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Building Blocks to Building Profit: Manufacturing Software Implementations

This is part one of a three-part series of articles focused on specialty niche markets served by tax and accounting firms. Look for part two and part three in November and December on medical office/healthcare and agriculture.

While there are many iconic lines from the movies, one resonates more than others with accountants and their manufacturing clients: “If you build it, he will come.”
In the manufacturing scenario, the “build it” refers to the software used to streamline the accounting function, while the “he” is metaphorically linked to a company’s bottom line.

However, the company did not optimize its systems with new technologies all alone. It had the help of a tax and accounting firm or software consultant who understood the software solution’s capabilities … and enough about the client to ensure that the installation went smoothly and the work was completed on time.

Conversations Lead to Software Solutions
Working with manufacturing clients to implement technologies requires a different approach than working with clients to provide assurance services or complete a tax return. Most firms and consultants talk to a defined process to produce consistent results.

“The process begins with a Summary Needs Assessment conversation to determine who is involved with the system, as well as the complete list of issues — either the problem the company is trying to solve or results they want to produce,” says Kevin Cumley, president of Forepoint LLC. “We then help them prioritize the issues, and focus on those that will deliver the highest value or ROI by solving. Once we have agreement at a high level, we then do a more detailed assessment on those needs.”

Based in Helena, Mont., with offices in Washington, Wisconsin, Oregon and Hawaii, Forepoint provides business application software for small- to mid-sized companies with a focus on accounting, ERP, project management, human resource and CRM solutions. Cumley recently partnered with Irene Bushnell of Anderson Zurmuehlen and Co., P.C. (azworld.com), a firm also based in Helena, to produce the new QuickBooks Conference Kit, a turnkey conference package for tax and accounting firms, Intuit Solution Providers, QuickBooks ProAdvisors and others interested in hosting their own QuickBooks Users Conference. He considers the initial conversation with clients very subjective.

Manufacturing, Inventory & Distribution Vendors
Activant Solutions Inc. 888-448-2636
Advanceware Technologies 888-792-3826
Alterity 866-877-1311
B2bGateway.net 401-491-9595
Barcoding Inc. 888-412-7226
DBA Software Inc. 800-995-1959
DiCentral 877-TRUE EDI
ERPlite.com Inc. 469-277-2344
Exact Software 800-777-4334
Expandable Software 800-680-6050
Fishbowl Inventory 800-774-7085
Indistrial Financial System 888-437-4968
MISys Inc. 802-457-4600
Netfira 650-209-6579
Number Cruncher 866-278-6243
Software Arts 408-226-7321
SYSPRO 800-369-8649
The Systems House, Inc. 800-MDS-5556
True Commerce 888-430-4489
Wasp Barcode Technologies 214-547-4100

“Generally speaking, there is no ‘one best program’ because many products can deliver an effective solution,” says Cumley. “Our approach is to first identify the needs, and then determine if we have software that will provide a solution. Key factors, such as a knowledgeable and experienced implementation team, solid scope of work, and effective project management, play a critical part in the equation. Ultimately, the proof is a successful project as defined in a scope of work and a happy client.”

Within a company, some accountants might say the controller is the primary decision maker to implementing technology because this position touches so many different areas of accounting and is responsible for the way the software integrates company-wide.

As a provider of outsourced controllership services, Lonnie Clark opens the door for conversations on her clients’ hot buttons, especially in technology.
“Most companies know they need new or updated software, but feel the process is so expensive in dollars and personnel time that they ignore the whole issue as long as possible; when they finally commit to new software, they see the increased functionality and it just blows them away,” says Clark, a CPA and MBA who is Strategic Business Services Manager for Weaver and Tidwell, LLP, in Dallas, Texas.

“I liken it to a Christmas ‘wish’ book because the client wants everything the new software has to offer. Unfortunately, the more bells and whistles they buy, the more money and time it takes to fully utilize their wish list.”

Smith consults with small- to medium-size manufacturing and distribution companies on critical accounting system selection and configuration, and the creation and modification of internal procedures to coincide with system functionality.

“I have a basic process that starts with getting a list of all the things the company dislikes about their current software,” she says. “I ask for the minimum requirements they would need in new software, what particular items that would be ‘nice to have,’ but not a ‘must have,’ and the special processes they consider unique that requires customizing any software they might choose.”

The heavy lifting to define procedures must be written before choosing the software to determine if there are any special requirements. Other factors come into play as well. For example, Clark says the company may also need a complete network or hardware overhaul. Her goal is to find software that meets basic requirements and the “must haves.” Demos follow next, and experienced users are preferred.

