Technology
Building Blocks to Building Profit: Manufacturing Software Implementations
Special Feature
Oct. 01, 2009
| This is part one of a three-part series of articles focused on specialty niche markets served by tax and accounting firms. Look for part two and part three in November and December on medical office/healthcare and agriculture. |
While there are many iconic lines from the movies, one resonates more than
others with accountants and their manufacturing clients: “If you build
it, he will come.”
In the manufacturing scenario, the “build it” refers to the software
used to streamline the accounting function, while the “he” is metaphorically
linked to a company’s bottom line.
However, the company did not optimize its systems with new technologies all
alone. It had the help of a tax and accounting firm or software consultant who
understood the software solution’s capabilities … and enough about
the client to ensure that the installation went smoothly and the work was completed
on time.
Conversations Lead to Software Solutions
Working with manufacturing clients to implement technologies requires a different
approach than working with clients to provide assurance services or complete
a tax return. Most firms and consultants talk to a defined process to produce
consistent results.
“The
process begins with a Summary Needs Assessment conversation to determine who
is involved with the system, as well as the complete list of issues —
either the problem the company is trying to solve or results they want to produce,”
says Kevin Cumley, president of Forepoint
LLC. “We then help them prioritize the issues, and focus on those
that will deliver the highest value or ROI by solving. Once we have agreement
at a high level, we then do a more detailed assessment on those needs.”
Based in Helena, Mont., with offices in Washington, Wisconsin, Oregon and
Hawaii, Forepoint provides business application software for small- to mid-sized
companies with a focus on accounting, ERP, project management, human resource
and CRM solutions. Cumley recently partnered with Irene Bushnell of Anderson
Zurmuehlen and Co., P.C. (azworld.com), a firm also based in Helena, to produce
the new QuickBooks
Conference Kit, a turnkey conference package for tax and accounting firms,
Intuit Solution Providers, QuickBooks ProAdvisors and others interested in hosting
their own QuickBooks Users Conference. He considers the initial conversation
with clients very subjective.
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“Generally speaking, there is no ‘one best program’ because
many products can deliver an effective solution,” says Cumley. “Our
approach is to first identify the needs, and then determine if we have software
that will provide a solution. Key factors, such as a knowledgeable and experienced
implementation team, solid scope of work, and effective project management,
play a critical part in the equation. Ultimately, the proof is a successful
project as defined in a scope of work and a happy client.”
Within a company, some accountants might say the controller is the primary
decision maker to implementing technology because this position touches so many
different areas of accounting and is responsible for the way the software integrates
company-wide.
As a provider of outsourced controllership services, Lonnie Clark opens the
door for conversations on her clients’ hot buttons, especially in technology.
“Most companies know they need new or updated software, but feel the process
is so expensive in dollars and personnel time that they ignore the whole issue
as long as possible; when they finally commit to new software, they see the
increased functionality and it just blows them away,” says Clark, a CPA
and MBA who is Strategic Business Services Manager for Weaver
and Tidwell, LLP, in Dallas, Texas.
“I
liken it to a Christmas ‘wish’ book because the client wants everything
the new software has to offer. Unfortunately, the more bells and whistles they
buy, the more money and time it takes to fully utilize their wish list.”
Smith consults with small- to medium-size manufacturing and distribution companies
on critical accounting system selection and configuration, and the creation
and modification of internal procedures to coincide with system functionality.
“I have a basic process that starts with getting a list of all the things
the company dislikes about their current software,” she says. “I
ask for the minimum requirements they would need in new software, what particular
items that would be ‘nice to have,’ but not a ‘must have,’
and the special processes they consider unique that requires customizing any
software they might choose.”
The heavy lifting to define procedures must be written before choosing the
software to determine if there are any special requirements. Other factors come
into play as well. For example, Clark says the company may also need a complete
network or hardware overhaul. Her goal is to find software that meets basic
requirements and the “must haves.” Demos follow next, and experienced
users are preferred.
“The people who see the demos must be users who are aware of current
processes and weaknesses in the current system,” she says. “Usually,
this group will narrow the choice down to one to three vendors, at which point
a demo is arranged for management or the company asks for pricing.”
