrong, the department store would reduce its payment to my client by a pre-set penalty.

That may not sound like much.  Just a few extra steps with each shipment, right?  Wrong.  Another part of the agreement had the six different ways the company forecasts demand and replenishes stock.  They want to keep the minimum quantity on hand and avoid out of stock situations, meaning that suppliers have to be on their toes and respond immediately to new orders.

If my client had had a full featured ERP (Enterprise Resource Planning) system like Oracle or SAP, all of this would have been routine, but they were just a small operation.  So we modified Microsoft Dynamics GP to create special reports that could be downloaded from the accounting system and made a big list in Excel for the staff to follow.  But it would have been so much better, if the client could have had a workflow system that would have sent email reminders to all of the staff about what steps they had to follow for each shipment.

So, let’s stand back a little and look at the best strategy for your systems if you are a medium sized company swimming with sharks.  You have your toe in the door, but have no way of knowing whether this is a one-shot deal or the start of something big.  In the long run, you would like to be able to ramp up your sales, production and systems so that you move up, but in the short run, that strategy is time consuming and expensive.  A good starting point is to upgrade one piece at a time, making sure that anything new you add will work to meet the current demand AND grow with you as you upgrade.  In this case, a work flow system would keep the staff on top of the vendor requirements, as well as supporting the company’s operations regardless of what the future holds.

Reposted with the kind permission of iDatix:  http://www.idatix.com/insider-perspective-swimming-with-sharks-what-to-do-when-dealing-with-large-retailers/

Changing Accounting Standards

What are some of the biggest headaches in accounting?  I’m sure you have your favorites, but let me tell you about Doug.  I called him last week to see if he wanted to go for a drink, but he was still in the office late on a Friday evening.  It turns out his company adopted some of the new International Financial Reporting Standards, so he has to go back and restate the numbers, right back to his opening balance sheet at the end of 2009, and then carry the results forward using the new rules.

“As if that wasn’t enough,” he said.  “We’ve got a bunch of contracts that go back ten years or more.  The auditors now want proof of existence.  They never asked for that before and they don’t accept the fact that we get payments each month.  They want to see the actual paper.  I mean, I know we have them.  They’re piled up on skids at the back of the plant.  But it’s really dirty back there and it’s going to take days to find all the ones the auditors want to see.”

When rules change, they never get simpler.  So often you have to go back to the original transaction and interpret it in light of the new rules.  And it’s not like you can plan for the change.  I can’t tell you the number of times I have wished I had had the original documentation about a transaction so I could see who signed it and ask them what they were thinking at the time.  Or, better yet, if I could have the emails or memos that led up to the deal, so I could understand the intentions of the parties.

Wouldn’t it be nice if you could click a button and see the documentation?  Or what if charities and universities could track the trust documents and bequests in their endowments.  I know a church that wanted to consolidate its endowments because many of them were tiny.  The $5,000 that was a significant gift in 1960 was now almost more trouble than it was worth.  It would have been helpful to have all the original documentation, so that they could approach the surviving families and/or the public trustee.

Honestly, I don’t know which is Doug’s biggest headache, the changing rules or auditors’ demands, but I’ll let you know after we finally go for that drink.  What is your biggest accounting headache?  I’d be happy to feature some in future blogs.

Reposted with the kind permission of iDatix:  http://www.idatix.com/insider-perspective-changing-accounting-standards/