SDCExec.com Classic: The Tax Efficient Supply Chain

 For several years purchasing executives, particularly in the retail industry, have been trying to squeeze every conceivable dollar out of the supply chain. They have focused on process improvements such as total quality management, just in time (JIT), and Six Sigma. In addition, they have poured significant investments into information systems and, more recently, vendor partnering. However, one of the single biggest costs of managing a supply chain has often gone unaddressed: tax.

The reason for this disconnect is that, unlike procurement professionals and information technology (IT) professionals who work on the operational side of the business (i.e. in profit centers), tax professionals have typically limited their discussions to a company's financial group (a cost center).

Typically, corporate tax professionals are measured on a "no surprises" basis and are seldom looked to for innovations. Instead, they are encouraged to mitigate tax "overhead" costs. Often, from a strategic perspective, no news is good news from the tax department. Commonly, this has led to a disconnect between pragmatic operational logistical planning and the most sustainable form of tax planning — functional-based tax planning.

What Are Supply Chains Trying to Accomplish?

Supply chain design is unique to each industry, and the measurement of supply chain effectiveness can be based on several different metrics, such as the percent of perfect orders, cost/margin or other asset-based measurements. Regardless of the metrics used, the end result must be to satisfy customers while managing costs.

In most circumstances, managing costs (i.e. reducing retail costs) equates with customer satisfaction, but in almost every circumstance cost is at least a component of customer satisfaction. As a result there has been an intense focus on cost reduction.

Supply chain managers are trying to respond to the increased velocity through supply chains in response to accelerated changes in fashion, technology and volume. In some cases this has lead to a split in supply chain methodologies within organizations for volatile and nonvolatile goods.

The thought processes and technologies required to optimize a given enterprise's supply chain have also changed. Increasingly, companies are developing tighter relationships with their suppliers, including the sharing of information once thought of as being "sensitive." There has also been an enhanced reliance on technology hardware and software. Two further complexities arising in the early part of the 21st century are cross ownership integration and the internationalization of the supply chain. From an operational perspective, this has resulted in new thinking and greater contractual flexibility regarding commercial relationships.