At some point, every production company needs to start using manufacturing software (i.e. an MRP system). It is very likely that by that time accounting software is already in use, but it has ceased to satisfy needs – it does not supply the necessary answers and restrains the growth of the business.
Therefore, a decision is made to start using special software for manufacturing. The following question arises every time: how to integrate the old and the new systems?
In this article, we describe how to add a manufacturing system to your existing accounting system one, and how some procedures inside the company will change.
The Purpose of Bookkeeping
In general, the core purposes of bookkeeping are tracking the financial position of the firm and generating financial reports.
When it comes to inventory management, financial statements should provide an answer to, “What is the cost of stock, and what is the change in comparison with the previous period?”
But certainly, it does not have to answer how many pieces of specific items were sold, how the purchase price of raw materials has changed, how much the finished product is estimated to cost, nor what the actual cost of the individual product was.
However, since financial statements were the only reports available for a very, very long time, many solutions have been developed for getting this information from accounting software.
For example, in addition to major accounts (ledger accounts), it is now possible to set up sub-accounts. For each operation, where the program itself can choose the correct account, sub-accounts can be chosen manually. Although this does not seem complicated at first glance, in practice, when there is a lot of data and not only the professional accountant work with the system – but also other employees, – the accounting process is significantly more complicated.
In fact, these (over)complications are artificial and not needed.
Financial vs Managerial Reports
Accounting is not only bookkeeping. Besides financial reports, there is also managerial statistics and reports. Namely, information which gives the necessary foundation for making business decisions and evaluating the effectiveness of the business.
- How profitable is the product?
- How big is the demand?
- Are the employees invested in the work?
- What is the load of the equipment?
- What are the opportunities to increase efficiency, and reduce costs?
All these issues are very important to the development of the company. But, they are not connected with bookkeeping. The bookkeeping can be simplified significantly, if these questions do not need to be answered.
Still, these questions need to be answered. This is what the manufacturing software or the MRP system is much better for.
How Should Manufacturing Software and Accounting Software Work Together?
Keeping the above said in mind, the right integration works as follows:
- The MRP system is the main tool for the firm’s work. Data input is done to this system.
- Only the summary data necessary for bookkeeping is transferred to the accounting program.
- Management reports are generated from the manufacturing software, where the original data is entered, that is, from the MRP system.
This approach has several benefits:
- Since management reports are generated by the same system, where the main data is entered, the reports can be configured most flexibly. Also, a big advantage is that reports are available immediately, even in real time.
- Simplified bookkeeping.
- As the integration is simpler, it is easier to make changes to it, if a need arose.
- Since the MRP system contains all the original data, it is easier to find the cause of the changes, or issues.
In conclusion, we wish to reiterate the main points:
- The main software system for the manufacturing company should be the MRP system.
- Accounting is a non-core activity of a manufacturing company, an accounting program is a tool just for the accountant, it is not for operations. The simpler the bookkeeping is, the better.
- Managerial statistics should be gathered from the manufacturing software.
- The management of the manufacturing company should be able to obtain the necessary reports independently and immediately, without the assistance of an accountant, or bookkeeping software.