By Norman Katz, President Of Katzscan Inc., www.katzscan.com
In January 2021, I celebrated my 25th year of independent consulting which followed eleven years of a progressive corporate career that started out as a computer programmer and advanced to business analyst and information technology manager. I worked for small and global companies, and I have helped small and leading companies solve mission-critical problems and manage one crisis after another. Of the many things that I have learned in my career, it is that even when it comes to software, words matter.
Enterprise Resource Planning (ERP) systems are the core business systems that are the primary data and transactional repository for essentially any business. If you have a retail shop, the point-of-sale (POS) extension is related to ERP functionality, even if it isn’t called that.
ERP systems account for what is operationally happening in a business. Go back and read that statement again, or I will repeat it for you here: ERP systems account for what operationally happens in a business. Therefore – and this will upset the accounting people reading this article – ERP systems are not accounting systems, so stop calling them that. ERP systems are so much more.
ERP systems contain the entities (e.g., customers, items, vendors, sales representatives, system users) and transactions (e.g., purchase orders, sales orders, work orders, invoices) that interact with the business. The general ledger accounts for what is operationally occurring. From there, we know what the company owes (payables) and who owes the company (receivables). Manufacturing bills of material, operations, and labor inform how an item (finished good or component) is created. Entities have characteristics (e.g., categories, groups, families, classifications, territories) that help with analytical reporting, just as transactions have attributes (e.g., date, time, device, user) that assist in filtering the report parameters.
But make no mistake: I could remove the accounting functions from an ERP system and still operate a company. (And for the accounting professionals reading this, please take a deep breath now, calm down, and read on.) Inasmuch as removing the accounting features would not permit accountability for what is operationally occurring, the company could operate. Yes, it would be highly problematic at tax time, but that is beside the point here.
It is important to understand that ERP systems are two halves of a whole: accounting and operations, and we need both equally. To just take the accounting view when setting up and establishing the data and functionality in an ERP system is to miss a critical supply chain perspective, and one that I have had to help companies backtrack on after their “accounting” implementations, sometimes at significant expense.
ERP systems integrate to other applications like Electronic Data Interchange (EDI) and barcode labeling and scanning used for inventory control, picking and packing, and compliance labeling. ERP system integrations include shipping and logistics software for freight rating, warehouse management systems, demand planning and forecasting, product information management. And it takes more than just accounting data to power AI (artificial intelligence), ML (machine learning), and blockchain systems which are the next levels of software applications to take enterprises to new platforms of performance.
ERP systems must be viewed as the holistic supply chain business systems that they are. ERP systems sit at the center of supply chain activities, at the core of supply chain systems integrations, and are a primary supply chain foundational system. To establish an ERP system any other way is a short-sighted perspective, and a competitively damaging one for the company.
If your company is unhappy with the performance of its ERP system, maybe it is not the system itself or the features the system offers. Perhaps it is the fact that the data was never set up with (and maintained with) a more encompassing supply chain perspective than to just be an accounting system. If so, you may not need a whole new ERP system, as those projects can be expensive and time-consuming. Instead, consider re-implementing your existing ERP system with refreshed data that better reflects your company from an end-to-end supply chain perspective.
About the Author: –
Norman Katz is the President of Katzscan Inc. (www.katzscan.com), a US-based consultancy celebrating its 25-year anniversary in January 2021. Katzscan specializes in improving supply chain performance, business operating effectiveness, strategic software applications, and information insights. Norman is a multiple book author and a worldwide speaker and writer.