April 21, 2016
Let’s pretend for a minute that inventory costs don’ t matter and that the bottom line is just a figment of our imaginations. Unfortunately, this just isn’t the case! One industry that really feels this is retail, especially retailers that owe an explanation of earnings to both stakeholders and Wall Street. With that being the case, we make the mistake of automatically assuming that these retailers use the best method of accounting for inventory cost and value.
In the world of retail, one thing most every retailer will agree on is, ‘ retail accounting is tricky’ ! So tricky that decades ago, retailers came up with their own method of accounting. It is called, wait for this, The Retail Method of Accounting. This method of accounting came about in pre-POS days when it was hard to determine the true value owned of any item and at any time. “The value of inventory had to be the lesser of cost or retail – so you had to impute your remaining inventory cost value” said Paula Rosenblum in a recent stroll down memory lane: The Retail Method Of Accounting: Still A Troublesome Anachronism. Maybe some of you remember this old method or maybe you are still using it? But wait, there is more tothe quirkiness of retail accounting.
Ever heard of ‘ deals’ ? I don’ t mean in-store promotions but rather buyer/vendor deals. Where retail buyers make deals with their vendors to gain access to lower prices while promotions are going on. So they buy a boatload for the promotion at the lower price but end up selling more. This ends up in a ‘ claim’ . Guess how these are handled? With more interesting accounting practices. The claims transactions have escalated from 8-10 a month for a single retailer, to 100s and can take up to 2 years to resolve them. Messy, time consuming accounting.
Why am I telling you all of this? Because there is not likely a single software solution on the market that will meet your exact needs. Leading to costly customizations and possible risks to license agreements. These customizations usually result in more complex transaction handling and are more time consuming requiring accounting professionals (even some at the lower levels) who must possess skill sets or need extensive training to handle them. This in turn takes their attention away from more mission critical business issues.
What about EDI? A great way to bypass costly customization to financial systems with timely direct entry. While the retail industry started moving toward EDI technology in the 1970s, many vendors were not invested in the technologies needed and still are not.
Then we turn our eyes to the ever-present elephant in the room- Omni-Channel. With the movement towards a costly Omni-Channel environment where retailers are seeing expenses rising faster than sales, they are being faced, more than ever before, with squeezing efficiencies out of their processes and improving margins in every way possible. For example, with complex accounting practices and millions of dollars at stake due to vendor deals, (recovery audit) retailers can hardly wait the usual 2 yrs. to reconcile these discrepancies. And just think about all the retailers that play the pricing game by changing prices multiple times a day influencing margins that in turn influence new vendor deals going forward. All of this data needs to be accurate and timely. Omni-Channel requires real or near-real time to be effective.
Enter BPO! Imagine being able to front-end your financial software with very specific yet simple transactional entry instead of costly customization. Imagine being able to offer EDI capabilities for direct vendor transactional processing to replace manual transactions, paper, email trails, etc. Imagine being able to free your accounting professionals to focus on the core business instead of day-to-day data entry. Then imagine, 24-hr turnaround, significant personnel cost savings, improved productivity, and more accurate and timely financial results.
This is ‘Why BPO’ and why it has become so popular in recent times, especially for retailers. This is what BPO cando for you if it is done right!