“The people who see the demos must be users who are aware of current processes and weaknesses in the current system,” she says. “Usually, this group will narrow the choice down to one to three vendors, at which point a demo is arranged for management or the company asks for pricing.”

Because she knows clients see several demos and forget who said what about special features, Clark tries to get the client to focus on the basic functionality and uniqueness of the software instead of worrying about the special wish list stuff right away. Sometimes, she is pleasantly surprised. For example, one time during testing and ‘go live,’ the client remembered everything. “It’s a reminder to be careful what you say you can do because any promises might come back to haunt you and cost you!”

What Companies Want From Manufacturing Software
The next major area of technology implementation is to understand exactly what it is the company wants the software to accomplish. As a consultant, Sonia Gray, a partner at Forepoint, sees three trends above and beyond obvious issues revolving around integration with the accounting system: capacity planning, tracking labor and creating a schedule.

“Capacity planning focuses on issues related to scheduling,” says Gray. “For example, companies want to know how to schedule their production facility based not only on demand, raw materials availability and stated minimums, but on how much each work stage can handle,” says Gray. “This helps determine if adding another shift or additional equipment would be cost effective.”

Second, true production costs are captured by tracking labor and burden costs by employee by work stage. Lastly, Gray says companies want a visual representation of the entire production schedule — a screen or even a printout of a production schedule that gives them a Gantt chart or similar view of production. From a firm’s perspective, Clark encounters issues more closely related to accounting, including inventory valuation problems.

“Companies talk about how there is a lack of software functionality to provide accurate inventory values and, as a result, there are errors in cost of goods sold that result in inaccurate net income,” says Clark. “Clients want to know if they can adapt new processes or procedures to provide a solution for this issue with the existing software, if there are add-ons or updates for the existing software that would correct the issue, and whether it is time for new software.”

Accounting procedures for receiving, valuing, shipping and selling inventory are also important. Because most companies have limited staff, Clark says this process allows a company to set controls that ensure accounting integrity, while procedures help with employee training and transition/turnover.

“Companies also want their software to develop new financial statements that provide management with better operating information They want to get away from GAAP reporting and develop reporting methods that allow managers to see the true cost of inventory and manufacturing processes. Finally, they want IFRS reporting, or being able to convert US GAAP reporting to International IFRS Standards for consolidation to a foreign-owned parent.”

Consulting: Timing is Everything
Although these are the most common abilities companies want from their software, Gray says every company is different, and custom solutions prevail. One commonality shared, without a doubt, is a short timeframe for implementation, but this, too, depends on the company, its staff, the data and other circumstances. Gray cites a food manufacturing company as the client that took the shortest amount of time to implement a manufacturing solution.

“They were a new start up; we didn’t have to contend with converting old data and dealing with ‘this is the way we’ve always done it’ issues. They also had staff dedicated to the project who were experienced accounting and manufacturing personnel.” The second shortest for an existing business was a company that produces a skin care product.

“Their team took a lot of time getting started, but once engaged, they were very disciplined about their project approach and took ownership of it from start to finish. Their dedicated and knowledgeable staff gave it the proper ‘brain share’ and time commitment to stick to the work plan and accomplish the timeline goals.”

From the firm point of view, Clark suggests the practitioner focus on three areas:

  1. Understand the key financial indicators that impact the manufacturing company’s profitability. What are the drivers of profitability in the plant? Clark looks at the impact of labor hours, how WIP is balanced, planning, materials purchasing, product waste, rework/quality control and drawings.
  2. Realize the impact of commodity pricing changes on material cost and how this should be anticipated by the manufacturer. The accounting function should follow cost fluctuations in core raw materials used to modify estimates, value inventory, pricing strategy and job scheduling to have the most effective impact on profitability.
  3. Spend more time with the client to truly understand their process, product and issues. “It’s a benefit to me to be an outside controller because I spend a great deal of time with the client,” says Clark. “I learn much more just listening and watching the employees and processes than I ever would just asking questions.”

This is part one of a three-part series of articles focused on specialty niche markets served by tax and accounting firms. Look for part two and part three in November and December on medical office/healthcare and agriculture.

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For more than 20 years, Scott H. Cytron, ABC, has worked with CPAs and accountants, providing public relations, marketing and communications services. Author of The CPA Technology Advisor’s MarketingWorks column, he works with firms and companies in professional services, including accounting, healthcare, legal, financial planning, collections and debt, and high-tech. Contact him at scottcytron@cpata.com.

 

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