ERP in Accounts Payable

Introduction

Every enterprise purchases goods, services, assets, or office supplies from its suppliers (also known
as vendors). Accounts Payable pays these suppliers on time (taking advantage of payment discounts
if possible) while avoiding duplicate payments and bank over-drafts. Accounts Payable is the last step
in the supply chain where Purchasing is the first. Accounts Payable accepts invoices, selects invoices
to be paid, generates checks and forecasts future cash requirements based on due dates. Some AP
checks are issued to people or organizations that are not worth putting on file since they are likely to
receive only one check. Some enterprises prepay part of the invoice amount because the supplier
requires a deposit. Every ERP has an Accounts Payable module.

1 Self-service

2 Tables

3 Data Exchange

4 Transactions

Self-service

Suppliers can see their invoices and checks and basic information via the web and update some
portions of it (name, address, and contact information for example).

Tables

There are several major groups of tables in Accounts Payable.

Supplier information is the master data used by Accounts Payable. It contains information about
the enterprise's suppliers and other creditors. Information about the supplier, its locations, contacts
etc. These tables are also used by Purchasing.

Bank information is also master data. It contains information about the enterprise's banks and
bank accounts.

Invoices are documents issued by suppliers giving notice of what is owed them. Examples are
standard invoices, credit memos, debit memos, interest memos. These transaction tables typically
contains the invoice header, lines and payment schedules.

Payments or checks are transaction data reflect payments done to suppliers.

Accounting Entries are transaction data with the accounting generated by invoice and payment
transactions.
Data Exchange:

Accounts Payable sends pricing data to Inventory, assets to Fixed Assets and accounting journal
entries to General Ledger. Accounts Payable receives purchase orders and receipts from Purchasing
in order to match invoices.

Transactions

The first transaction records a supplier invoice. This can be verified against the related purchase
order if there is one and the receiving report that lists what goods were actually received. Not every
enterprise uses the last two options.

The second transaction pays supplier invoice(s). Each check can pay one or more supplier invoices.
Invoices must be approved for payment before they can be paid.

The vast majority of the module's transactions consist of the above two. The third fundamental
transaction is that of adjustment when things go wrong. We will document this later.

What is SAP?

There are many benefits to implementing an integrated solution such as SAP. Commercial benefits
would include having a single source for your financial information. Capturing your business
transactions in one location allows you to easily review inventory, customer and vendor activity. On
the technical side, a solution on a single platform will enable easier maintenance and support,
reducing costs. Having a consolidated system means fewer interfaces to support. By having a single
system of record your human resources will become familiar with terminology associated with this
data and the standard processes. This may improve communication and create a work force that is
easier to transfer between roles. Any drawbacks to such a solution would depend on the amount of
restrictions you choose to place on your environment. New business solutions may have to fit within
the current system, technology must be compatible and human resources must adapt to handle data
in certain standard processes.

