Implications for accounting information system when implementing Enterprise rollout plans

Knowing the organization in today’s economic climate demand insight, unprecedented growth of information and communication technologies (ICT) driven by microelectronics, computer hardware and software systems has influences across organization.

Simultaneously, how to drive profitability is always a leading concern – especially when faced with global competition, market consolidation, talent shortages, compliance requirements, and shareholder expectation. In order to maintain the competitive power, the organization required a customer designed software package which will cater the sophisticated change of business environment and also be up-to-date. Therefore, Enterprise Resource Planning (ERP) was developed, this system offer an integrated software solution to all the functional processes in an organization including manufacturing, human resources, and finance. Among the functional, finance tools play a major functional role allows companies to successfully execute ERP implementation.

Unfortunately, traditional accounting Information system (AIS) will be affected by the implementation of full ERP system as for the past couple of generation; the accounting system is intended to offer as strong information system which however operates as independence system and it output indexes are always difficult to share with other organization subsystem. Hence, it is necessary to redesign the whole business process for a future successful implementation of AIS adopted into ERP system, it is imperative. Synergy is a key major of ERP solution, the concept of synergy by combining multiple processes into centralized system will allow the organization to become successful ERP implementation.

Role and Purpose of ERP

An ERP system comprises a set of integrated applications modules, which span most business functions (including accounting). Each module accesses many different business processes, each of which is based on so-called industry best practice. All the modules are fully integrated and users can access real-time information on all aspects of the business (Robert and Mostafa 2003)

A typical of ERP module included: Manufacturing, Customer Relationship Management (CRM), Financials, Human Resources, Warehouse Management, Supply Chain of Material and Decision Support System. In reality, ERP modules are cross-functional and enterprise wide software solutions. Centralized ERP are most common method caters to serve difference varying business procedure types because it increases the flexibility and agility.

There is a series of related operational business process in organization and all these operations process are led to economic issues as there are interlinking. For instances : Internal & External sale management function groups are provide information of inventory control, return of goods, sales logistic & shipment, their solution also determine age of debt items, determine creditability control etc. This is contrasted with front office system like CRM system that are directly liaises with customer requirement, or e-business system such as e-Commerce, e-Finance or Supplier Relationship Management (SRM) systems.

In other words, an ERP software solution seeks to streamline and integrated operation, business environment, processes and internal information flows between enterprises, to synergize the organization resources such as man power, capital resource, time scale and machinery into a centralized system.

Among all the basic business process regardless of the enterprise’s business or charter cover by ERP software solutions are somehow relate to financial activities. To address the key Therefore toward create the system and gain successfully of ERP implementation, it is important for the organization to understand the fundamental of an Accounting Information System (AIS).

Fundamental of AIS

AIS’s is a system that collects, process, stores, and processes data into useful information for decision makers. Under traditional data management, accounting system normally work as independence system and its single output indexes have difficulty to share information with other information subsystems. (Zhang Shiju 2010)

Nowadays AIS is commonly known as systems used as a support activity and add value by providing accurate and timely information to organizations. The well-design of AIS system must therefore have following ability (Marshall and Paul 2006)

Improve the quality and reduce the cost of products or services. For example, AIS use in Value Chain for Total Quality Management (TQM) can assist to monitor the machinery so operators will get immediately inform when performance falls.

Efficiency improves. For example, AIS use in Just-in-time (JIT) manufacturing required accurate and up-to-date which AIS able to providing more timely information.

Knowledge easy to share. For example, well-designed of AIS data can make it easier to share knowledge and expertise. Accountants may use their information system to share their best practice to their local account representative located in difference offices.

Supply Chain information can improve efficiency and effectiveness. For example, giving limited authorized access to customer to access in company inventory and billing system, this will help to reduce customer service cost and time of checking order/invoice status.

Improving the Internal Control structure. AIS with proper internal control structure can align Finance with the imperatives of the business support, specifically billing, consumption, and growth overlaid with protecting shareholder value and management and statutory reporting.

Improve decision making. Because improved of operational control, management control, AIS system able to interpret information, evaluate way to solve and identify the problem. It will improve the management decision making.

To ensure the AIS information integration, align with business insight, all these processes need to be reengineered if organizations wish to implementation of full ERP systems. The AIS system may realize the information integration according to the business application, statutory standard to ensure the data are organized uniformly.

Major implication for AIS’s after full ERP implementation

As we understand the degree to which AIS can support organization business process is depend on the type of decision or how accurate/up-to-date information being made. Hence, the use of ERP in the Financial Department is a great way to maintain the accounting updated in a reliable and precise in order to query financial information rationally. Therefore it is necessary to redesign the sources of business process base on Business Process Reengineering (BPR).

