Role and Purpose of Enterprise Resource planning system
In the business world organization, business software plays a very important role to support the business and its activities to increase the productivity and efficiency of the business. Although business software give benefits but it also brings major implication for a company when the firm decide to implement different type of business software. This paper will discuss the role and purpose of Enterprise Resource Planning (ERP) system and Accounting Information System (AIS). Moreover the paper will discuss the benefits and drawbacks for companies of implementing ERP system. Specifically the paper will discuss how AIS system maybe be affected by implementation of a full ERP system and the identification of major implication for AIS system.
Role and Purpose of Enterprise Resource planning system
Enterprise Resource Planning Systems (ERP) is specifically designed for distributors, retailers and professional services firms according for their needs. "The company named SAP Aktiengesellschaft is currently a world market and technology leader in providing ERP systems" (Benjamin B. Bae, & Paul Ashcroft, 2004).
ERP system implemented to provide more accurate information and safe time, reduce asset costs and financial cycles, increase customer satisfaction, and globally integrate information across the enterprise supply chain. ERP system use relational database technology to integrate various units of an organization's information system which integrated all business process and sub-processes linked and unified into a single system. It has been designed to focus on four main areas in a company that is financial, human resources, marketing and supply chain management.
ERP system is essential to the needed by all organizations and can use in any kind of organization, irrespective of the business objectives, size, and area of operations. Using this system not only economizes but it also improves the efficiency of the average existing work process. Without ERP system on modern day, firms can't run competitively between organizations because leak of proper drafted and formulated which ERP system can provide it. The main reason for this is because it can be configured to accommodate a large variety of different work processes and this lead it became popular not only in large corporations but midsized companies also frequently used it because it provides a seamless integration of their business. "During the 1990s, Global 2000 companies spent billions of dollars on ERP systems" (Dan Everett, 2003).
The attractive of ERP systems seem likely to be the promise of centrally coordinating and controlling many aspect of corporate planning. As such, ERP systems can be seen to represent a far reaching technological promise and even the ultimate manifestation.
Benefits and Drawbacks for Implementing ERP System
The benefits for implementing ERP system is it helps organization to reduce costs and cycle time, increase the productivity and quality and improve the customer service by automating basic and repetitive operations. ERP systems automatically estimate the demand for a product, order the raw materials, provide production schedules, track down the entire inventory, allocate costs, and keep historical customer. The ERP systems repeat all the operation and keep the information so that the organization can analysts the impact of changes in product mix and volumes in order to maximize corporate profit margins.
Besides that, ERP systems also provide informational benefits to management. ERP system helps an organization to achieve better resource management for example in workforce management improved the manpower allocation, in inventory management improved inventory turn and stock allocation, in production management optimized supply chain and production schedules. It also improved decision making by increase the market responsiveness, has a better profit and also controls the cost and also flexible the customer services, increase the service adjustment and response customer demand.
'Integrated information systems bring a new opportunity to directly support a tight link with customers' (Vitale, 1986; Malone and Yates, 1987; Clemons and McFarlan, 1986). ERP systems provide E-business by using the web integration capability it helps get closer to customers. It provides benefit to business to business (B2B) interactive customer service, for example through customer directs feedback it can improved product design, and most importantly provide real time and reliable data enquiries.
In addition with the integrated and standard application architecture in ERP system it provide infrastructure support business flexibility for future changes by response to internal and external changes and provide range of options in react, reduced IT costs and 'increased capability for quick and economic implementation of new applications' (Shari Shang and Peter B. Seddon, 2000).
The drawback for implementing ERP system is the cost of installing is expensive. The cost of installing an ERP system can cost up to US$100 million. 'In1999, most organizations spent between US$90-180 billion on ERP system' (Shari Shang & Peter B. Seddon, 2000). The ERP system be installed by ERP consulting organization and the fees to modify the system is also expensive with average at about "US$150-$225 per hour" (Benjamin B. Bae, & Paul Ashcroft, 2004).
Besides that, installing an ERP systems take a longer period. "ERP system is a complicated system and it often takes 12-18 months to be installed and operating" (Benjamin B. Bae, & Paul Ashcroft, 2004). It take longer period is because a detailed study must be made and reviewed before installing ERP system to match the business requirement. Any mistake in planning of ERP systems will affect the entire performance system.
