Challenges And Issues In Implementing ERP Accounting Essay


Today, Edrington group faces a host of challenges and opportunities making it necessary to implement some kind of ERP system which can help overcome these issues and achieve those opportunities.

Some of these issues have been listed below. They have been categorized by industry, relating to company itself and in local context.

Industry specific:

Price-led competition among major retailers has resulted in serious margin erosion, and in most mature economies, heavy reliance on promotions.

Distribution complexities and costs present another major challenge. Many beverage companies are pursuing acquisition strategies to enable value creation and growth.

Conflicting interests between manufacturers and value-added distributors can result in a disjointed supply chain.

Company specific:

To remain competitive, Edrington group must increase efficiencies, reduce costs, and ensure compliance with governmental regulations throughout the whole supply chain.

The challenge is to effectively protect and grow market share while maintaining profitability.

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Hampered by a legacy of heterogeneous systems that impede visibility and perpetuate inefficiencies, company recognizes the need to standardize on a single platform.

In Local context:

The company struggles with complex and ever-changing regulatory requirements, including excise taxes and specific restrictions on sales.

Some of the benefits that the company is looking forward once the implementation has concluded are as follows:

A Single Platform for Greater Business Effectiveness and Flexibility

Manage the Procurement Process - price comparison of vendors' offers, incorporating flexible pricing processes for the actual value of the raw ingredients delivered. You're better able to manage quotation handling, contracts, and batch handling.

Meet Customers' Expectations for Managing Their Orders - variable pricing, delivery, invoicing, and payment

Optimize Planning and Manufacturing

Provide Efficiencies in Integrated Inventory Management

Plan Deliveries

Monitor Route Business

Keep Track of Empties

Manage Rebates and Bonus Agreements

Manage Commissions

Manage Excise Duties

8. Capital Asset Management

Today's asset intensive companies need to optimize capacity and increase utilization, while lowering unit production costs. Capital Asset Management enables to adopt maintenance strategies to meet this challenge. It also aims at improving operation performance, and with preventive, scheduled maintenance, increases safety. Using budgeting functionality it enables to define budgets and review costs information for maintenance.

Some of the key features of Capital Asset Management are as follows:

Capital Asset Management helps in identifying quickly plants and facilities using an Asset Navigator

View details of an asset, such as cost, hierarchal (parent/child) information, and launch transactions.

View current or historical configurations, and work details of an asset.

As components of an asset are removed and re-installed from an asset, the asset genealogy and parent / child meter readings are tracked automatically.

Attributes, such as cost history, bills of material, and document attachments can be associated with a specific asset.

Various types of Capital assets held by the company are as follows:

Furniture and Fixtures

Leasehold Equipments

Plant and Machinery



Types of Maintenance and scheduling necessary:

To reduce the probability of failure or degradation of the assets' physical condition it is very important that preventive maintenance activities are carried out periodically. It may be based on usage, or based on the condition of the asset.

One of the methods used at Edrington is usage of Meters. Meters are entered to measure any asset that needs to be measured and periodically serviced, based on the measurement. For example, a pipe may start out at 12 millimeters, but when it wears to only four millimeters, it needs to be replaced. Another example is a forklift hour meter. You may need to service the forklift after a certain number of running hours or a specific number of days.

From Wikipedia - If you want to include any additional points.

Edrington, being a capital-intensive industry due to its process manufacturing activities, physical assets (buildings, plants, breweries and equipment) form a significant proportion of the total assets of the organization. It faces the harsh realities of operating in highly competitive markets with high value assets and equipment where each failure can result in disruption and highly costly. Also the company needs to adhere to stringent occupational and environmental safety regulations.

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It is thus important for the company to maximize the return on investment from their asset base. Capital Asset Management has been used to achieve this goal. Given a physical asset, the objective of CAM is to extract maximum productivity from the asset and minimize the total costs involved in its acquisition, operations as well as maintenance. Quantitatively, the objective of asset management is to strike an optimal balance between maximizing Overall Asset Productivity (OAP) and minimizing Total Cost of Ownership (TCO). CAM provides guidance on whether it is more cost-effective to continue to maintain, overhaul or replace a failing asset.

When the entire asset portfolio of the organization is considered, EAM takes over. As business and market requirements are dynamic, the output specifications for the organization's assets change constantly (e.g., increase in output capacity due to new customers). EAM provides the framework for capital and labor allocation decision processes across the competing categories of equipment addition/ reduction, replacement, over-hauling, redundancy setup and maintenance budgets in order to meet business needs. Correspondingly, it merges the collective LCAM efforts and re-evaluates decisions based on long and short-term economic considerations at the enterprise level.