Reasons to Implement SAP

1. Competition. Its true that ERP software requires a major investment, but theres also an
even bigger cost in not making the investment. While some manufacturers choose to stick to
the tried and true methods of the past, others seek technology solutions. Manufacturers
cannot afford to put off an ERP implementation while their competition invests in ERP and
starts reaping the many benefits well touch on below.
2. Efficiency. An ERP solution eliminates repetitive processes and greatly reduces the need to
manually enter information. The system will also streamline business processes and make it
easier and more efficient for companies to collect data, no matter what department theyre
working in.
3. Forecasting. Enterprise resource planning software gives your users, and especially
managers, the tools they need to create more accurate forecasts. Since the information
within ERP is as accurate as possible, businesses can make realistic estimates and more
effective forecasts.
4. Collaboration. Nobody wants to run a siloed business with each department functioning
separate from the other. Collaboration between departments is a crucial and often necessary
part of the business. With the data entered into ERP systems being centralized and
consistent, theres no reason why departments cant work together. The software also
touches on almost every aspect of a business, thus naturally encouraging collaborative,
interdepartmental efforts.
5. Scalability. Did you know? Structured ERP systems allow the addition of new users and
functions to grow the initially implemented solution over time. When your business is ready
to grow or needs more resources, enterprise resource planning software should be able to
facilitate that growth.
6. Integrated Information. No more issues with data spread across separate databases; all
information will be housed in a single location. This means you can integrate platforms like
your CRM software with the ERP system, keeping data consistent, accurate, and unique.
Know your customer, their orders, and your inventory, all in one place.
7. Cost Savings. With one source of accurate, real-time information, ERP software reduces
administrative and operations costs. It allows manufacturers to proactively manage
operations, prevents disruptions and delays, breaks up information logjams and helps users
make decisions more quickly. If youve chosen the right solution for your business, and the
right vendor who meets your needs, youre bound to see a powerful ROI.
8. Streamlined Processes. As manufacturers grow, their operations become more and more
complex. Manufacturing software automates business operations cross-departmentally,
providing accurate, real-time information to everyone utilizing the solution. ERP increases
efficiency and productivity by helping users navigate complex processes, preventing data re-
entry, and improving functions such as production, order completion and delivery.
Streamlined, efficient processes throughout.
9. Mobility. An advantage of ERP solutions like Workwise ERP software is having access to a
centralized database from anywhere you work. Home, office, wherever, through our mobile-
friendly solution and application.
10. Reporting. ERP software helps make reporting easier and more customizable. With
improved reporting capabilities, your company can respond to complex data requests more
easily. Users can also run their own reports without relying on help from IT, saving your users
time to use toward other projects.
11. Productivity. Save time and increase productivity levels. Sound too good to be true? Its not
with ERP software. By having redundant processes automated, users have more time to work
on other pressing projects and tasks. Theyll also be able to work easier since the solution
was designed for ease-of-use.
12. Regulatory Compliance. A benefit of ERP software which sometimes goes unnoticed is how
it ties well into regulatory compliance in the manufacturing industry. Powerful ERP solutions
will keep track of regulations within the industry and monitor changes in compliance .
13. Flexibility. Modern ERP software systems are robust, flexible, and configurable. They are
not a one-size-fits-all proposition but can be tailored to the unique needs of a business. ERP
systems also can adapt to the ever-changing needs of a growing business, ensuring you
wont have to buy a new solution once your needs change or your business grows .
14. Customer Service. Its easier to provide high-quality customer service using an enterprise
solution, especially when youre using one as well-equipped as WorkWise ERP. Sales and
customer service people can interact with customers better and improve relationships with
them through faster, more accurate access to customers information and history. Youll also
have access to marketing automation and contact center software, ensuring your customers
are being interacted with consistently.
15. Security. Data security isnt a worry when you have an enterprise resource planning solution
in place. A new system will improve the accuracy, consistency, and security of data, all
 through built-in resources and firewalls. Restrictions to data can also be enhanced by
managers of the solution, so you can make your own software as secure as youd like.

ADVANTAGES OF SAP:
There are many benefits to implementing an integrated solution such as SAP. Commercial benefits
would include having a single source for your financial information. Capturing your business
transactions in one location allows you to easily review inventory, customer and vendor activity. On
the technical side, a solution on a single platform will enable easier maintenance and support,
reducing costs. Having a consolidated system means fewer interfaces to support. By having a single
system of record your human resources will become familiar with terminology associated with this
data and the standard processes. This may improve communication and create a work force that is
easier to transfer between roles. Any drawbacks to such a solution would depend on the amount of
restrictions you choose to place on your environment. New business solutions may have to fit within
the current system, technology must be compatible and human resources must adapt to handle data
in certain standard processes.

BENEFITS:

1. Competition: Its true that ERP software requires a major investment, but theres also an
even bigger cost in not making the investment. While some manufacturers choose to stick to
the tried and true methods of the past, others seek technology solutions. Manufacturers
cannot afford to put off an ERP implementation while their competition invests in ERP and
starts reaping the many benefits well touch on below.

2. Efficiency: An ERP solution eliminates repetitive processes and greatly reduces the need to
manually enter information. The system will also streamline business processes and make it
easier and more efficient for companies to collect data, no matter what department theyre
working in.

3. Forecasting: Enterprise resource planning software gives your users, and especially
managers, the tools they need to create more accurate forecasts. Since the information
within ERP is as accurate as possible, businesses can make realistic estimates and more
effective forecasts.

