June 24, 2022 - Douglas Myser

Tax professionals adapting to supply chain. With the supply chain causing havoc worldwide, governments, companies, and even Tax Professionals have had to alter the perception of the supply chain that was created after both World War One and Two. Those supply chains were set up towards a simple, linear supply chain that concentrated on lowering cost, being faster, minimizing inventory so it was supplied just in time. That model resulted in supply chains that maximized profits through efficiency. But those arrangements often sacrificed the redundancies---such as inventory buffers or backup suppliers--that can help a company navigate hard times. Among the most recent challenges was the Covid "bullwhip effect"---a kind of imbalance between supply and demand. It began when the early stages of the pandemic caused Chinese factories to shut down. Tax professionals adapting to supply chain.

The shutdowns led to inventory shortages, which resulted in panic buying and pent-up demand in the United States. Chinese manufacturers responded by sprinting toward higher production again. But by the time the goods reached the market, consumer demand had dropped in many categories, because of lockdowns in the United States. Those kinds of disruptions affect companies cash flow and how they manage their profitability goals for the year and quarterly. Supply chains also have been affected by rising tariffs in recent years, rolling Covid lockdowns, and the extreme disruption of Russia's invasion of Ukraine. In response to all the challenges, lead times for goods have grown two to three times, and shipping costs in some cases have quadrupled. Extreme variations mean that finance leaders have to adapt their approach to forecasting revenues and expenses. Companies must now decide whether to spend more money holding greater amounts of inventory in order to minimize disruptions. Many also are looking for savings elsewhere as shipping costs grow.

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