9. Sales Order management and Distributions

Importance of Sales Function and how does sales operate:

Unlike any other company sales plays a very vital role in Edrington group. It ensure all the orders are recorded, processed and completed on time and meets customers requirements. It also helps in planning and forecasting the production requirements and inventory management.

At Edrington, sales function operates via online, through distributors and also electronically.

Key characteristics

Some of the key characteristics which are vital for boosting the sales and required in the new ERP systems are as follows;

There should be access to real-time, online information from sales support to billing process.

Easy to use tools to manage information on sales leads, sales calls, inquiries, quotations, marketing campaigns, competitors and their products.

Sales and marketing personal should be able to access data at any time and from anywhere, to perform sales activities.

Order entry in the system should be automatic. System should automatically assemble information such as payment terms, price list, special discounts etc.

Possibility to configure a product to meet customers' requirements.

Pricing to be done automatically in the sales order. To determine relevant predefined prices, surcharges, and discounts, the system works from price lists and customer agreements or it determines an amount according to the product, product group or product cost.

The system carries out a dynamic credit limit check checking against credit , financial and sales data to verify the customer's credit limit.

The system can perform availability checks using materials management module and production planning module. It verifies that sufficient quantities of items are available to satisfy a sales order. If the requested delivery dates cannot be met, then the system determines when the desired quantities will be available so that a new date can be quoted to the customer.

Support a wide range of contracts from general to more specific contracts.

Shipping Management System: Offers easy to use function for managing picking, packing, labeling and loading tasks monitoring delivery deadlines. The system provides a list of sales orders due for delivery and gives the option of delivering the order completely or partially.

The transport module: It offers functions for transportation, planning and processing as well as monitoring and control functions. The items can be sent by land, sea or air. Possible to select forwarding agents and track shipments.

Billing: On the basis of the orders and deliveries, system automatically carries out billing for all due items. The system then creates an invoice, debit memo or credit memo for each item individually or collectively for a group of transactions.

10. Financial Accounting

Company-wide control and integration of financial information is essential for strategic decision making. The Financial Accounting application in SAP R/3 has the capabilities of meeting all the accounting, financial and reporting needs of an organization.

Some of the key characteristics that the company is looking to be delivered from the implementation are as follows:

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Real-Time Access: Financial Managers and other executives should be able to review the financial position of the company in real time as contrasted to legacy systems which necessitate overnight updates before financial statements frequently and can be generated for management review. The real-time functionality of the SAP modules allows for better decision making and strategic planning.

Integration: The Financial accounting module should integrate seamlessly with other functional modules such as MM (Materials Management), PP (Production Planning), SD (Sales and Distribution), PM (Plant Maintenance), and PS (Project Systems).

The FI Module also assimilates with HR (Human Resources) that includes PM (Personnel Management), Time Management, Travel Management, Payroll.

Financial accounting component should comply with international accounting standards such as GAAP, FAS, IAS etc. It should also fulfill the local legal requirements and should be able to to produce reports and returns which are required to be submitted to the local government.

It should also be able to comply with the tax provisions applicable in the region and at the national level.

Elimination of time-consuming reconciliations.

Create data summaries that can be used in planning, allocation, distribution and reporting.

11. Management Accounting.

Managing costs is the most important aspect of ensuring the company maximizes their profits and achieves their goals. The various methods adopted at Edrington group for controlling costs and reduce their spendings are as follows:

FP&A department: Company has appointed highly qualified financial management people to manage the financial activities of the company which ensures all the costs incurred by the various departments of the company are monitored.

Cost center accounting: It analyses where overhead occurs within an organization. Costs are assigned to the sub-areas where they are originated using a number of different methods available based on posted amounts and quantities.

Budgetory control: Every year company assigns the budgets for its various cost centers and compares these costs with the actual spending. Variances are monitored frequently and reports are available directly to the top management for exceptional reporting.

Standard costing: Company also follows the principles of standard costing where they have developed a standard cost for all of their products. The actual cost of productions are compared and monitored against the standard costs set.

Key Measurement figures

The various figures used by the company to measure its performance are as follows:

Gross Profit Margin

Operating Profit Margin

Net Profit Margin

Liquidity ratios

Return on Capital Employed

The new proposed SAP system will be configured to allow company to create budgets and standard costs which will be used to report the variances and control them. Several reports will be designed which will be accessible to the top management for them to review companies performance at any time.