April 9, 2025 - It is almost never a single bad investment or one off-year that sinks a manufacturing company. Instead, a slow accumulation of effects leaves it weakened — eroded margins, mismanaged costs, and in particular, outdated accounting practices.

Take the present inventory levels as an example. Seventy-three percent of manufacturers expect inventory costs to rise this year, yet many still rely on outdated first in, first out (FIFO) strategies that do not account for inflationary pressures. Meanwhile, they worry about the capital costs of reshoring without realizing depreciation strategies could offset them.

This article explains how a stronger manufacturing accounting partner could unlock more options for your manufacturing business.

What is Manufacturing Accounting?

Manufacturing accounting is a branch of accounting that considers the unique complexities manufacturers face around tracking production costs, inventory at different stages, and allocating cross-border overhead.

Not every accountant is equipped for this. A strong manufacturing accounting team specializes in these topics. They read trade publications and review international treaties to deliver practical ideas that keep your business lean and resilient, even in times of upheaval.

A manufacturing accounting team can help you:

Rethink costs: If rising costs are squeezing margins, your first reaction may be to raise prices. That can be a risky game. The Wall Street Journal reports that Americans across all income levels are pulling back — even on essentials. Raising prices in this environment could mean pushing already cautious buyers away.

Instead, manufacturers should focus on cost control. That starts with strategic accounting. The most forward-thinking manufacturers are implementing AI-driven cost modeling systems to dynamically adjust pricing based on tariff changes, labor rates, material costs, and supply chain constraints.

Other manufacturing accountants are finding ways to reduce overhead by switching to an activity-based costing model or zero-based budgeting (ZBB). The clothing company Guess, for example, took a ZBB approach during the pandemic. The company slashed quarterly operating costs by $60 million and trimmed capital expenditures to $6 million — a third of what it spent during the same period the previous year.

The savviest manufacturing accountants extend cost control beyond internal operations. Renegotiating freight contracts, adopting hybrid sourcing strategies, or nearshoring production can all reduce expenses without compromising supply reliability.

Lower tax burdens: A smart manufacturing tax strategy can improve cash flow, allowing manufacturers to continue investing in their growth even as capital costs rise. Yet many manufacturers leave money on the table because they are not aware of available credits, abatements, or deductions.

For companies engaged in global trade, the Interest Charge Domestic International Sales Corporation (IC-DISC) rules offer a way to shift taxable income into a lower-rate entity, reducing overall tax exposure.

The Foreign-Derived Intangible Income (FDII) provision under the Tax Cuts and Jobs Act is another key opportunity, lowering tax rates on income from exports of goods and services. That said, changes are likely. With Congress debating revisions, manufacturers should act before rates increase.

State and local taxes present another opportunity for potential savings with the correct planning. Choice of legal business entity, location of a production facility or warehouse, and locations of owners, employees, and sales representatives can significantly alter the business’s state and local tax filing and payment obligations across several different tax types.

In addition, state and local jurisdictions also offer incentives that can offset costs and accelerate investment for companies planning to reshore production. These incentives can take the form of tax credits (some of which can be sold), rebates, grants, and various exemptions from income, sales and property taxes. Micron, for instance, secured $5.5 billion in state tax credits over 20 years for its $100 billion semiconductor plant in New York. Depending on the nature of their business, manufacturing accountants can also capitalize on R&D, depreciation, employment, and other sustainability tax credits to free up cash or weather market volatility.

Efficiently manage inventory: The best-run manufacturers use a mix of accounting strategies, process improvements, and technology to ensure the right inventory is available at the right time.

In inflationary periods, shifting to last-in, first-out (LIFO) accounting can decrease taxable income and allow companies to reinvest in operations or offset rising material costs. Strong supplier relationships — built through fair negotiations, clear service-level agreements, and reliable payments — reduce the likelihood of delays that could halt production.

Setting minimum inventory levels can also keep manufacturers in a steady state when supply disruptions are likely. Modern ERP systems automatically modify reorder points based on sales velocity and lead times.

Companies integrating machine learning into their forecasting can spot demand shifts even earlier, optimize order quantities, and avoid costly stockouts or overstocks. The strength of these models, of course, depends on the quality of your model and the data it reads. For help ensuring your data is high-quality, you may want a technology advisor.

Technology as Your Backbone

Investing in technology can help you gain newfound control over your supply chain. However, just 63% of manufacturers and distributors have updated their ERP in the last five years, which means they are unlikely to be able to seize on new opportunities.

“We are seeing the larger ERP software publishers starting to offer AI features. Though it may be a year or two before the more complex supply chain use cases are ready for mass adoption, companies that have not upgraded their ERP recently will find themselves behind,” says Smija Simon, director of the Digital Transformation Practice at Citrin Cooperman.

Companies that hesitate to adopt AI will have to play catch-up when it becomes an industry standard. The right advisor can help you modernize your approach, find tax incentives, and integrate technology that turns accounting into a competitive lever.

To discuss ways Citrin Cooperman’s manufacturing team can help you streamline your operations and supply chain, reach out to your Manufacturing Industry Practice representative.