Manufacturing and Accounting Software - Perfect Together?

By Guest Blogger Harry Landsburg

Most business software solutions for manufacturers sold today are labeled as ERP systems. The comprehensive structure of Enterprise Resource Planning software varies based on the marketplaces targeted by the developer. A company looking to upgrade or acquire new software should understand how software is crafted to make sure it gets a proper fit.

Solutions for Small Manufacturers that Integrate to Quick Books or Peachtree
Many small manufacturers begin controlling and reporting their results of operations using Quick Books or Peachtree along with MS Excel spreadsheets or MS Access databases. At some point these companies grow in volume or sophistication and determine that they need software that provides integrated information visible to everyone who requires it. They can no longer manage their businesses effectively with silo information systems based on Excel worksheets used by different staff on disconnected PC hard drives.

Sometimes companies do not want to give up the ease of use of their accounting software so they seek manufacturing software solutions that will allow them to continue to use their accounting solutions. When these systems are implemented, Quick Books and Peachtree merely receive linked batches of transactions. While there may be a small cost savings to this approach, the true value proposition to running the company is greatly compromised.

On the revenue side of the business, shipping and billing are processed in the manufacturing software with batch information sent to the accounting software for the accounts receivable and cash applications. On the expense side of the business, purchase orders are created in the manufacturing software as are inventory receipts. Invoices from suppliers are received and entered in the accounting software to be paid based on visibility in the manufacturing software of information needed to complete a manual "three way match."

Basic General ledger software, such as Quick Books or Peachtree creates financial statements including balance sheets and income statements with little or no help from the manufacturing software. Costing information related to jobs or orders and their associated work orders/shop travelers is maintained in the manufacturing software for analysis and tracking. There is no drill down from a financial transaction in Quick Books or Peachtree to the customer order or purchase order in the manufacturing software. The value of work in progress or finished goods in the accounting software is usually recorded with a manual journal entry based on data from the manufacturing application or via a special export/import routine that has been written to journalize this value to the general ledger.

Continuing to use Quick Books or Peachtree with new manufacturing software is almost always based on the reluctance of staff to stop using the applications they are comfortable with regardless of the lack of true integration with the manufacturing applications.

Fully Integrated Manufacturing and Accounting Solutions
Small manufacturing companies using accounting software fully integrated to the MRP system offers the following benefits:

• CRM software can provide full visibility of the entire customer interaction. With integrated accounting information a salesperson or customer service person can have access to accounts receivables information including sales order history, open invoices, credit memo history, and payment patterns.
• Quoting/Sales Order Entry activities can be executed with real-time visibility of credit limit information that can impact order hold activities such as: take the order but do not make the product or make the order but do not ship.
• The most accurate and timely inventory valuation. With a fully integrated solution all levels of raw materials, work-in-progress, and finished goods will be valued in the accounting software timely and correctly without the need for manual journal entries. Drill down to the basis of inventory valuation is also available to the lowest level of detail.
• The financial aspects of product quality are linked most effectively. Return Merchandise Authorizations, rework cost, or resulting credit memo generation are most closely tied when accounting software is fully integrated. For most software this is also part of the CRM design.
• More sophisticated financial reporting is available when there is complete sharing of information. Customer invoices with multiple product line sales are most easily integrated to product line or departmental financial reporting. Matching the cost of product line or department sales for accurate calculation of gross margin is best achieved when the accounting and manufacturing systems are fully integrated.

Summary
A fully integrated solution with predesigned integrated databases allows the most effectively way to manage a manufacturing company of any size. When manufacturing software and accounting software from different vendors is used, it usually provides only batch updating so information is not timely, is not fully recorded on financial statements and multiple steps are necessary in order to see the necessary information.

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