Increased federal regulations, shrinking budgets and a desire for timelier reporting and better visibility into operations has many manufacturers taking a closer look at their accounting software -- and in many cases, they don't like what they see.
One problem is that companies have too many accounting systems installed, and according to Forrester Research, Inc., many are moving to consolidate these systems. Meanwhile, Sarbanes-Oxley has exposed weaknesses in the reporting capabilities of many companies' accounting software installations, says Nigel Rayner, research vice president at Gartner Inc. For others, a move to the global stage is spurring a need for an upgrade.
No matter your reason for upgrading, here are some things manufacturers should consider when purchasing a new accounting package (click here for additional resources).
- Make sure the operations shoe fits first. According to Paul Hamerman, vice president of enterprise applications at Forrester, it's nearly impossible to buy accounting software that's not part of a bigger enterprise resource planning (ERP) package. Even mid-market packages such as Great Plains Software and Axapta from Microsoft Corp.'s Business Solutions unit contain ERP modules with built-in integration. "There are very few stand-alone accounting vendors in the market anymore," he says.
So if you already have ERP software from Oracle Corp. or SAP America installed, it might make sense to consider those accounting modules first, particularly to leverage the integration capabilities.
You can opt to do your own integration between accounting and ERP, but built-in integration capabilities vary. "Lower-end systems don't support Web services-based integration right now, so you're looking at point-to-point integration," Hamerman says.
But choosing an integrated package on the merits of the accounting software alone would be backwards logic, Gartner's Rayner says. "It's more important to get a good fit with your manufacturing operations than making the accountants happy," he explains.
- Plan on corporate performance management add-ons. Accounting systems from ERP vendors often lack effective reporting capabilities, according to Forrester Research. "Their transactional architecture tends to optimize data capture but limits their ability to produce useful management information," Hamerman says. No wonder 35% of users, according to a Forrester survey, plan to invest in planning, budgeting and forecasting software in 2005.
Traditionally, companies have relied on transferring data from accounting systems into spreadsheets, but with more pressure on secure financial reporting practices thanks to Sarbanes-Oxley, more companies will turn away from spreadsheets to corporate performance management (CPM) software, Rayner says.
SAP and Oracle provide comprehensive CPM offerings, either as an add-on or as part of the suite. Many of the mid-market manufacturing vendors, however, don't, making it necessary to turn to a specialist in this arena such as Hyperion Software, Cognos Inc., Clarity Systems or CorVu Corp., which specifically targets mid-market manufacturers, Rayner says. Integration is not a major problem, he says.
"All the vendors in this space are designed to access data from other systems," he points out, including some predefined connectors into higher end solutions.
SSA Global takes a tiered approach, according to Rayner. It offers core accounting capabilities through its ERP systems, but users can also buy its higher end accounting system, as well as its CPM application, both of which integrate with its ERP applications.
- Consider whether smaller is better. According to many observers, mid-market packages have matured enough to provide core financial applications that meet many companies' needs. "There's a whole host of new products like Great Plains, Navision, Syspro, Axapta and Solomon that are in a good position to meet a company's manufacturing and financial needs, as well as e-commerce, CRM and payroll, all for a fraction of what manufacturers used to pay" for larger ERP suites, says Carlton Collins, president of Accounting Software Advisor in Norcross, GA.
Collins has helped even large firms like a $40 billion client in Atlanta rip out large ERP installations and replace them with mid-market solutions.
"People are running away from the Tier 1 products and going to the middle market," he says. The reasons they cite are ease-of-use, better customization capabilities, lower cost and the existence of other integrated modules.
"The problem with the higher end systems is that they're expensive to maintain and upgrade -- the cost of ownership is high," Hamerman adds. "With midsize systems, you don't need to invest at such a high level."
Mark Chollett, director of technology at Wiseco Piston, Inc., a manufacturer of high-performance and racing-motorcycle pistons in Mentor, OH, came close to purchasing a package from JD Edwards two years ago, but after delaying his purchase decision until last year, he chose MAS500 from Sage Software Inc. (formerly Best). "When we stepped back and looked again, there was some maturing of the Windows platform and a higher level acceptance of running your business on Windows," he says. Plus, it's a lot more efficient to use a package with fewer options than larger systems such as JD Edwards or SAP if you don't need all those features, he added. Not to mention, running on less-expensive Intel servers enables users to add application servers as business and functional requirements dictate.
"SAP has something like 20,000 switches that can be set in the software" vs. several hundred in (Sage's MAS500), he says. Because it's less complex, training is easier, and he doesn't have to call in a consultant if he wants to change functionality.
But don't go to a no-name system, Collins warns, especially with the ongoing consolidation in this part of the market. "I would always buy a product with 6,000 or more customers," he says.
- Any global plans? Where mid-market accounting packages may not always be the best choice is if you need international accounting capabilities, Rayner says. Although companies such as Epicor and Exact Software, Inc. offer some global operations capabilities (click for more insights on Epicor's initiative and Exact's plans), companies with global ambitions often turn to larger vendors such as Oracle and SAP for multi-currency, multi-language and multi-site capabilities.
"Where companies run into difficulty [with mid-market packages] is when they need sophisticated currency-handling capabilities," Rayner says. "They may offer basic currency-handling features but not support for local accounting regulations for multiple countries around the world."
But there are other ways to achieve this goal. SSA's accounting system offers global capabilities, as does Systems Union Inc., which integrates with Mapics Inc.'s ERP system, Rayner says.
Migrating the entire company to a single ERP system to enjoy the benefits of a centralized accounting capability, however, probably won't be an accounting-led decision, Rayner says. For instance, if the company consists of very different types of manufacturing facilities, it might be better to retain existing plant-level operational systems and roll up data to a centralized accounting system. (Click here to read about new capabilities along these lines offered by QAD.)
- What's your SOA strategy? Although it's three to five years from implementation for many manufacturers, large ERP vendors such as SAP and Oracle are evolving their systems toward a service-oriented architecture, Rayner says. This will enable them to link elements of their systems' functionality more easily with those from other vendors, using Web services as the glue.
"You'll have the ability not just to integrate different applications but also to build and orchestrate your own business processes based on taking functionality from different vendors," he says. "You might take financial elements from SAP and integrate them with manufacturing operational elements from QAD."
While it's too early to base a purchase decision on vendors' current plans, Rayner says, you should at least begin considering how you might move into a SOA model and study vendors' approaches to this type of integration.
"There is the obsolescence factor, and if a vendor doesn't have a strategy to move its products forward into Web services orientation, they may not be viable in the future," Hamerman says.