"The implementation of the ERP systems will hurting the company's process, break customer relations and will required a longer time from achieving its long-term financial goals" (Dr. Yan Wang, 2005). In addition, implementation ERP system required a new procedures to manage the system, train employee the procedures of system, and managerial and technical support and this cause many companies found the change takeover to ERP systems a slow and painful process.
Role and Purpose of Accounting Information System (AIS)
Accounting Information System (AIS) play as a backbone in accounting transaction processing system. It combine the accounting format, implementation, and monitoring of information systems. It uses the modern information technology resources with the traditional accounting methods to provide financial information to organizations.
AIS analyze and record all the business transactions to prepare financial statements and provide accounting data to manage the organization. Constantinos J. Stefanou state that, 'AIS is a process of collecting and recording the data and information based on the events that have an economic effect upon organizations and keep the maintenance, processing and communication of information to stakeholders'. All the information will be use for decision making purpose and evaluate the financial position of the organization.
Andreas I. Nicolaou, 2000 claim that 'a critical research issue in the fields of accounting and management decision-making concerns the fit of the AIS with the organizational requirements for information communication and control'. This means that AIS is a computer-based system which process all the financial information and supports the decision tasks in the context of coordination and control of organizational activities. Besides that, Ed O'Donnell, Julie Smith David, 2000 state that 'AIS provide input for decision making'. AIS summarized the important business events for example production, purchasing and selling activities for internal decision making.
AIS make business accounting activities easier, quicker, and more accurate. It safe accountant time and avoid mistake since the system is analyzed accounting records and prepare financial statements. Since AIS gather all accounting and transaction information by electronically and automatically so it avoids data entry and computing errors.
The Major Implication for AISs of the Implementation of a Full ERP System
Basically, a successful implementation of ERP system will increases competitiveness by increase the quality and customer satisfaction, speed up the processes, and reduce all the lead times. There is few reason AIS system may be affected by the implementation of a full ERP system. Steve G. Sutton 2006 claim that 'ERP system change the financial accounting environment significantly as the processes used to record, assimilate and distribute such information all radically change.' ERP system can be traced back all the transaction recording process for example it will captures the data when a cashier scanning a bar code or warehouse worker at a receiving dock and automatically update the processes in the AIS records.
Besides that, ERP system also supports two major processes in AIS that is order-to-cash and purchase-to-pay. In order-to-cash process, the ERP system can analyze to determine the goods being requested by customers. At this process, ERP system links together customer, inventory, purchasing, and vendor data to determine whether the customer is in good standing and likely to pay the bill. After that, ERP system schedules the order for delivery, if the goods are not available within the organization, a purchase order is sent to a vendor. ERP system will ensure that the invoice contains correct quantities, prices, terms, and addresses and then it will record cash receipts and updating cash and accounts receivable amounts in the general.
For the purchase-to-pay process, ERP system will automatically generate the purchase requisition on the basis of data and reviews purchases requests to determine that organization is authorized and within budget. ERP system will assists the buyer in identifying sources of supply for the requested item, analyzing vendor quotations, and selecting vendors by comparing vendor prices, terms and past performance. ERP system will automatically links purchasing order, receipt and vendor invoice and record in accounts payable in the general ledger.
Further, ERP systems also improved decision-making process and used financial ratio analysis. It act as facilitators of business processes and also support management decision-making. It has enabled to use financial ratio analysis and production of budgets which also including cash budgets, absorption costing and profitability analysis per customer.
In addition ERP systems have introduced sophisticated accounting techniques in their accounting processes which is activity based costing (ABC) and target costing. It also lesser extent involves time reductions for accounts closure and preparation of financial statements.
The last reason through the implementation of a full ERP system is it not just a business process of electronic procedures but it is also with the scientific management idea. This system can always thinking of integrating the organization internal control throughout the entire business cycle, through a set of pre-designed and improved cover the plans, prices, supply, production, sales, and inventory management and automatically update.
In summary, the ERP systems appear to have fulfilled its purpose as demonstrated in the changes in the accounting practices brought in. Overall, the benefits achieved by ERP systems strongly influence accounting information and practices and also organizational planning at a strategic level. Booth et al. (2000) states that 'ERP users' perceptions of the quality of accounting IS in financial and management accounting as adequate in terms of reporting and decision support and good in terms of transaction reporting.' Therefore, results between the two systems are comparable, indicating that there are still benefits accrued for ERP adopters. Stefanou (2002) also reports that 'the integration of accounting applications, information exchange and reporting capabilities as notable advantages and strengths of ERP systems.'
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