ERP Systems

This week post is for the Purchasing/Procurement process and the jobs carried out by the Purchasing department. Purchasing department has a vital role to achieve a balance between three crucial factors: Cost, Quality and Time and they need to carefully prioritize them depending on the procurement goal working at all three organizational levels to achieve suitable trade-offs between the factors.

Cost is impacted by economies of scale, Time by Contracts taking place on Plant level and Vendor selection has crucial impact on Quality of ordered material.

A general procurement process, its impact on other processes and all the documents created can be summarized as follows:

1. When Inventory recognizes the need to procure materials because of low inventory, it sends a purchase requisition document to Purchasing department.
2. Purchasing department contacts its vendors and requests for their quotation. After receiving the quotation, purchasing department prioritizes the trade-off factors and sends the purchase order to suitable vendor.
3. When Inventory receives the ordered materials with goods receipt, invoice verification is done using purchase order and order invoice.
4. After verification, material document is created for received materials, which is sent to Accounting department who makes the payment and creates financial document.

Fig:Procurement to Payment Process  (Reference :http://www.ramco.com/resources/business-processes/procure-to-pay.aspx)

IT procurement revolves around the activities necessary to acquire IT products and services,telecommunications,hardware,software etc.It involves establishing terms and conditions for providing services,price negotiations,performing market research,and communicating with the customers regarding the status of purchases.IT procurement activities majorly fall under the enterprise wide project management process.Some of the documents involved are:
a)Requests for Information(RFI) b) Request for Proposal (RFP) and c) Request for Quotations (RFQ)

IT Vendor Management and IT Procurement usually go hand in hand,however both have some specific areas to focus on.

Vendor Management
a)Vendor management is mostly focused on maintaining the relationships with third parties and mitigating the risks associated in dealing with them.
b)The goal is to ensure that all vendors are functioning as per the agreed contracts and  are adhering to the company’s standards.

Procurement
a)Procurement’s objective is to save company’s money and reduce the risk related to contracts.Contracts that are due for renewal are also reassessed under procurement process.
b) Aim is to reduce costs ,license fee etc.Under procurement process negotiating for the best price is one of the main objectives.
c)The terms and conditions are also reviewed to check if they are in alignment with the contract and are in favor the company’s interests.

This week I learned purchasing function in ERP system and discussed the purchasing process of Safeway. This discussion inspires me to look into Whole Foods’ purchasing process and its ERP system. Whole Foods, one of my favorite grocery stores, is famous for offering local organic products and its high price. It leaves many decisions in the hands of regional and store-level workers. Compared with other retail stores, it’s more difficult for Whole Foods to reach economies of scale when purchasing and to centralize management.

In recent year Whole Foods centralizes meat buying process and partners with enterprise software firm Infor Inc. to create a new retail management system, to centralize 12 disparate IT systems, home-grown ERP system running across 431 stores. This ERP system integrates its business process in single system and boosts its revenue. This new ERP system enables Whole Foods automate the process of the process of tracking the items on store shelves and submitting restocking orders. By real-time analytics, system also helps Whole Foods know which stores would benefit from a greater variety of locally produced goods and how its shelves present the products. Moreover, it reduces spoilage and expired products. Whole Foods improves IT and business process.

Due to the lack of the financial concepts, I reviewed the basic definition of the accounting equation, which is Assets = Liabilities + Shareholder Equity. Problems happen when imbalance of this equation occurs. And then I start to wonder, since it is not my ambitious to become a well-trained accounting professional, or CFO, what else I can do with the financial functions in the ERP systems besides accounting objective. I accidentally came across this article which intrigued me to think a lot more than the daily accounting routines.

In the article ,“Financial Statement Manipulation An Ever-Present Problem For Investors“, the author Troy Adkins introduced a long existing problem, almost since the start of the economic behaviors happened among human beings; people have been manipulated financial statement for different purpose. Adkins explains four reasons why financial statement manipulation thrives in the modern economy:  management of the company encouraged to do so by the company structure, the flexibility of GAAP standards, the interest conflicts between being an independent auditor and a company client. The author also summarized several accounting processes that were categorized into seven categories from Dr. Schilit’s publication “Financial Shenanigans” (2002), as some basic guidelines of manipulation that investors can start to pay attention to.

