Settings Up ERP Systems: Early corporate computer systems were costly and inflexible, as large companies designed them for their specific needs. However, when software firms began commercializing these systems, enhancing adaptability became essential. This shift not only expanded the product’s market reach but also strengthened its resilience for the future.
Despite the high costs of modifying software, the demand for configurable and flexible solutions persists. Thus, buyers should identify available configuration options and assess which limitations they can navigate. What features offer the most flexibility, and which constraints might impact business operations?
- Economic planning
- Product sales
- Purchasing
- Inventory
- Manufacturing
ERP Systems: Economic planning
The finance area is typically the easiest component of implementation since, because to the heavy regulation in the industry. Most businesses operate similarly. Sadly, some businesses mistakenly assume that system-to-system variations are mostly superficial or related to insignificant matters. Such as the ease of importing and exporting data from spreadsheets.
In contrast, good systems offer configurability, which is essential for effective decision-making and detailed verification.
If you plan to switch systems, now is the perfect opportunity to review the accounting codes and chart of accounts. Most companies can determine the total number of components and the length of each segment in the account code. With the exception of the simplest systems. They can also choose between 12 or 13 accounting periods and must decide on the maximum number of prior periods available for posting transactions.
Determine, from an accounts payable standpoint, if rules for authorizing large quantities of money should be in place to limit the authority of lower-level staff to do so. The requirements for sending sales orders after credit checks should be clarified in Accounts Receivable. Are outstanding sales orders also relevant, or should you just consider the sums due by customers? What happens if bills are late by more than a certain amount of days?
ERP Systems: Product sales
Sales analysis is made easier by linking many General Ledger sales accounts to different combinations of customers and goods. However, the main configurability is focused on product sales processes. If a distribution corporation has depots all across the country, they may set things up such that the Boston depot almost ever deals with Los Angeles-based items. One way to accomplish this is by designating particular dispatch locations for each customer.
Also, many companies will have to institute their own unique discount methods, whether it’s by client or per product. If multiple breakpoints exist for different percentages or prices, and if the discount is calculated at the order level or the order line level, they must clarify this. Additionally, specific promotions, such as “Buy two of product A and get a free product B,” will only be valid for a limited time.
One often-overlooked aspect when evaluating systems for processing sales orders is how to apply new pricing. For example, will all products purchased before a certain date continue to be priced at the previous rate, or will only products delivered before that date reflect the new price?
When selling globally, businesses must also determine whether to display pricing solely in their own currency, convert it to the customer’s currency using a predetermined exchange rate, or show discrete values for each currency.
ERP Systems: Purchasing
In buying, the issue of “calling complete” presents another challenge. If a customer orders 1,000 goods but only receives 990 from the supplier, will the system still consider the order complete? Moreover, what quantity and price limits should be established when matching supplier invoices to recorded receipts, considering both the Accounts Payable and Sales Order Processing components (since ERP systems are inherently interconnected)?
If the disputed amount is minor, it is generally unwise to delay payment and initiate a settlement procedure.
ERP Systems: Inventory
Assigning distinct GL account numbers to various inventory types is a simple approach.
Additionally, businesses must define their material ordering policies. They need to specify whether certain items will be subject to reorder point (ROP) control or exclusively purchased or manufactured to order. Furthermore, they should consider minimum order quantities or values, decide how to cost stock (a separate article will discuss the three main options: Standard, Actual, and Weighted Average), and determine if specific groups of items require serial number and lot tracking.
Since it is not cost-effective to send a count crew back to confirm a negligible mismatch, let’s shift our focus back to tolerances. We must establish appropriate tolerance levels for different categories of stock items during stocktaking.
ERP Systems: Manufacturing
Unlike the uniform financial sector, manufacturing operates on a spectrum, with Engineer-to-order (ETO) at one end and continuous process at the other. As a result, different enterprises require various tools.
Some companies use Materials Requirements Planning (MRP), which can be customized. For example, should it employ an MPS (master production schedule), reorder points, real sales orders, anticipated sales orders, or a combination to determine demand?
Businesses must also manage unsold forecasts in sales projections. If expected orders do not materialize, will they disregard the forecasts or proceed with production, holding surplus inventory?
They should clarify whether each time period’s prediction (day, week, or month) refers to orders expected to be received or delivered.
Managing work-in-progress (WIP) is another key factor. While some industries may assume all tasks will be completed, others need to track jobs through various stages. They must decide whether to monitor progress continuously or only at critical points.
Finally, proper system configuration is necessary when clients exceed credit limits. This issue also involves Accounts Payable and Sales Order Processing.
Conclusion
To meet the diverse needs of their clients during both the initial rollout and in the future, modern systems are highly configurable. In many cases, businesses dissatisfied with their ERP systems are actually unhappy with the configuration.
Before signing any contracts, firms must thoroughly verify that the system they are considering can meet all current and future needs, as no system is completely adaptable. You can find helpful tips on how to assess this in other articles on our site.
