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Enterprise Profitability
Part 8 of 8

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Lean Manufacturing, Basics, Principles, Techniques

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Accounts Payable
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
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 paperwork.
General Ledger
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.
Fixed Assets
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.
Human Resources
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 period.
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 full compliance.


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