Accounting in SAP Environments - Example

Accounting in SAP Environments Introduction Enterprise resource planning systems (ERP) is a class of business software programs that gather data and generate reports such as balance sheets and quarterly financial statements automatically. These systems present an opportunity for organisations to integrate technology in their operations to increases efficiency and performance. Germany’s SAP and American Oracle are the main vendors of ERP systems around the world offering organisations opportunities to link up stand-alone systems in various departments for an integrated organisational management approach. SAP has been widely used in Australia under the SAP business suite which comprises of four main systems; Financials, Human Capital Management, Corporate Services and Operations. For many organisations that are used to stand-alone systems, upgrading to ERP systems present a major change process with both opportunities and challenges that come along with it. This paper critically analyses the adoption of SAP systems in business organisations and discuss accounting challenges and benefits in an SAP environment. Overview of SAP (350 words) ERP is an acronym for Enterprise Resource System that has been touted to present little of resources but more of an enterprise. The system is developed by the German firm Systeme, Anwendungen und Produkte in der Datenverarbeitung (Systems, Applications and Products in Data Processing") which was established by five former IBM engineers in 1972. Ever since its establishment, the firm has dominated the enterprise software market with about 73% of Fortune 500 companies using the system by 2006 (Ragan & Gantner, 2006). The company offers more than 25 industry-based portfolio solutions for large organisations usually multinationals and over 550 micro-vertical solutions for small and medium sized firms. SAP is targeted at six main industries namely; process manufacturing, discrete manufacturing, consumer products, service industries, financial services, and public services. The SAP business suite also known as foundation SAP, offers ERP solutions in seven main areas. They comprise the Procure to Pay ERP which seeks to optimize logistics and procurement processes. The Plan-to-Product ERP which optimizes the entire manufacturing process including monitoring and planning. The Order-to-Cash ERP which optimises customer-oriented services such as delivery, returns, warranty claims etc. The Request-to-Service ERP which deals with customer relations such as driving sales, responding to customer issues and branding the product/service. The core HR ERP which deals with HR issues such as talent recruitment, staff development, promotions etc. Core finance ERP deals with automation of financial operations and ensuring compliance to set regulations. The Technology platform ERP is an extension to the foundation ERP suite which adds innovations such as cloud computing, analytics and mobile technology to the component systems. The core finance ERP, which is of interest in this paper, offers controlling, asset accounting, financial supply chain management and treasury applications (SAP.com, 2014). The developers of this system had a clear imagination of what organisations need. This is because the system is designed to combine several components and systems, both SAP- based and other independent systems, to collect and combine data from these systems automatically to create a more informed data set. This is planned to reduce costs of running systems, ensure transparency, manage projects more effectively, streamline operations, ensure a closed-loop approach to total quality management. To optimally achieve this, SAP provides tailor made solutions based on the SAP to fit organisational needs. Such claims are also made by other ERP services providers. The main competitor to SAP is Oracle. Other players in the enterprise software market are Infor, BAAN, JD Edwards, Siebel, Lawson, Microsoft Dynamics and QAD. Benefits The benefits of using SAP are largely categorised into two; in relation to other ERP solutions and in relation to manual processes or stand-alone systems. As an ERP system, SAP ensures that organisations achieve better efficiency in the organisation’s’ financial operations, risk evaluation, corporate governance as it audits these processes. The ERP environment embraces change in the market and in the financing auditing needs. This is evident in the manner that SAP has been upgrading its systems over the years to meet changing market needs. For instance the SAP platform has changed from R3 to Netweaver and to the new HANA (SAP.com, 2014). SAP core finance streamlines accounting and reduce cycle times for organisations. It allows developing firms an opportunity to automate some of financials such as including general ledger, accounts receivable, accounts payable, fixed assets, cash and liquidity, compliance, and internal and external reporting. The system also increases visibility in the cash flow and liquidity in an organisation. This real time liquidity and cash flow data informs management’s decisions better (Annamalai & Ramayah, 2011). Organisations gain