Reference no: EM131075825

FIGURE 12-8 Four ERP project disasters.

Quantifying the Business Value of an ERP System. The past decade will be remembered for large investments in IT and ERP systems. However, many IT departments have been unable to justify the business value of these huge expenditures, and managers often disagree on how the effects of technology on firm value are best measured. Trish Saunders, a contributing author to Customer Insights, a Microsoft newsletter for mid-size businesses in the United States, claims that whatever methodology a company uses to measure the value of an ERP should be applied consistently across the organization at specific times after its implementation. Figure 12-9 includes the steps she recommends and suggests that a company that does not establish specific performance metrics will have difficulty gauging how well the ERP meets organizational objectives or how to correct any performance gaps.

1 Determine how you will measure success.
2 Set up specific metrics based on your industry.
3 Perform regular postimplementation audits.
4 Analyze your performance numbers.
5 Set up universal processes.
6 Create a continuous learning loop.
7 Prepare for inevitable security failures.

FIGURE 12-9 Methodology for measuring the value of an ERP.
12.4 Selecting A Software Package

An organization has many choices when selecting accounting information systems. In this section we briefly discuss how managers and owners can recognize when they might benefit from a new system and how they might go about selecting one. Chapter 6 describes the general processes of developing new systems and selecting hardware and software in more detail.
When Is a New AIS Needed?

Believe it or not, many small businesses still keep their accounting records in a shoebox, filing cabinet, or similar storage, and their "accounting system" is really their tax preparer. But manual accounting systems do not allow business owners to analyze their data very much, guard against input or clerical errors, automatically generate financial statements or operating reports, or identify trends or opportunities to reduce costs or increase sales. For such businesses, a computerized system has much promise.

For those already using computerized AISs, there are many signals to business owners or managers that a new accounting software package, or an upgrade in software, might be a good idea. One example might be new regulations or legislation that requires new reporting documents. Another reason might be the need to comply with new rules or laws. A third reason might be pressures from competitors. Figure 12-10 lists 10 such signals.

1 Late payment of vendor invoices, which means late fees and lost cash discounts.
2 Late deliveries to customers.
3 Growth in inventories, accompanied by an increase in stockouts.
4 Slowdown in inventory turnover.
5 Increased time in collecting receivables.
6 Late periodic reports.
7 Increasing length of time to close out books at the end of a period.
8 Managers concerned about cash flows and financial picture of organization.
9 Manager complaints about lack of information needed for decision-making.
10 Owner worries about cash flows, taxes, and profitability.
FIGURE 12-10 Indicators that a company needs a new (or upgraded) AIS.

When a business owner or manager recognizes that it is time to purchase new (or more powerful) software, the next question is, "Which software should I select?" Here are some ideas.
Selecting the Right Accounting Software

Shopping-mall software retailers rarely sell mid-range or high-end accounting software packages. Instead, business owners and managers working in larger firms are more likely to purchase them from a value-added reseller (VAR) or a qualified installer. These companies or individuals make special arrangements with software vendors to sell their programs. They also provide buyers with services such as installation, customization, and training-services necessitated by the complexity of the software. A VAR offers a broader array of services for more software programs than a qualified installer.

The approach to buying accounting software varies with the complexity of the business and the software. For small businesses, the selection process is obviously much quicker and less expensive than when a big company needs an ERP system. Chapter 6 elaborates on this selection process and discusses some tools available to help make such decisions.
Large organizations with specialized processing needs may decide to build a customized AIS from scratch. While custom systems are difficult and expensive to develop, they are becoming less expensive with advances in object-oriented programming, client/server computing, and database technology. Custom systems are often more costly and take longer to develop than management anticipates, which is why most firms retain consultants to help with the selection and implementation of AISs.

Today's accounting software is easy to use and feature-rich. Consultants usually find that packaged software can handle about 80% of a client's processing needs. A company can ignore the other 20%, meet its needs with other vendor software, or develop its own modules to complete its system. Internet research and discussions with other business owners in a similar industry may be enough to help a business owner select a software package. Three helpful Internet sites are (1) www.top10erp.org, (2) www.2020software.com, and (3) www.ctsguides.com, each of which lists important software features, describes these items in detail, and allows individuals to compare software packages. These sites also offer software demos, make software recommendations, and provide detailed online software reviews.
Finally, because ERP systems can cost millions of dollars and take years to fully implement, it is always advisable to get the help of an expert when choosing one. Consultants can conduct a thorough analysis of an organization's needs and determine which software vendor has the best solution and what customization the buyer might need. Companies should know that some consultants are independent, some work for specific vendors, and some are professionals who work in IT consulting firms or are specialists within large accounting firms. The best way to choose a consultant is to look for someone who has experience with your industry and who is familiar with more than one package. As you would expect, vendor consultants are unlikely to suggest solutions other than the ones offered by their employers.
AIS AT WORK

An ERP Success Story at Mar-Bal10

Mar-Bal is a private company that makes composite plastic products and employs 350 people in four locations in North America. The company had all the classic earmarks of an outdated data-management system, including (1) the absence of convenient EDI portals for B2B uses, (2) the inability to create advanced shipping notices for customers, (3) the inability to scan parts production from its shop floors, (4) poor inventory control over vendor-sourced products, (5) manual data entry of inventory data, which introduced data-transcription errors into the system, (6) the inability to meet growing data processing volumes, and (7) limited forecasting and reporting capabilities. In addition, the company took manual counts of its inventory every month. Partially as a result, it took nearly two weeks to complete month-end reports, delaying vital information to managers and sometimes responses to customer inquiries.

To address these problems, Mar-Bal managers performed a systems analysis of its processes in order to better understand its system problems and to create a list of requirements for a new system. Given that the company was not in the software business and did not want to develop a customized system, its managers concluded that acquiring a new ERP system was its best course of action. After generating, and then narrowing, an extensive list of software vendors, the company eventually chose EnterpriseIQ from IQMS, which it first installed at the company's headquarters in Chagrin Falls, Ohio and then later implemented companywide.

The new system is a comprehensive solution to Mar-Bal's many problems. For example, the system now provides full EDI capabilities for both customers and suppliers and allows employees to process hundreds of electronic invoices per hour if necessary. Because the production facilities now use a compatible bar-coding system, managers can scan and track every single box or part in its four inventory locations, whether from manufacturing or from external vendors-an improvement that has eliminated its earlier, error-prone data entry system as well as the need to take manual monthly inventories.

Internal communication among employees has also improved with real-time monitoring of inventory-even from remote locations. Floor-level employees now use computer tablets to enter manufacturing data immediately into the system as they complete jobs. Similarly, sales representatives can view available inventory on an up-to-the-minute basis.

In addition to these benefits, the company saves time and money. In total, the company estimates that it saves $270,000 per year across its four plants. This includes $62,000 annually with its real-time production monitoring system, $30,000 in improved inventory control, and $23,000 in month-end reporting costs. The company also estimates that it saves $53,000 each year by eliminating the 2,750 hours of labor it once needed to take monthly physical inventory counts (which it now only performs once a year), and 5,000 hours of machine time (which it lost when making those counts).