Because she knows clients see several demos and forget who said what about
special features, Clark tries to get the client to focus on the basic functionality
and uniqueness of the software instead of worrying about the special wish list
stuff right away. Sometimes, she is pleasantly surprised. For example, one time
during testing and ‘go live,’ the client remembered everything.
“It’s a reminder to be careful what you say you can do because any
promises might come back to haunt you and cost you!”
What Companies Want From Manufacturing Software
The next major area of technology implementation is to understand exactly what
it is the company wants the software to accomplish. As a consultant, Sonia Gray,
a partner at Forepoint, sees three trends above and beyond obvious issues revolving
around integration with the accounting system: capacity planning, tracking labor
and creating a schedule.
“Capacity
planning focuses on issues related to scheduling,” says Gray. “For
example, companies want to know how to schedule their production facility based
not only on demand, raw materials availability and stated minimums, but on how
much each work stage can handle,” says Gray. “This helps determine
if adding another shift or additional equipment would be cost effective.”
Second, true production costs are captured by tracking labor and burden costs
by employee by work stage. Lastly, Gray says companies want a visual representation
of the entire production schedule — a screen or even a printout of a production
schedule that gives them a Gantt chart or similar view of production. From a
firm’s perspective, Clark encounters issues more closely related to accounting,
including inventory valuation problems.
“Companies talk about how there is a lack of software functionality
to provide accurate inventory values and, as a result, there are errors in cost
of goods sold that result in inaccurate net income,” says Clark. “Clients
want to know if they can adapt new processes or procedures to provide a solution
for this issue with the existing software, if there are add-ons or updates for
the existing software that would correct the issue, and whether it is time for
new software.”
Accounting procedures for receiving, valuing, shipping and selling inventory
are also important. Because most companies have limited staff, Clark says this
process allows a company to set controls that ensure accounting integrity, while
procedures help with employee training and transition/turnover.
“Companies also want their software to develop new financial statements
that provide management with better operating information They want to get away
from GAAP reporting and develop reporting methods that allow managers to see
the true cost of inventory and manufacturing processes. Finally, they want IFRS
reporting, or being able to convert US GAAP reporting to International IFRS
Standards for consolidation to a foreign-owned parent.”
Consulting: Timing is Everything
Although these are the most common abilities companies want from their software,
Gray says every company is different, and custom solutions prevail. One commonality
shared, without a doubt, is a short timeframe for implementation, but this,
too, depends on the company, its staff, the data and other circumstances. Gray
cites a food manufacturing company as the client that took the shortest amount
of time to implement a manufacturing solution.
“They were a new start up; we didn’t have to contend with converting
old data and dealing with ‘this is the way we’ve always done it’
issues. They also had staff dedicated to the project who were experienced accounting
and manufacturing personnel.” The second shortest for an existing business
was a company that produces a skin care product.
“Their team took a lot of time getting started, but once engaged, they
were very disciplined about their project approach and took ownership of it
from start to finish. Their dedicated and knowledgeable staff gave it the proper
‘brain share’ and time commitment to stick to the work plan and
accomplish the timeline goals.”
From the firm point of view, Clark suggests the practitioner focus
on three areas:
- Understand the key financial indicators that impact the manufacturing company’s
profitability. What are the drivers of profitability in the plant? Clark looks
at the impact of labor hours, how WIP is balanced, planning, materials purchasing,
product waste, rework/quality control and drawings. - Realize the impact of commodity pricing changes on material cost and how
this should be anticipated by the manufacturer. The accounting function should
follow cost fluctuations in core raw materials used to modify estimates, value
inventory, pricing strategy and job scheduling to have the most effective
impact on profitability. - Spend more time with the client to truly understand their process, product
and issues. “It’s a benefit to me to be an outside controller
because I spend a great deal of time with the client,” says Clark. “I
learn much more just listening and watching the employees and processes than
I ever would just asking questions.”
This is part one of a three-part series of articles focused on specialty niche
markets served by tax and accounting firms. Look for part two and part three
in November and December on medical office/healthcare and agriculture.
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For more than 20 years, Scott H. Cytron, ABC, has worked with CPAs and
accountants, providing public relations, marketing and communications services.
Author of The CPA Technology Advisor’s MarketingWorks column, he works
with firms and companies in professional services, including accounting, healthcare,
legal, financial planning, collections and debt, and high-tech. Contact him
at scottcytron@cpata.com.