ERP systems can offer a strong ROI for small to medium manufacturers who choose to invest in a quality system. For many, the benefits of such a strong manufacturing ERP system mean tighter controls and standardized data for production that allows for optimized production. It also recalls images of better control over inventory and the supply chain in general.
But there are other critical areas of every manufacturing company that benefit from a strong, flexible ERP system as well. While not always considered in the benefits of an ERP system, one of the key areas that doesn’t receive as much focus yet still benefits greatly is accounting. Tasked with finance functions and basic accounting that make the factory run smoothly, accounting departments too can benefit from an ERP system as much as production and supply chain. These benefits can improve profit and communication and standardize the accounting functions to create a smoother workflow.
Here are the top benefits of a manufacturing ERP system for accounting:
- Analytics – A strong ERP system provides data that can predict behaviour and identify patterns. This data is used in different business processes such as sales, marketing and supply chain as well as production. This provides a comprehensive picture that allows accounting a full 360-degree view of financial functions. By using the standardized data in an ERP, accounting departments have access to data that isn’t readily available elsewhere and helps them to better forecast and manage risk.
- Improved Workflow – Accounting departments have workflows just as production departments do. An ERP system can automate tasks within that workflow related to compliance, auditing and reconciliation. Because these functions are automated, time is no longer needed to collect and analyze data and accounting managers can focus on more value-added tasks.
- Cost Savings – ERP software saves accounting departments money by reducing operating costs. With automated account management processes, labour requirements are reduced. Overall, studies have shown that ERP systems save an average of 10—15% of operating costs and accounting functions are included in that calculation.
- Centralized Accounting – An ERP system integrates and centralizes data to allow management of accounting from one location. It reduces costs by removing redundant systems from multiple locations. This allows better-defined budgeting and cost allocation for raw material, labour and other associated costs. It also helps in managing cash flow and even helps in managing capital allocations because the data used is consistent with production requirements. Other accounting functions that can be automated with an ERP system include payroll, ACH vendor payments, credit card processing, branch accounting, bank reconciliations and others.
- Financial Management – An ERP system can act as a financial management system. This allows the department to track revenue, grant credit, and accurately manage customer payment schedules. Many companies operate from a net 30, 60, 90 or 120 day terms and often these are overlapping depending on the size and importance of the customer. An ERP system with automated functionality can help keep track of this and allow for automation of payment, billing and revenue. It also helps develop reporting for cost analysis, invoice tracking and budgeting.
- Cross-Functional Operability – Many companies deploy different systems for key functional areas. In these companies, finance, production, maintenance, and inventory and supply chain may all have their own dedicated and siloed software. This reduces collaboration and leaves the enterprise open to miscommunication. With an ERP system, data is standardized across all departments. Collaboration is therefore enhanced, and departments work in synch with accounting rather than at cross purposes. The consistency of the data creates a natural atmosphere for collaboration because everyone is using the same dataset.
- Reduced Risk – Integrity of data is crucial in any company. Without it, production efforts fail, and supply chains create overlapping and wasteful overruns or shortages. The same is true of accounting as well. With an ERP system, the integrity of the data is shared across the platform. Everyone has access to the same measurements, KPIs, analysis and standardized definitions of data and units of measurement. This keeps accounting functions running accurately. Additionally, many accounting only software systems are not GAAP compliant. ERP systems, on the other hand, have GAAP compliance built-in as part of their service offerings and functionality.
- Real-Time Data Equals Opportunity – With an ERP system with integrated accounting, decision-making can be done in real-time. This opens the possibility of new opportunities for accounting to impact production. The ability to analyze data real-time vs historical can make a difference between dollars saved and dollars lost.
- Inventory Reporting – Depending on whether the manufacturer is a discreet or process manufacturer or whether they use make to order, make to stock or assemble to order, inventory is an expensive part of all operations. Accurate inventory can save money and can impact tax liability as well depending on whether a company holds a high degree of WIP or finished goods. As such, inventory accounting is closely tied to overall accounting for the entire enterprise. With an ERP system, standardized data allows for inventory reporting that can be analyzed to optimize financial considerations. By analyzing the transactional data available within the ERP, accounting departments can ensure that decisions are being made to maintain maximum accuracy of the inventory position and assure that adequate capital is available for inventory when needed.
- Improved Job Costing – Today’s manufacturing environment is more complex than ever. And with that complexity comes BOMs with longer chains that require accurate costing. By integrating accounting into an ERP system, data on BOMs can be analyzed to cost the factory and its products accurately. This is beneficial in volume environments where a fraction of cost can mean the loss, or gain, of millions of dollars as well as in small lot discreet manufacturing where single unit or short lot production of specialized, premium value units can result in loss or gain as well if costed correctly. The integration of accounting and ERP gives a company a better shot at accurately costing the operation.
While ERP systems are often thought of in manufacturing companies as an extension of an MRP system, they are also so much more. Inventory, maintenance, customer service, quality management and other departments are also integrated to provide optimum system integrity. But is important to include account as a key player in this ecosystem as well, as the financial decisions made using ERP data will impact the entire operation.
If you are curious about other benefits of implementing a manufacturing ERP system (there are lots of them!), and would like to know more about different options on the market, continue with our post about the Top Six Manufacturing ERP Systems for Small Manufacturers.