Centralized vs decentralized acccounting, perspectives and experience with

Vernon Reizman's Profile

centralized accounting vs decentralized accountingWe currently run 4 mfg plants of similar size ($25 MM sales, 200 ee's each) in 3 states with a controller  and related accounting functions at each plant reporting into a corporate CFO at the parent. We have a centralized computer system so there is no reason we could not move more accounting functions to corporate other than the plant manager prefers autonomy and keeping this set up. Does the additional cost of having the on site accounting depth outweigh the benefit? Would a plant accountant suffice vs a higher cost cpa or mba controller? Thoughts? I am interested in horror stories or solutions that worked.

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Vernon
My past includes heading up a mutli-factory packaging manufacturer, so with that backgound, here are some thoughts:

1. I see two potentially different roles and skill sets here. First, the plant level finance guy is likely to be a strong operations-focused cost accountant/ controller. He is the Plant Manager's "finance guy" - his focus in on plant operations metrics, not on US GAAP financials produced after month end. Example: integrity of production floor measurement and reporting, utilization levels, variance analysis, trends in finished goods costs, etc. The second role is the accounting controller: is everything allocated to the right GL accounts, vendors paid, revenue recognized, non-plant overhead expense review etc. The CFO wants that person collecting data from the 4 plant managers and reporting US GAAP results etc.

2. My two cost accountants were both qualified/degreed and understood manufacturing cost accounting concepts. We implemented integrated standard costing into our processes and financial reporting and were able to show the CEO and Board each month where our profits came from: sales volume and price variances, production overhead recovery variances, purchase price variances for materials and overhead spend variances (both production and SG&A).

The plant manager may be reluctant to give up his "finance guy" because he realizes how much value he brings to the management of the plant:)

Regards

Len Green
lgreenattransforming [dot] com

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Vernon, you might want to take a look at this free white paper I found in our library here at Proformative. The title is "Transforming Your Busieness Through Cloud ERP:"

http://www.proformative.com/whitepapers/transforming-your-business-cloud-erp?pf_source=sj-centralized-vs-decentralized

Enjoy!

Best... Sarah

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I am currently in an $800mm packaging and paper manufacturer. We have no issues in having centralized finance with seven plants. We do not have the latest ERP for these plants, but have been able to manage cost accounting, transactional processing as well as financial close, budgeting and analysis from a central location.

In a prior position, we removed all plant controllers and accountants from our plants and went to a hub/spoke system for support. Based on the size of the plants you mentioned, the leap to a centralized finance function doesn’t sound out of reach.

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While moving to a centralized structure might be within reach, to get everyone "on board" you need to make sure that the plant manager is getting the service they need from the centralized group - meaning not just GAAP items and whatever else the centralized group thinks is important, but the operational data that makes his "finance guy" so valuable. Respect the customer's needs and exceed their expectations.

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Len/Pat/David--thank you--appreciate the insights.

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I have previously headed the corporate level accounting and reporting function for a multi-billion, multi-plant, multi-national packaging company. I have seem both centralized and at least somewhat distributed functions. I strongly prefer the operations oriented finance guy at the plant that Len describes. Transaction processing and corporate reporting/compliance can be centralized as support functions not essential to the operations finance guy. Financial judgment at the point of customer contact and operations is critical to enabling a sound economic business focus and prevent a loss of the needed sense of reality. The completely centralized operation depends on a unchanging, standardized business model, much more rare today than even to succeed with plant operations a "color by the numbers" operation.

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Thanks Barret

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