The Trap of Accountancy Systems; When to Move on to ERP
Written By: David Smith
Published On: September 25 2004
some entrepreneurial companies in the tornado of fast growth, staying with an
accountancy system while the business expands is a quick fix that can cause
long-term damage. Those companies may find that a system furnished by a vendor
of accountancy systems retards growth—particularly in the case of manufacturing
companies. Rather, manufacturing companies should implement an enterprise resource
planning (ERP) system as soon as their budget and resources will allow them
This document examines why companies look to accountancy systems for business control, why that choice may be an error, and how ERP will improve the business's chance of survival.
hole we fall into: Accountancy systems as the quick fix
are hundreds of manufacturing companies that use accountancy systems to run
their entire enterprises, some of the reasons they do so are explored below:
already have one
of how small, every company will have an accountancy system of some sort, and
this is key. Let's be honest; when a company is in high growth, everyone is
busy, and changing systems seems unattractive. Rather than have everyone learn
another solution and move all the existing data, some companies find that the
path of least resistance is to add some extra users to the existing system and
is the big issue
For any business
manager, cash is king. For entrepreneurs this is doubly true. After chasing
funding and ploughing careers and mortgages in to a company, the focus of the
principals of a company on money becomes almost obsessive. Therefore it is easy
to think that your accountancy provider is helping you manage what's important,
when, as will be illustrated, they are incomplete solutions.
Accountancy systems tend to be developed by companies with strong brand names;
their product is often commoditised and therefore television and radio adverts
will be popular. Also, your accountants will naturally have a system and will
have an opinion on a system. So, the accountancy system is a comfortable choice
in the boardroom; it's on the radio all the time, and the accountants think
it's OK, so it's a safe enough choice, right?
Differences Between ERP and Accountancy
are the differences between a manufacturing ERP and an accountancy solution?
OK, now we have some ideas of how we got here, what now? Does it really matter?
Actually, it does; the differences between ERP and accountancy solutions are
huge. Accountancy solutions help with financial management and statutory reporting,
but do little to streamline or control operational activities. Some illustrations
are given below:
If your system vendor cannot talk to you meaningfully about the relative merits
of MRP, MRPII, OPT, Kanban, and MES get rid of him immediately.
manufacturers are now selecting—sometimes mixing—push- and pull-based manufacturing
control philosophies, to ensure that customer service is maintained without
drowning in unnecessary stock, inventory, and finished goods. Let's remind ourselves
that cash flow, not profit, is often the cause of the demise of an enterprise.
What does an accountancy system do to maximize throughput and order velocity
on your shop floor?
Increasingly manufacturers are turning to support and service contracts to bolster
revenues and to obtain an edge over their competitors. Naturally, to run such
services effectively, functionality will be required of the ERP systems to control
support contracts, customer calls, warranties, and on-site work. Again, one
has to ask what an accountancy vendor will offer.
and Regulated Industries
All manufacturing is regulated to some extent, even if it is only basic lot
and batch traceability of products for warranty and limitation of exposure should
a product fail and need to be recalled. Some industries involving human life
(food, drink, drugs, aerospace) require full traceability of all transactions—especially
those concerning the definition of the product or the process. Here again, manufacturing
ERP vendors are aware of these issues, whereas accountancy vendors may not be.
This is a serious and often overlooked factor. When you engage a manufacturing
ERP vendor, you can expect that the vendor brings significant experience to
you. If you deal with a generalist vendor (accountancy vendors would be excellent
examples of this) your vendor has to be careful about the validity of the experience
that they claim to have. They may well have 5,000 clients, but how many of them
When to Turn to ERP
signs that its time to look at manufacturing-focused ERP.
begin to complain about the performance of your systems.
find that you have to create in-house databases and file systems around the
need better control of operations.
Your stock is too high.
You cannot match the value proposition and service offered by your competitors.
There are problems with engineering data.
You struggle to meet ISO, FDA, or FAA regulations.
You find it difficult to control the shop floor and output is poor.
Your buying costs are too high.
Your customers are complaining about lack of service.
Your current IT supplier does not understand your business.
Recommendations and Conclusions
A specialist manufacturing ERP is now, seat for seat, the same cost as an accountancy solution. Simple ledgers and order processing systems should be swapped out for more comprehensive systems before the limitations on the current solutions retard growth and cause problems. In the current market many vendors are shipping most of the functionality a manufacturer will ever need in one bundle, and you need only add users when required. This can work out far cheaper in the long term than adding to a suboptimal system to paperwork, in-house databases, and lots of hastily strung-together "partner products" to drive your business.
Smith works for Open Business Solutions, a leading provider of ERP
to manufacturing companies. Their solutions include MAPICS: the world's most
widely used mid-market industrial ERP, and JOBSCOPE: specialist ERP for make-to-order
and maintenance repair and overhaul companies.
can be reached at email@example.com