transparency and insight into financial performance. This is enabled through the ability of Sap Core Finance to consolidate transaction across countries, payment methods and electronic payments. For instance, a ledger entry that would be regularly be only valuable for making debit and credit entries in an income statement or balance sheet finds more use through SAP’s meta tags enabling the organisation to allocate the transaction to a product, channel or a cost centre. This gives organisations a better understanding of the organisation (Annamalai & Ramayah, 2011). SAP extensive functionality that makes it more suitable than competing vendors of ERP systems. This enables the program to be used in various industries ranging from the gas and oil industry to banking. The software is also applicable in businesses of various magnitudes such as small and medium sized enterprises to large multinationals. The ByDesign ERP is specifically targeted at tailor made SAP solutions for SME’s. SAP ensures that firms attain efficiency in its operations by tightening control and containing costs. One of the many success stories narrated by SAP AG pertains to the Ukrainian tools manufacturer, MIOL. This firm, in need of a more effective sales and procurement processing programs, adapted SAP. The results were 55% increase in customer satisfaction, 0% leakage in corporate data, reduction of order to delivery time by 15 days and reduction in inventory turnover by 15 days (SAP.com, 2014). SAP integrates better with other modules and systems compared to other competing ERP’s. Older versions of SAP have been able to integrate forward with the newer versions of SAP to take advantage of new developments (Nazemi, Tarokh, & Djavanshir, 2012. In the same way, the SAP ERP easily integrates with several third party enterprise applications which widens its application. For instance, IBM owned Trivoli is SAP certified for performing backup and monitoring activities among others for SAP system. Other third party applications that can be integrated into the SAP system include FileNet which offers archiving solutions, Topcall for faxing services and uPerform which offer training solutions for SAP end users. In addition to this, SAP can be integrated to other CRM systems through third party applications called connectors to work seamlessly. This way SAP can work in tandem with Microsoft Dynamics CRM, Salesforce.com, and SugarCRM. (Wailgum, 2009). Challenges General ERP challenges Implementation of ERP process is invisible leading to huge failures in most cases. The unpredictable and invisible complex interaction between technology and an organization implies that its implementation is often difficult. Such problems lead to wasted resources and failed ERP implementation (Hong & Kim, 2002). Additionally, ERP’s are very costly to implement successfully. Francoise et al. (2009) cite several studies that observe that costs of implementing ERP’s usually overshoot the budget by 178% and time taken is 2.5 times more than planned for. SAP specific challenges It is one of the most expensive ERP’s in the market to implement. Studies have shown that the cost of implementing SAP is usually costs ten times more than the cost of SAP licence. In matters of time, it takes 2.5 more time to implement SAP that initially scheduled. Gargeya and Brady (2005) say the system requires extensive and complicated groundwork outlay. The researchers note that organisation that seek to implement SAP have to undergo extensive change processes that can jeopardise the whole operations. They note that for organisations that seek to adapt and implementing SAP without the need for much tailor made changes have to invest more in assistance form consultants and even reengineer some of its business processes to fit with the system. This is usually a key challenge in implementing SAP. Most organisations are not ready enough for change to implement and adapt SAP successfully. This works against adaption and implementation of the program because most organisations prefer technology to fit into their trusted and tested business processes rather than the other way round. Gargeya and Brady (2005) say that even for organisations that order tailor made SAP’s, they have to change some aspects of their operations to fit in with the overall objective resource enterprise system. Some organisations reject this change with any attempts to implement while others reject or fail in implementation midway. A good example is that of Unisource, a multibillion multinational organisation in the printing paper industry, which abandoned its SAP implementation midway as a result of “internal problems” (Gargeya and Brady, 2005, p. 511). For other organisation, SAP implementation does not achieved the promised benefits with some facing disastrous results. For instance, FoxMeyer Drug, a $5 billion pharmaceutical distributor, reported complete bankruptcy after a failed $100 million ERP implementation plan. The accessibility of financial data by other employees in an organization through the SAP Financials implies that data can be manipulated. Although the system reports minimal risks in data leaks, such data in the system can leak