4. Collaboration: Nobody wants to run a siloed business with each department functioning
separate from the other. Collaboration between departments is a crucial and often necessary
part of the business. With the data entered into ERP systems being centralized and
consistent, theres no reason why departments cant work together. The software also
touches on almost every aspect of a business, thus naturally encouraging collaborative,
interdepartmental efforts.

5. Scalability: Did you know? Structured ERP systems allow the addition of new users and
functions to grow the initially implemented solution over time. When your business is ready
 to grow or needs more resources, enterprise resource planning software should be able to
facilitate that growth.

6. Integrated Information: No more issues with data spread across separate databases; all
information will be housed in a single location. This means you can integrate platforms like
your CRM software with the ERP system, keeping data consistent, accurate, and unique.
Know your customer, their orders, and your inventory, all in one place.

7. Cost Savings: With one source of accurate, real-time information, ERP software reduces
administrative and operations costs. It allows manufacturers to proactively manage
operations, prevents disruptions and delays, breaks up information logjams and helps users
make decisions more quickly. If youve chosen the right solution for your business, and the
right vendor who meets your needs, youre bound to see a powerful ROI.

8. Streamlined Processes: As manufacturers grow, their operations become more and more
complex. Manufacturing software automates business operations cross-departmentally,
providing accurate, real-time information to everyone utilizing the solution. ERP increases
efficiency and productivity by helping users navigate complex processes, preventing data re-
entry, and improving functions such as production, order completion and delivery.
Streamlined, efficient processes throughout.

9. Mobility: An advantage of ERP solutions like WorkWise ERP software is having access to a
centralized database from anywhere you work. Home, office, wherever, through our mobile-
friendly solution and application.

10. Reporting: ERP software helps make reporting easier and more customizable. With improved
reporting capabilities, your company can respond to complex data requests more easily.
Users can also run their own reports without relying on help from IT, saving your users time
to use toward other projects.

11. Productivity: Save time and increase productivity levels. Sound too good to be true? Its not
with ERP software. By having redundant processes automated, users have more time to work
on other pressing projects and tasks. Theyll also be able to work easier since the solution
was designed for ease-of-use.

12. Regulatory Compliance: A benefit of ERP software which sometimes goes unnoticed is how
it ties well into regulatory compliance in the manufacturing industry. Powerful ERP solutions
will keep track of regulations within the industry and monitor changes in compliance.

13. Flexibility: Modern ERP software systems are robust, flexible, and configurable. They are not
a one-size-fits-all proposition but can be tailored to the unique needs of a business. ERP
systems also can adapt to the ever-changing needs of a growing business, ensuring you
wont have to buy a new solution once your needs change or your business grows.

14. Customer Service: Its easier to provide high-quality customer service using an enterprise
solution, especially when youre using one as well-equipped as WorkWise ERP. Sales and
customer service people can interact with customers better and improve relationships with
them through faster, more accurate access to customers information and history. Youll also
have access to marketing automation and contact center software, ensuring your customers
are being interacted with consistently.
 15. Security. Data security isnt a worry when you have an enterprise resource planning solution
in place. A new system will improve the accuracy, consistency, and security of data, all
through built-in resources and firewalls. Restrictions to data can also be enhanced by
managers of the solution, so you can make your own software as secure as youd like.

Return on Investment (ROI) in ERP Project

When a proposal is put forward for implementing an ERP system, two questions are invariably asked
i) How much it is going to cost ii) What is the payback period. It is always preferable to have a cost
benefit analysis before embarking on ERP project. A properly done ROI analysis builds a business
case for the project. The organization is in a better position to make a decision, set goals and
deadlines. This analysis will also create a base that can be used to measure future performance of
the system.

ROI in the context of an ERP project

A ROI for ERP project represents metric of completed due diligence and a time phased plan that
define when money will be needed and what for it will be used. ROI calculation is made by dividing
monetary gain by amount spent. While it is easier to calculate the expenditure for an ERP project, it
is difficult to determine the gain, as several gains from the project are intangible and not
quantifiable. Typically, ROI involves a payback period, which is the length of time taken for the
cumulative expenditure equals cumulative cost of investment.

