The Trap of Accountancy Systems; When to Move on to ERP

Introduction

For 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 to.

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.

The hole we fall into: Accountancy systems as the quick fix

There are hundreds of manufacturing companies that use accountancy systems to run their entire enterprises, some of the reasons they do so are explored below:

We already have one
Regardless 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 "make do."

Money 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.

Comfort
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

What 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:

Operations Management
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.

Modern 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?

Support and Service
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.

Traceability 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.

Expertise
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 manufacture?

When to Turn to ERP

The signs that its time to look at manufacturing-focused ERP.

• Users begin to complain about the performance of your systems.
  
  
• You find that you have to create in-house databases and file systems around the ERP.
  
  
• You 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.

About the Author

David 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.

He can be reached at d.a.smith@openbusinesssolutions.com

Web addresses: www.openbusinesssolutions.com, www.mapics.com, www.jobscope.com.