Accounting for Shifts in Retail Supply Chain Practices

The retail and distribution industry are experiencing a significant shift. Industry leaders must adapt their supply chain management strategies to meet customers’ expectations and drive sales as consumers demand instant online inventory. U.S. retailers must adapt to the changing supply chain in order to track real estate, machinery, and other assets and realize the financial benefits of these changes.

Rethinking supply-demand

While cost-savings are still a key factor in retailerssuccess, many companies are now focusing less on production and labor costs and more on transportation, availability to consumers, flexibility, and efficiency of their supply chains. The rise of ecommerce is at the heart of this trend, with retailers striving to find new ways for direct supplier-to-consumer transactions. Many national retailers, including Sears and Best Buy, are using drop shipping and third-party marketplaces to compete with Amazon. This allows consumers greater product choice and faster fulfillment.

Many retailers will eventually have to sell their warehouses in order to make room for these modern methods. To keep up with online orders, logistics and distributors are purchasing more real estate and modernizing their existing facilities. One of the most important, yet often overlooked byproducts of these new supply chains is how they are forcing retailers to use fixed assets to their advantage.

Cost tracking

Retailers and distributors are constantly purchasing more assets to support the growing supply chain. It is important for firms to track expenses and asset lifecycles. It is difficult to follow current accounting guidelines and regulations regarding fixed asset reporting and deduction.

Keep in mind the GAAP

The Generally Accepted accounting Principles (GAAP) are the standard guidelines for U.S. financial accounting. GAAP rules provide the framework for companies to prepare financial statements and assess their organization’s value. However, GAAP has come under fire in recent years for not accurately capturing true corporate worth.

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GAAP rules are based on historical asset costs and do not account for assets that increase over time. This could cause companies to lose sight of their total value. Distributors and retailers who renovate existing warehouses and fulfillment spaces must ensure that they capture the appreciation and replacement value in real time.

Be proactive

Retailers and logistics companies must be aware of the changing tax and accounting regulations in order to stay competitive in a supply chain. The IRS published its final Tangible Property Repair Regulations late last year. These regulations govern the disposition and capitalization expenses that were paid to buy, produce, or enhance fixed assets. They became effective January 1, 2014. The new regulations make it more important to report fixed assets correctly from a compliance standpoint. This has left firms in all industries struggling with how to transfer their accounting systems and internal processes. These policies are especially important for retailers, who should be aware of them and have the tools necessary to track their repair expenses. These policies should be especially taken into consideration by retailers, and they should have the tools to track their own repair expenses.

Retailers and other supply chains should begin to strengthen their accounting resources in order to take the stress out of asset management, depreciation and all its complexities. Businesses may also consider updating their internal processes and implementing fixed asset management technology that integrates with the general ledger system. This provides a real-time platform to track their asset portfolio. These systems are updated automatically in line with regulatory changes and provide analytics that can help you plan for long-term investments.

Distributors, retailers, and suppliers are realizing the importance of new equipment and facilities to fulfill customers’ fulfillment needs. These companies are investing in new assets and land or upgrading existing assets to increase their growth. However, the accounting for these investments is crucial.