Tangible and Intangibles benefits of ERP

Some of the quantifiable and tangible benefits of ERP system are mentioned below: Implementation
of ERP, however, does not lead to headcount reduction (redundancies of few lower ended positions
of payroll and accounts payable gets counterbalanced by additional higher paid IT staff).

1. Reduced level of inventory, including raw material, work in progress and finished goods,
through improved planning and control.

2. Reduced materials cost through improved procurement and accounts payable practices, less
obsolescence and wastage.

3. Reduced labour cost through better allocation and reduction of overtime of workmen
directly involved with production such as technicians and skilled workers.

4. Improved production throughput through better scheduling of critical equipment and sub-
contracting operations, thereby minimizing shortages, interruption and rework.

5. Reduction in the cost of after sales services.

In addition to tangible benefits, following intangible benefits also occur:

1. Integration of information resulting efficiency, transparency and effective MIS.

2. Error reduction, accuracy of inventory record.

 3. Improved customer service, on time shipment, shorter order to shipment cycle.

4. Establishment of standardized procedures.

5. Improved accounting control and shorter sales to cash cycle.

6. Legal and regulatory compliance.

ERP Life Cycle

Initial investment in acquiring and implementing an ERP system is substantial in terms of both human
efforts and financial resources. After, successful implementation, the system goes to maintenance
mode and organizations start getting value out of their investment. After a prolonged period, due to
changes in business and technological paradigm, it becomes more and more difficult and expensive
to maintain and extend the system. The process of reimplementation and beginning of a new cycle
starts.

ERP life cycle Phases

ERP life cycles, which encompass entire 10 to 20 years of effective operating life, are often confused
with ERP Implementation Life Cycle. Some of the phases of ERP life cycle is shown in following
diagram.

1. ERP Roll out: The initial roll out of an ERP system itself consists of various phases
commencing with Request for Proposal (RFP) and vendor selection and ending with go live
and hand holding phase. Some important matter concerning this phase, as given below, will
have direct bearing on subsequent phases of ERP lifecycle:

Degree of matching of vanila ERP product to current business need and extent of
customization done, particularly source code customization.
 Commitment of the vendor for future development and their financial health

Support issues including License fees and escalation thereof.

2. Optimization: After the system is live and rolled out, there will be a period of turmoil. Due to
lack of understanding, a lot pf confusion will prevail amongst users. There will be teething
problems and some software bugs will invariably appear. With retraining, some tweaking of
the system and assistance from a responsive help desk, this phase should be over within six
months to one year and the system should start stabilizing.

3. Maintenance: This is the longest period of life cycle, when the organization start realizing
value of their investment. Users will get familiar and start owning the system. Some changes
will be continuing such as new reports, different workflows, some localisation on taxes etc.
Maintenance will be covered by service level agreement, entailing payment of license fee to
the vendor. For a complicated system, there may be a third party vendor, helping
maintenance at site. The license fee, due to provision of escalation, gets escalated at regular
intervals and after some years, adversely effects Total Cost of Ownership (TCO).

4. Extending Values: This phase overlap with the phase of maintenance. New or changed
business processes necessitate minor or moderate changes in the system. There may be
extensive changes under scenario such as i) implementing a new accounting system e.g.
International Finance Reporting standard (IFRS) ii) A new regulatory requirement like
Sarbanes=Oxley iii) Mergers and acquisitions/ restructuring.iv) Extending the system with
add on products such as Customer Relationship Management and Business Intelligence (BI).
Sometime the cost changes may be prohibitive, particularly for systems where a lot of
customization has been done during implementation phase.

Parallel to business changes, technological changes also occur. New release and versions
appear for underlying technological platforms like Operating System and Data Base. ERP
vendors release patches and versions of their products at regular intervals which needed to
be incorporated in the existing system. This usually involves minor or moderate efforts. But,
problem arises where many software objects were customized during implementation.
Retrofitting these objects for making them compatible with later versions, may turn out to be
a major migration exercise involving exorbitant cost and effort.

