How do you cope with inventory costing challenges in a global or multi-location supply chain?

1 Choose a consistent costing method

There are different inventory costing methods that you can use to calculate the cost of goods sold (COGS) and the value of your ending inventory. Some of the common methods are first-in, first-out (FIFO), last-in, first-out (LIFO), weighted average cost (WAC), and specific identification. Each method has its advantages and disadvantages, depending on the nature of your products, the market conditions, and the accounting standards. However, whatever method you choose, you should apply it consistently across all your locations and transactions. This will help you avoid confusion, errors, and discrepancies in your inventory records and reports.

3 Implement a transfer pricing policy

Transfer pricing is the practice of setting prices for goods or services that are transferred between different entities or divisions within the same company. For example, if you have a manufacturing plant in China and a distribution center in the US, you need to determine how much the plant charges the center for the products that it supplies. Transfer pricing can affect your inventory costing, as well as your income statement and balance sheet. Therefore, you need to implement a transfer pricing policy that is fair, transparent, and consistent. Your policy should reflect the market value of the goods or services, the costs incurred by each entity, and the profit margin expected by each entity. You should also document your policy and transactions, and follow the relevant tax rules and regulations.

4 Review your inventory costing periodically

Inventory costing is not a one-time activity. It is a continuous process that requires regular review and adjustment. You should review your inventory costing periodically to ensure that it reflects the current market conditions, the changes in your supply chain, and the performance of your business. For example, you should review your inventory costing when there are significant fluctuations in exchange rates, inflation, or demand. You should also review your inventory costing when you introduce new products, change suppliers, or expand to new markets. By reviewing your inventory costing periodically, you can identify and resolve any issues, errors, or inefficiencies that may affect your inventory value and profitability.

5 Seek expert advice

Inventory costing can be a complex and challenging task, especially in a global or multi-location supply chain. You may encounter various legal, tax, and accounting issues that require expert knowledge and guidance. Therefore, you should seek expert advice from professionals who specialize in inventory management, international trade, and cross-border taxation. They can help you cope with inventory costing challenges by providing you with accurate information, reliable solutions, and best practices. They can also help you avoid any risks, penalties, or disputes that may arise from non-compliance or mismanagement of your inventory costs.