Is your tax team going to be on the tail end of the phenomenon economists call "the bullwhip effect"? The Wall Street Journal published an article by Timothy Aeppel on Wednesday, describing the economic phenomenon that occurs when companies significantly cut or add inventories. Changes in demand cause a big snap in the end of the supply chain supporting these changes. During down times, companies burn off inventories and do not replace them. When inventories get low enough and demand increases, then the supply chain starts moving to keep up with the new production required to replenish inventories.

How does this sudden change effect your tax department? Most tax determination systems imbedded into ERP, CRM, and SRM systems are not flexible enough to quickly support changes from sourcing locations. As inventories diminish, your supply sources increase. For example, in the fuel industry, you might find your company getting fuel from across state lines, especiallty in this time of tightening supplies. The excise taxation becomes very complex in the Oil and Gas industry when you cross state lines. You might find that by not being licensed in those states of origin, your company is now subject to some very complicated tax scenarios.

Anticipating change is what helps companies achieve competitive advantage.

What if your company has zero IT resources available because to support this snap in the supply chain whip, they are all being allocated by Marketing, Sales, and Purchasing? So your tax team does not only have to research all the possible tax scenarios, but they also have to manually work the system to make adjustments to these changes. The result? A new (undesirable) chain evolves: The more manual adjustments, the more mistakes, and the more mistakes, the more rework (credit re-bills) that will be required. The more rework, the less time to do proper research which in turn means more errors and more rework. The tax department’s work just doubled overnight. The tax team now wishes that they would have automated this process earlier by using a bolt on tax solution....since they now realize they are too busy to implement one. Then, the poor soul, who is responsible for tax reporting compliance, is seeing all the credit re-bills accumulating. Work load has doubled with no staff increase.

What was that old AAMCO commercial? Pay me now or Pay me later? Pardon me - I think I hear a cracking sound in my tax department.