As organizations grow, each department and often individual managers develop systems to manage the information that is important to them. Although well intended, these disparate systems can lead to inaccuracies, duplicate efforts, and costly mistakes.
For example, an order processing clerk may take an order, quote an inaccurate price, promise delivery, and execute a sales invoice with no visibility into the customer’s credit standing, availability of product, or expected delivery times. This can result in poor customer service, additional costs to try and “make it right,” and finger pointing between sales, accounting and production.
The most significant business problem that a well-designed and properly implemented enterprise resource planning (ERP) system addresses is the need for accurate, timely and consistent information throughout the entire organization.
As manufacturing becomes more and more complex—with ever-increasing demands to reduce time to market and increase quality and profitability—proper information flow is mission critical. Accounting ERP systems are designed to improve decision making.
Everyone Must be Involved in Manufacturing Accounting ERP System to Ensure Success
Investing in an enterprise-wide software package can be one of the most significant investments in dollars and time that an organization ever considers. Although everyone in the company, from the executive suite to the shop floor, needs to be “on board” throughout the entire implementation process, this article focuses specifically on the manufacturing sector and primarily addresses the needs of finance and accounting.
How does Finance, Administration and Accounting Benefit from the ERP System?
Modern ERP systems integrate all business management functions, including planning and engineering, materials management, sales forecasting and order processing, purchasing and production, accounting and finance, human resources, and more. When properly implemented, the ERP system should encompass every facet of the business.
One of the biggest advantages an ERP system provides to senior management and financial users is an ability to see what is happening in “real time” across the entire organization.
With a well-designed financial dashboard, financial users can quickly “drill down” into real-time data that was previously unavailable to them. They can confidently rely on the data they are seeing to make forecasts, design “what if” scenarios, and manipulate data from every facet of the business, from sales forecasts to production schedules.
Here are just a few of the additional benefits an ERP system may provide:
- Improve profitability with more accurate and timely information.
- Streamline workflows and business processes.
- Reduce costs with integrated inventory, vendor, production, and supply chain systems.
- Increase efficiencies across nearly every department.
- Eliminate duplicate data entry and redundancies.
- Smooth information sharing for better decision making.
- Provide more consistent on-time delivery, increased quality, and shortened delivery times.
- Improve collections with better visibility into customer and production systems.
Early ERP Systems – An Historical Perspective
Enterprise resource planning systems evolved from material requirements planning (MRP) systems that were originally designed to manage elements of the production process and reduce the “silo effect” where every discipline had its own system, and the systems did not communicate well with one another.
Over time, the MRP functionality was embedded within the ERP system as a core process to better manage the manufacturing value chain. Most early ERP systems were still primarily based on the needs of the production department and did not include robust financial applications. As a result, many manufacturing companies, especially smaller ones, still have disparate systems where the accounting systems do not properly integrate with production systems.
The integration of third-party applications with a core ERP solution are feasible, but fraught with challenges. Data duplication, information delays, silo management, interface issues, and customizations add cost and resource constraints that can be expensive, increasing the total cost of ownership of ERP systems.
Fully Integrated ERP Brings Insights to Accounting
ERP systems are now more tightly integrated across the entire value chain, and many include a manufacturing execution system (MES) that captures and simulates shop floor data and feeds it to executive information systems and financial modeling applications that enhance an organization’s ability to more favorably compete in ever-changing world markets.
Modern ERP systems allow accounting departments to leverage information from virtually every department to make more informed decisions. At IQMS, the optimum approach is to balance the needs of both front and back offices through a comprehensive ERP suite.
EnterpriseIQ™ provides seamless integration across a company’s value-chain operations, leading to transparency, data integrity, and process efficiency. The following scenario demonstrates how EnterpriseIQ™ allows for seamless communication across the entire manufacturing environment:
“As a sales order is being entered, the customer service representative receives an immediate alert if the customer has exceeded his or her credit limit or is on “account hold.” All customer-specific price breaks and pricing terms are available for accurate invoicing. As shipments are released, sales order data is transferred immediately to accounts receivable where an invoice can be sent to the customer with the click of a button. Post production, the ERP system can analyze labor, overhead, fixed asset depreciation, and up-to-the-minute inventory costs to determine the actual cost to make the order. Activity-based costing reports can be easily generated to determine the profitability of the order. All this is done from one initial entry with no duplication.”
EnterpriseIQ™ modules include Accounts Receivables, Accounts Payable and General Ledger, Business Intelligence, Expense Management, Fixed Assets, Human Resources, Payroll, Job and Process Costing, and comprehensive Financial Reporting. The system provides:
- Real-time integration: transaction data is automatically gathered, processed and passed between modules across the entire enterprise.
- Accurate bookkeeping: data moves seamlessly across the business without silos or data re-entry.
- Labor savings: because duplicate data entry is eliminated, staff members can be allocated to more important tasks and responsibilities.
- Better tools for costing and profitability analysis: managers have a better understanding of accounting and profitability requirements resulting in improved pricing strategies.
- Powerful and flexible reporting: managers can produce cash flow management, cost control, financial risk analysis, source and application of funds, and what-if reporting to enable more accurate decision making.
- Improved budgeting and forecasting: timely and accurate data yields better financial forecasts.
- Audit transparency: financial audits rely on a comprehensive transaction data layer that is preserved in the EnterpriseIQ™ system. Historical information can be interrogated to reveal and track all records that have been entered, modified and deleted by end users.
Summary and Conclusion for Manufacturing Accounting ERP System
While original MRP systems and early ERP systems were primarily designed to track and manage production and the supply chain, modern implementations are far more robust and offer financial users a much clearer picture of what is really happening throughout the entire organization, from planning to customer service and beyond.
With real-time access to all the data, all users in virtually any size manufacturing company can now make better and more informed decisions.