5. Decaying Performance: For an enterprise, business need and technological requirement,

continue to evolve. Cost, Complexity and difficulty to modify and update the existing system
mount. Fixing existing system is no more viable and provides diminishing return. Alternatives
are investigated and decision of reimplementation is taken.

6. Reimplementation: Similar to Roll Out phase as mentioned above. However, the

organizations are better organized now. Initial process will be carried out more
professionally. It is likely that they will adopt more of a vanilla version with minimum need of
customization, so that the next cycle gives a better Return on Investment (ROI).

Implementation of SAP

Phase 1: Project Preparation - The purpose of this phase is to provide initial planning and
preparation for your SAP project.
Phase 2: Business Blueprint - The purpose of this phase is to achieve a common understanding of
how the company intends to run its business within the SAP System. The result is the Business
Blueprint, a detailed documentation of the results gathered during requirements workshops. The
Business Blueprint document represents the business process requirements of the company. It is the
agreed statement of how the company intends to run its business within the SAP System.

Phase 3: Realization - The purpose of this phase is to implement all the business process
requirements based on the Business Blueprint. The system configuration methodology is provided in
two work packages: Baseline (major scope); and Final configuration (remaining scope).

Phase 4: Final Preparation - The purpose of this phase is to complete the final preparation (including
testing, end user training, system management and cutover activities) to finalize your readiness to go
live. The Final Preparation phase also serves to resolve all critical open issues. On successful
completion of this phase, you are ready to run your business in your live SAP System.

Phase 5: Go Live & Support - The purpose of this phase is to move from a project-oriented, pre-
production environment to live production operation .

Phases of ERP Implementation

Like any other project, ERP implementation goes through various interconnected phases. These
phases may be sequential but at occasions overlap. Normally, every phase has entry criteria, which
needs to be fulfilled before the commencement of the phase. A phase is deemed to have completed
when pre-determined deliverables are achieved.

Various phases of ERP implementation, for a typical ERP project, are mentioned below:

1. Project Establishment

Project Establishment will comprise of the following activities:

Mobilization.

Project teams formation

Project plan detailing and fine tuning

For a successful implementation, several types of skills are required. To ensure that the
requisite expertise is available to the project, different teams are formed, consisting of
members from the organization and vendor.

Project board

Competence center team, mostly represented by IT personnel of the organization.

Key users team.

 Consultants team.

Project Implementation Committee.

Entry Criteria

Vendor Project Team on site.

Organizations implementation team tentatively identified.

Deliverables

Project Administration Plan.

Project standards document.

Project board formation.

Project Implementation Committee formation.

Competency Centre Team formation.

Key Users Team formation.

Delivery and Installation of vanilla ERP Application.

2. Procedure Development

In this phase, key users and competence center team map the existing functional processes
with the functions available in the vanilla ERP application, in conjunction with the vendor
team. The following activities will occur in an iterative manner.

Process mapping

Gap detection

Work-around identification

Organizational impact analysis

Deliverables

Business Model through flow chart.

Customization Design Specification document for identified modifications.

Draft Procedure Manual

Acceptance Test Plan and Data

3. Application Software Customisation

This phase includes program development for all modules using the Customization Design
Specification Document, unit testing and system testing of all modules. The individual
programs will be unit tested, based on test plans developed by the vendor. This phase may
be carried out at offshore.

Next, the developed and unit tested application software will be system tested during this
phase. The system testing will be based on the acceptance test plan and test data provided
by the organization. Thereafter it will be installed on the Designated Computed System.

Entry Criteria

Acceptance Test Plan and Test Data

Customization Design Specification Document for identified modifications

Deliverables

Customized unit and system tested application software.

4. Acceptance Testing

The focus of user acceptance testing is to exhibit that the system works. From the users
point of view, acceptance testing is the final quality control procedure to determine whether
the software product is performing as expected.

Entry Criteria

Availability of customized unit and system tested application.

Deliverables

Tested Application Software

Updated procedure manual

5. End User Training

All identified end users will be trained in the specific functions they are required to work. The
training will be conducted by vendor.

