Accounts payable integrates directly with purchasing and receiving,
paying the supplier after the ordered items or services are
received. Traditional systems automate the three-way match between
purchase order, receiving report, and supplier invoice. More
advanced accounts payable systems eliminate virtually all paperwork,
by electronically paying suppliers directly into their checking
accounts, without requiring invoices. They can also use workflow to
track the status of approvals inside the company.
Accounts receivable includes invoicing, which is triggered by
shipments, and then applies cash to reduce the receivables.
Delighting customers requires invoicing them accurately and
applying their payments correctly. A/R systems can integrate with
lockbox and cash receiving services offered by banks. Credit
departments monitor customers' cred-itworthiness; integrated systems
check credit availability not only when an order is received, but
also just prior to final assembly and also just prior to shipment.
More advanced accounts receivable systems eliminate virtually all
Since the goal of a company is to make a profit, the profit and loss
(P&L) statements are probably the most important documents that a
TEI/ERP system produces. The general ledger prints balance sheets
and P&L statements monthly, quarterly, and annually, based on
information from the payables and receivables systems, plus the
inventory data from the inventory system. General ledger systems
also report the company's financial status to outside agencies,
including owners, securities exchange authorities, and lending
institutions. Most general ledger systems also support budgeting and
ad hoc financial report writing. General ledger packages also
consolidate financial reports from divisions and subsidiaries.
General ledger systems maintain the chart of accounts, which
defines the organization of the general ledger reports.
The payroll system pays employees and reports the company's payroll
data to outside agencies, including taxing authorities. Because of
the complexity and constant state of flux of state and local income
and withholding taxes, some manufacturers choose to outsource the
payroll function to a payroll service provider. ERP/TEI systems
that offer payroll packages must maintain the tax tables and data
for all localities that their customers need. Most payroll systems
can directly deposit paychecks into the employees' banks.
The fixed assets system computes the current financial value of each
of the company's fixed assets (capital assets), and provides reports
and analytical data to decision makers. Manufacturers with few
capital assets frequently use spreadsheets to track those assets. A
fixed assets system computes depreciation for each asset, based on
the depreciation schedule selected by management. Fixed assets
systems should integrate with maintenance as well as the general
ledger and purchasing systems.
Costing (Standard and Advanced)
The most common approach to determining product cost is standard
costing, which calculates a "standard cost" for a product for a year
by determining direct materials and direct labor costs, then adding
an overhead or burden factor for all other costs. A standard costing
system traditionally allocates the overhead as a percentage of
direct labor hours or dollars. Differences between actual costs and
standard costs are booked as variances, in an attempt to help
management understand the reasons for missing the standard.
Standard costing has been a staple of MRP II and ERP systems.
However, many ERP systems lack support for the more advanced
product costing techniques, such as activity-based costing (ABC),
life-cycle costing, and target costing.
ABC recognizes that direct labor is usually less than 10 percent of
the total cost of a product, and that allocating overhead on direct
labor is not conducive to making superb decisions. To support ABC,
an ERP system needs to be able to support multiple cost drivers, and
to allocate various costs to those drivers. A cost driver is an
activity or event that causes cost to be incurred.
Life-cycle costing assumes that products have life cycles and that
the entire cost of supporting the life cycle (from product inception
to abandonment by manufacturer and the consumer) should be allocated
to each product. These costs include product development,
manufacturing, marketing, and support.
Target costing uses competitive intelligence and market research to
determine the prices that will command market share, then determines
the target cost of the product based on the selling price.
TEI systems integrate with full human resources capabilities. The
ultimate HR integration is with scheduling—the scheduling system
checks the availability of the qualified individual workers before
scheduling specific tasks. For example, if the most experienced
setup person is going to be on vacation, the jobs that require that
particular individual should not be scheduled during the vacation
Quality systems can also integrate with HR systems, tracking
quality by individual skill and training level, identifying those
individuals who could benefit from additional training, and
demonstrating whether the training that was given was actually
effective (did quality improve?).
Environmental health, safety, and transportation (EHS&T) regulations
require that all hazardous or environmentally dangerous substances
be closely tracked and accounted for. Regulations require that
documentation clearly identify each such substance included in a
product and transported in a shipment, with full descriptions,
warnings and instructions. EHS&T systems help companies track,
manage, and comply with country-specific regulations that govern
hazardous materials. Integrating EHS&T systems with TEI/ERP offers
the opportunity to substantially reduce manual efforts and ensure
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