The basic BPR methodology is a collecting of industry best known method and practices (Michael Porter) and attempted to lead users though a series of process engineering activities that focused on assessing current business process environment and identifying re-engineering opportunities that improved process efficiency, quality and overall performance. (Brian and Ciaran 1996)

After full fundamental examination and reengineering of business processes, the BPR has identifying five parts of implication after full ERP implementation.

Initialization of various independent accounting subsystems. The subsystem mention here including human resource system, marketing information system, fixed assets, production and other accounting application treatment.

For example, upon ERP implementing, users able to eliminate duplicated data of bookkeeping in difference source of system, mainly including the subsidiary accounts, genera account, journal voucher, and various accounting statement now able to made directly into statement of financial statements.

Automation of accounting data collection, after ERP implementation the accounting system enable to auto compiling data collections from various sources under the centralize systems, it can automation transfer and producing journal vouchers, posting accounting process, furthermore, system also able to share data info among internal subsystem, such as material, fixed assets etc.

For example, users able to checking cross-year accounting, marketing and production department are sharing same inventory closing account which able to improve the stock control efficiency. Management able to access account bookkeeping accuracy to enhance their decision making.

Automated transfer of accounting data which will assist to solving the data control issue transfer between subsystems and accounting system. As mention for conventional accounting system do not sharing information among other subsystem, with access of full ERP implementation the date which checked by upstream user can rechecked against by downstream user is necessary.

Internal evaluation and monitoring, as the connectivity and consolidation between internal and external data is merge, the value of accounting information is increase. The output index can share across difference functional, it will help for management to predict future as well as assisting decision making.

Improve fair view of Financial Statement, with the automation of data transfer and auto adjustment between subsystems instead of manual control. For example, employee salary accounting process in each period only process once, hence the cycling control is more realized. Therefore, the financial statement is considered more relevant to business insight.

Evaluate benefits of ERP

No doubt investment in ERP’s has become hot topics of modern enterprise IT investment. However selecting and implementing a new ERP system is a complex undertaking to managers due to the benefit are always uncertain, the success of implementation cases are quite limited, and many of the benefits are elusive. It is therefore very difficult for managers to make good decision on invested money in ERP’s system.

According to Wu.F et al (2006) the benefits of ERP can be divided into tangible benefits and intangible benefits, as there is no direct result of effectively approach to measure intangible benefits of ERP, somehow organization tend to overrate high performance of ERP report. In such circumstances, Hochstrasser model was used to analyze the uncertainties of tangible benefits in the process or ERP implementation.

The common tangible benefits includes: Reducing Production cost; lowering inventory expenses; increase in work efficiency and quality of information report; saving production place and improving labor productivity. “General IT project came from directly reducing cost of conducting a series of business processes, or improving product quality” (Hsu-Hua Lee 2005, p55-68)

The intangible benefits of ERP may define that enterprise capable to response fast in complexity turbulent market demands, enterprise also able to gain the adaptability, innovative ability and competitive strength to global competition.

Further investigations indicated that the main objectives of organization investment in ERP systems was mainly due to enterprise believe that ERP can assist in offering a good decision making , improve their operational efficiency, cost saving, obtain advantage of market competition, meeting the requirement of diversified clients need and easy to realizing IT strategy to meet business environment.

ERP software is not a magic system

It is unquestionably that ERP system delivered the powerful functionality, global orientation, and flexibility options to help organization to gain a sustainable, competitive advantage.

However much of the time, we heard failure of implementing ERP system, a lot of companies found that their business performance did not improved after implementing ERP software. These large investment and negative ROI have created a whirlpool of controversy that building blocks to organization for embedded into ERP, some of failure cases even create a higher level of fear about making a big ERP mistake.

“Implementing ERP must be viewed and undertaken as a new business endeavor and a team mission, not just a software installation” (Tracis and Mark 2003, p43-49). Most organization that have been though a less-than-fully successful ERP implementation has met below top five reason of poor ERP implementing result:

Operating strategy not able to drive and demonstrate business process design and deployment.

Time implementation took longer time than estimated

Pre-implementation preparation activities were done poorly.

Stuff disrupted due to not well-prepared to absorb and operate new systems.

High cost incurred to acquisition ERP server and maintain the system.

Conclusion

ERP software solutions have a strong potential to improve the profitability of the business as the system allows automation across enterprise in the difference functional business process. To successful implement ERP module in difference functional group such as accounting system is not easy. Most ERP experts’ estimate that the total times require for a successful implementation can take from 18 to 24 months. Therefore business process reengineering is one of a powerful planning tool to assist organization in depth business study to develop a successful ERP.