within the organization where data is accessible to unauthorised employees (Kanellou & Spathis, 2011). Difference in interest between ERP vendors and organisations. Majority of organisations surveyed on ERP adoption indicated that they preferred unique business solutions that fit into their operations and business processes as opposed to vendors who prefer generic solutions applicable to a broad market usually differentiated by industry rather than by individual organisation (Hong & Kim, 2002). This difference in perception of what ERP’s should be and what they should be between vendors and organisations hinders implementation. Recommendations Organisations seeking to adapt and implement SAP need to carry out extensive training of their employees to handle the change process from other and manual systems to the new automated enterprise resource system. This is very critical given that much of the failure in SAP and other ERP integration is attributed to resistance by the employees or poor training of employees in using the new system. This calls for proper implementation of change management processes such as Kotter’s 8 step change model which recognizes the various phases that organisations need to go through when implementing new changes in an organisation (Gargeya & Brady, 2005). Organisations need to understand better how SAP fits in with their established business processes. Where some business processes are identified to be missing or not compatible with ERP, the organisations should undergo business process reengineering in preparation of ERP adaption and implementation. This can also consider assessment of the existing systems such as Microsoft CRM compatibility with SAP. This way, organisations will understand what needs to be retained in preparation for SAP implementation and what needs to be changed. For instance, organisations can learn how some financial entries should be consolidated or fragmented in order to fit in with the new automated financial system (Hawking, 2007). It is highly recommended that vendors such as SAP clearly work on the cost of licensing SAP ERP but work on its implementation services. This is important because it is clear that many organisations fail or undergo preventable difficulties when implementing this system. However, it can be assumed that it SAP AG undertakes the training on implementation as opposed to third parties, then it is likely the uptake of the system could be smoother and incidence-free as opposed to the current situation. Furthermore, implementation is more costly up to ten times of the license which shows that SAP AG can gain more through implementation that just selling the licence. Conclusion It is clear that SAP is an industry leader in the enterprise software industry. This system promises to deliver more to organisations hence the wide acceptance especially by large multinational organisations. The system offers more than enterprise resource services but also triggers business process reengineering in greater ways. The system promises more effective responses to consumer queries, effective handling of orders and supplies to improve organisational performance. However, such benefits are not automatic upon buying a SAP licence. It is clear from the above discussion that organisations need to provide the right framework and environment for the system to be effective in which the goals can be achieved. On the other hand, vendors such as SAP need to be flexible and acutely rapidly responsive to market and industry changes to ensure organisation remain competitive. References Annamalai, C. & Ramayah, T. (2011). Enterprise resource planning (ERP) benefits survey of Indian manufacturing firms. Business Process Management Journal 17(3); 495-509. Francoise, O., Mario, B., Robert, P. et al (2009). ERP implementation through critical success factors' management. Business Process Management Journal 15(3); 371-394. ProQuest Database. Sap.com, (2014). Retrieved online from http://www.sap.com/pc/bp/erp/software/overview.html Gargeya, V. & Brady, C. (2005). Success and failure factors of adopting SAP in ERP system implementation. Business Process Management Journal 11(5); 501-516. Hawking, P. (2007). Implementing ERP systems globally: Challenges and lessons learned for Asian countries. Journal of Buiness Systems, Governance and Ethics 2(1); 21-32. Hong, K. & Kim, Y. (2002). The critical success factors for ERP implementation: an organizational fit perspective. Information & Management 40(1); 25–40. Kanellou, A. & Spathis, C. (2011). Accounting Benefits and Satisfaction in an ERP Environment. 8th International Conference on Enterprise Systems, Accounting and Logistics (8th ICESAL 2011) 11-12 July 2011, Thassos Island, Greece Kurbel, K. (2013). Case: SAP: ERP. Enterprise Resource Planning and Supply Chain Management Progress in IS 2013, pp 127-157. Nazemi, E., Tarokh, J. & Djavanshir, G. (2012). ERP: Literature survey. International Journal of Advanced Manufacturing Technology 61:999–1018 Wailgum, T. (2009). 10 famous ERP disasters, dustups and disappointments. Retrievedonline from http://www.cio.com/article/486284/10_Famous_ERP_Disasters_Dustups_and_Disappointments Read More