Analysis and Conclusions
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Today there are many proven manufacturing software solutions designed to meet the sophisticated needs of large manufacturing organizations. Unfortunately the price tag of these products often climbs to hundreds of thousands of dollars, if not millions of dollars. For this reason, these sophisticated products are virtually unaffordable to smaller manufacturing organizations. Nonetheless, smaller manufacturing concerns need accounting and system solutions to run their businesses, and today, many of these clever companies are able to meet a majority of their needs using entry level accounting software solutions, often supplemented with manual procedures, spreadsheet solutions, and third-party add-on applications.  

According to the U. S. Bureau of Labor and Statistics, inadequate accounting systems are the second leading cause of business failure in the United States, (the leading cause of business failure is the inability to finance inventory). This misfortune applies to small and large companies alike. For example, in its’ 1999 annual report, Hershey’s acknowledged that a failed implementation of SAP cost the company $465 million in profits. Other companies such as Enron, WorldCom, and Global Crossing have also garnered much attention for their own failings related to improper accounting. In much the same way that a poor accounting software system can put your company at a disadvantage, a superior accounting system offers many important advantages. For example, in the 1980’s Wal-Mart made an enormous commitment to implement the most effective and efficient accounting software systems known to the retail industry, and as a result today Wal-Mart has grown to become the largest retailer in the world while competitors such as K-Mart, J. C. Penny’s and Federated Department stores has struggled. Although they may not grab national headlines, small companies suffer from the same fortunes, or misfortunes, as the case may be.

The importance of operating an effective accounting system is most applicable among manufacturing concerns. More than any other industry, manufacturers deal with many inventory issues concerning receipt, storage, tracking, assembly, and shipments. Additionally, manufacturing specific needs only compound their tasks and result in an even greater need for efficient and effective accounting. This page wil discuss those prevalent accounting features that are most relevant to helping manufacturing concerns better manage and control their operations.

The Problem with Manufacturing Software

The strongest industry segment in all of accounting software is not retail, restaurants, property management, job costing, or point-of-sale – it is, without a doubt, manufacturing. More than any other industry, manufacturing customers around the world seem to be on a constant search for a new manufacturing accounting software solution that meets their exact needs. When you think about it, this makes perfect sense. Manufacturing companies have perhaps the most sophisticated needs in the marketplace in terms of data and record keeping; and a proper accounting system is mission critical to controlling costs, scheduling, pricing, etc. Without a robust and capable accounting system, manufacturing companies are doomed to managing their businesses using inadequate or inaccurate data. 

The accounting software industry has not ignored this market. Today there are more than 550 well-known manufacturing accounting systems available to meet these needs. Unfortunately, almost all of them suffer greatly. That’s right! Despite a monumental effort by the entire, world-wide accounting software industry, 95% of all manufacturing accounting systems fall well short of meeting the demands of today’s manufacturing industry. What’s wrong with current solutions you ask? Plenty. Here are a few general problems with today’s manufacturing solutions – we can start here. 

1.      Problem # 1: Weak Financials – There are many good products out there that do a fairly good job of tracking the necessary manufacturing data, but they fall well short of providing good financial reporting. These vendors don’t seem to understand that manufacturing companies are like regular companies – they need to account for budgets and revised budgets. They need to produce detailed financial reports, by month, compared to previous periods, with drill down and drill around capabilities. These companies need to publish financial reports to their intranets using HTML and XML technologies. These companies need digital dash boards to help management track key ratios. These companies sometimes have a need to report their earnings in foreign currencies. These companies often need to consolidate their results of operations with other divisions. Unfortunately, too many good manufacturing accounting systems provide the financial equivalent of QuickBooks when it comes to financial reporting. 

2.      Problem # 2: Expensive Consulting Channel – Traditional Tier 1 products such as SAP, JD Edwards, Oracle, Baan, and PeopleSoft offer robust manufacturing solutions. Unfortunately these products are most often deployed through a channel of consultants who are masters at stretching out implementation engagements and running the bill well into the millions, or tens of millions of dollars. Often these consultants will drag out an evaluation and selection engagement over 12 to 18 months, only to recommend the products that we all knew they would recommend on day 1. Further, these consultants will staff the engagements with capable, but sometimes in-experienced staff billed out at $395 per hour. To rub salt in the wound, these consultants will then press hard for heavy product customization – churning the engagement for an additional year or more. As an example, in 1998 Kodak dumped SAP after a 3-year, $500 million failed implementation attempt. Within 4 months, SAP direct came in, started from scratch and got the system up and running. Hershey, FoxMeyer Drugs, and Dell report similar experiences with SAP. 

3.      Problem # 3: Complex Systems – Another common problem with today’s manufacturing accounting solutions is complexity. Microsoft has invested millions of dollars in an attempt to designed the Microsoft Office user screens, dialog boxes, and drop down menus. Their end user research has told them how to perfectly position the fields on the screen to enhance user friendliness. Despite these enormous efforts, Microsoft Office can still be a challenge to the novice user. By contrast, most manufacturing vendors seem to have done little more than ask their programmers to “throw” some data fields on a screen. In many cases, today’s manufacturing systems are actually a collection of various third party solutions which were purchased and stitched together by some programmers to make data flow from here to there. Frequently, the result is inconsistency throughout most manufacturing accounting systems. The user rules often seem to change from one user screen to another. Yes, manufacturing accounting solutions are complex solutions – but the lack of well coordinated design efforts seem to compound this problem. 

4.      Problem # 4: Diverse User Needs – The manufacturing industry itself is a major problem in that there are actually many different kinds of manufacturing environments that need automating. Some companies need process costing in which products (such as sausages) are produced on a continuous and never ending basis. The methodology for capturing and tracking the costs associated with this form of process manufacturing is vastly different from the methodology you need to use in a discrete manufacturing process. As an example of a discrete manufacturing, consider that a company manufacture a one of a kind item built to exacting user specifications - such as the "O-Ring for the space shuttle rocket booster engines" . Still other manufacturing companies may need to account for manufacturing in terms of both a  job and project-costing environment. For example, a company may win a contract to manufacture 10,000 Humvee radiators for a specific government agency. In this case, the project will run a distinct course with a beginning and ending date, but may best be measured using process costing techniques during the job. 

These problems are just the tip of the iceberg. It would not be proper to scold the accounting software industry for failing to meet the needs of the manufacturing industry – it is a tough undertaking and they seem to be doing the best they can. However, it is probably accurate to “pooh pooh” many of the systems out there today.