Entry Criteria

Tested Application Software

Updated procedure manual

Deliverables
 End users trained as per training plan

6. Conference room trial

This phase deals on the simulation of the actual business environment. The following
activities will occur iteratively during this phase:

Identification and entry of representative data

Simulation of the business model

Business Model enhancement

Finalization of procedure manual

As the team reviews the data model, the business model that is prepared in the Procedure
Development stage may undergo some changes.

Entry Criteria

Tested Application Software

Updated procedure manual

Deliverables

Final Procedure Manual

Final Business Model

7. Data Loading

This is the migration phase where data from existing manual/legacy operations are
transferred to Systems database using interface programs or utilities available within the ERP
package. The following activities will occur:

Data conversion & loading

Establishment of Access Rights and Passwords

Entry Criteria

Final Procedure Manual.

Final Business Model

Deliverables

Data Loading Completed

 8. Live trial

Once the Final Business Model is ready and database is loaded, the system is ready to go live.
This phase will allow users to work on the application software with real time data.

Entry Criteria

Data Loading Completed

Trained End Users.

Deliverables

Live Trial completed

Dos and Donts during ERP Implementation

ERP systems are complex, time consuming and expensive. Instances of failure of ERP projects abound
including some high ticket failures such as Hershey, (largest chocolate maker of USA), where a SAP
implementation was abandoned after three years. There are various Dos and Donts effecting
success or failures of an ERP implementation. Some of critical success factors, needing focused
initiative, are appended below:

Commitment from project sponsor: Project sponsors normally belong to top echelon of the
organization. A deep commitment and active involvement is needed from them and bare
monitoring and oversight may not suffice. Their vigorous engagement should get other
executives in board. One of their important roles will be to resolve any inter departmental
conflict which is bound to occur during the course of implementation. They should also
ensure that most knowledgeable executives are engaged in the project and released from
routine functions whenever needed.

Commitment of resources: An ERP project needs a significant financial commitment and

budgetary support. Expenditure involves not only direct expenditure relating to ERP package
but a host of indirect cost such as integration with other software, gathering and cleaning of
input data, archiving data from legacy system, engaging expert/consultant, additional
support need, provision for contingency etc.

Selection of package and consultant: The selection of ERP package should be absolutely
need based, as detailed on business requirement analysis, done beforehand. Selection
should not be influenced by extraneous factors such as glamour involved in the name of big
ERP packages. Selection of a consultant, who will provide advice independent of the interest
of vendor and guide the entire process of implementation, should be done carefully and with
due diligence. The consultant should be truthfully independent and should not be linked to a
particular ERP vendor. This is also applicable to consultants from big named consulting firms
as they may have tendency to recommend a complex product, requiring added consulting
effort during implementation process.
 Project Management: An empowered project manager, supported by IT and functional
experts and appropriate project management methodology, is key to success of ERP
implementation. Setting up of project team, resource allocation, milestones and deliverables
etc. form important part of project management. Tailor made training programme for
different type of users and a predefined change management process, are also crucial.

Legacy Data: Legacy data are stored manually, in excel files or in legacy system. Collection of
legacy data is needed to be planned carefully to avoid the syndrome known as garbage in
and garbage out which will undermine the confidence on the system after implementation.
Cleaning of data should be done by removing duplicate and unnecessary information, before
importing to ERP system.

Critical failure factors: Critical factors for failure may be defined as contrary to critical success factors.
Some specific concerns of failures are mentioned below:

Creeping in of additional functionality: Pressure often mounts for additional functionalities

not envisaged earlier during implementation. This may lead to conflict with ERP vendor.
Dealing through change management process also involves additional cost and time and
should be avoided as far as possible.

Unrealistic expectations: ERP system is not an all cure silver bullet. Users often like to see an
immediate improvement after installation. There are bound to be initial period of frustration
which may snowball, undermining confidence on the system.

Information overload: An ERP system contains hundreds of reports and queries. Too much
information creates a lot of confusion amongst users. Notwithstanding information overload,
many a time, users feel cheated as the system fail to generate identical reports to which they
are accustomed.

Resistance to Change: Users are overwhelmed by all the new features of the system. Some
of the aged employees may be unwilling to adopt a new way of working. Some may be
uncomfortable with the awareness that their supervisor will now keep a better trail on what
they are doing.