For example, item one from the third category is “Increasing profits by selling assets and recording the proceeds as revenue”. A vivid recent example is Yahoo. This process makes the company assets decrease while the managers increase their bonus. This is a sign for investors to be aware of.

Of course there is no way an IPO company will ever allow their investors to login their ERP systems and check what’s going on inside, still it would be interested if we know how to identify these symptoms from ERP aspects.

Accounting concepts and applications are new to me, so it was interesting to formally learn how accounting is applied in an ERP system. It was also month end at work this past week, so I was also able to get a bit of a better understanding of some of the Accounting closing processes that were performed.

There are 2 main different types of accounting processes: financial and management accounting. Management accounting is mainly used for internal needs, for management to examine costs and revenue of the business, while financial accounting is for external legal reasons, and the main processes in financial accounting are general ledger, accounts receivable, accounts payable, asset, and bank ledger accounting. These accounting processes are tightly associated with other processes in an ERP system

I also read about an Accounting Software Company called BlackLine that recently filed for an IPO. The company is supposed to help handle and integrate accounting processes that are “handled outside of an organization’s general ledger, an area in which ERP systems generally are unable to provide solutions to. “

http://fortune.com/2016/09/30/accounting-software-maker-blackline-files-for-ipo/

http://247wallst.com/investing/2016/10/01/blackline-gears-up-for-ipo/

Enterprises across the globe have moved towards greater adoption of mobile solutions and ERP is no exception to the trend.  Here are ways how mobile ERP will benefit enterprises

1) More time for better decision making.

If your key supplier has a huge shipment of raw materials stuck in transit, the operations managers finds out only when they access the ERP platform through a fixed workstation which sometimes maybe too late. With Mobile ERP, managers will be informed immediately giving them more to come up with an alternative solution.

2) Sales People have access to Information while on the go

With a mobile ERP app, salespeople who visit customers can carry important information about the products they are selling and the customers they are selling. They have the advantage of  checking  inventory on hand, order status while being with the customer.

3) Remote workforce:

Most of the companies have remote workers in distant areas, these workers can benefit from having mobile access to the central ERP platform.  Also with the Mobile ERP, upper management can stay connected to the business.

http://www.meritsolutions.com/enterprise-mobility/mobile-erp-benefits/

Benefits of implementing ERP and accounting application

1. Integration of the systems: ERP and accounting application combines company all the functional departments together. They would act as a single company.
2. Enhancement of communication capability of different department: ERP and accounting application would reduce the effort of communication between the departments. They do not need frequent interface information exchange.
3. Efficiency: It streamlines different business processes and workflows and improves accuracy of information. It saves the time for accountant to ask for information from different departments and makes the information more accurate. It helps company work more efficiently.
4. Tracking and forecasting: ERP and accounting application offers manager realtime financial and operational condition. It provides managers realtime report and helps them make critical decision.
5. Globalization: ERP and accounting application supports multidimensional financial accounting and reporting standards. This helps a multinational corporation to comply with local regulation. Moreover, it integrates all the information from different countries. Manager can get the complete perspective.

In this week, I combined what I had learned in Accounting class and in ERP class. It’s exciting and challenging. It helps me think from business process perspective and use the knowledge I gained in accounting class.

Data in the ERP system is stored centrally, and this makes it possible to consolidate all the data during a process. Data is classified as three main types:

• Organizational Data: it represents the structure of an organization. There are three main types of Organizational Data namely: Client, Company Code, and Plant. Client forms the highest form in an organization. A client can have as many numbers of companies, but each company can have only one client. Each of these company is represented using Company Code. All of these company has a plant that performs various functions of a company, and it is represented using Plant.
• Master Data: All of the entities involved in a process is represented using Master Data.
• Transactional Data: Process in a context of Organizational Data uses Master Data for execution, and this results in Transactional Data. Each of these execution produces a documents namely: Transactional, and Virtual document.

Most, but not all of the process impacts the financial document on a transactional step. Process that creates the Impact on this financial data are inventory, finance, and asset accounting. This impact is recorded in General Ledger. List of accounts that can be included in General Ledger is called Chart of Accounts. There are three types of accounts: Operational account, Country specific, and Group account.  Recording data on financial document is based on double entry accounting system, where every transaction has a debit entry and a credit entry.  We record impacts based on revenue principle and matching principle.