DEVELOPING DATA FOR INPUT TO ERP SYSTEM: SUPPORT FOR FINANCIAL TRANSACTIONS

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1 DEVELOPING DATA FOR INPUT TO ERP SYSTEM: SUPPORT FOR FINANCIAL TRANSACTIONS Julia I. Sialitskaya Boris N. Panshin Belarusian State University, Faculty of Economics, ABSTRACT: Enterprise Resource Planning system is a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing. As the ERP methodology has become more popular, software applications have emerged to help business managers implement ERP in business activities such as inventory control, order tracking, customer service, finance and human resources. ERP system users have indicated a need for support for users responsible for generating financial entries. This paper presents a prototype case-based system designed to support use of an enterprise resource planning system s financial entries. That system uses the well-known REA database structure as the basis of capturing information about the cases. This kind of a system could be linked to users through an ERP portal access. KEYWORDS: Computer-based system, economic landscape, Enterprise resource planning, ERP solution, ERP system, financial system users, financial transactions, multiple functional areas, prototype system, revenue, transaction processing capabilities, transactions. 1. INTRODUCTION Enterprise resource planning (ERP) is an integrated computer-based system used to manage internal and external resources including tangible assets, financial resources, materials, and human resources. ERP system financial modules require that users be able to provide transaction information. Unfortunately, for a number of reasons users need support in the development of transactions. First, transactions vary in their difficulty. Interviews with some financial system users indicate that development of transactions for entry into the system can be very difficult. In some cases, only experts are able to correctly develop those entries. Second, in some cases, substitute users take responsibility for transaction entry. Original users may be on vacation or ill [1]. As a result, users may not be adequately prepared to place financial entries into the system. Third, ERP systems are complex and their use is not easy. Substantial training and user support is necessary to facilitate system access and use. Accordingly, the purpose of this paper is to investigate the design of such a system and review a prototype version of a system designed to assist financial users in the development of transactions. The aim of this paper is to show the necessity and advantages in using ERP-system. In connection with the aim the following key questions were set in the paper: Why companies should install ERP-systems What is Enterprise Resource Planning System The main characteristics of financial transactions What is a prototype system This paper proceeds in the following manner. Part 1 has provided an introduction to the importance of this problem, stated the purpose of this paper. Part 2 provides a brief summary of ERP systems. Part 3 discusses the case-based nature of financial transaction information and knowledge. Part 4 discusses the system design and prototype implementation. 2. NECESSITY OF USING ERP-SYSTEM As most companies know, sales are the force behind the growth of a company. If the company has a product or service, then sales is the key to revenue and the sales force is the key to making that revenue. Over the last several months, the economic landscape has changed significantly, and companies are looking for ways to 503

2 increase sales effectiveness and maximize profits. That means more scrutiny of sales plans and their financial impact, revising resource requirements and compensation budgets to control operating costs, and responding quickly to new business strategies and incentive programs. However, most companies lack a formalized process or system to do this. Leading organizations are making the move from spreadsheet-based and homegrown solutions to a scalable ERP solution and are realizing significant business benefits and greater sales performance. ERP solutions can offer speed, flexibility and visibility into an organization's variable compensation programs while providing business users the capability to perform sales performance planning, reporting and analysis. ERP solutions are a mixture of strategy, process, behaviors and technology that focus on incentive compensation, territory management, quota management and performance analytics and help organizations link corporate strategy to sales initiatives. The right approach to ERP considers process, people and enabling technology in order to align individual metrics to business goals. ERP solutions not only help companies improve business agility and respond to change quickly, but they also enable organizations to attract and retain top talent, increase productivity and drive business results. Every year, errors in forecasting and misaligned sales incentives cause companies to overpay or underpay their sales force, costing them millions of dollars. ERP solutions have the ability to automate data feeds, calculate commissions and close out transactions that have been paid, reducing the errors due to duplicate payments. This solution will also give the team the ability to compare period to period, and catch any changes or duplications in the data. Instead of spending hours reviewing and comparing Excel spreadsheets across periods, the system could identify and produce a daily report each morning for review. Another issue companies face is when sales managers receive overrides or roll ups on the sales of their sales representatives. When a sales manager s incentive is based solely on the sales of their representatives and not on the profitability of the unit, they are more likely to push through sales that may not be profitable for the company. Usage of the ERP software allows the company to increase profitability and make each sales manager more responsible for his/her branch s profitability and not just sales. As more companies move into a customer relationship management world with on-demand reporting for customer management and sales management, the need to manage sales performance and incentive compensation with a touch of the fingertip increases. Imagine a world where with a click of the mouse, a sales executive can analyze his team s sales to quota by product or region. He can see where he needs to spend his time and where to concentrate his resources to get the greatest growth from his team. ERP systems and performance analytics tools give companies the ability to tie compensation to sales and sales to revenue. There is a clear traceability between the source system, through the integration and into the sales performance management system. Data should be massaged as little as possible between the ERP system and the performance analytics tools. The ability to view reporting metrics will give key executives the tools to make business decisions based on facts, not hypothetical judgments. The Chief Financial Officer can look at a report that ties sales to revenue, and compensation back to sales. This gives the Chief Financial Officer the comfort that he can explain revenue and compensation that affect his financial statements. The Chief Executive Officer can see if sales are growing as targeted, or if the company needs to review their targets and identify why they are not making them. The sales executives can review how the compensation plans are affecting sales, and if they are performing for the company as expected. 3. ENTERPRISE RESOURCE PLANNING SYSTEMS One of the most rapidly growing areas of software implementation is what is referred to as "Enterprise Resource Planning" (ERP) Systems. Perhaps the best known of the ERP systems include those known as the "big five ERP firms" or BOPSE firms: Baan, Oracle Applications, PeopleSoft, SAP (the largest ERP firm) and J. D. Edwards. ERP systems provide firms with software that integrates multiple functional areas, focusing on processes, rather than function. ERP systems provide transaction processing capabilities that help to integrate a firm's information systems. Typically, ERP systems employ a relational database. Using a relational database and appropriate process design, allows the firm to capture data once and then make that data available for use throughout the firm, by all appropriate users. 504

3 ERP systems have been well-received. It has been estimated that virtually all of the Fortune 500 firms have either implemented an ERP system or are implementing an ERP system. Implementation of ERP systems has grown to be huge business. Implementing ERP systems has become a major consulting activity. It has been estimated that roughly 50% of the consulting done by the major consulting firms has to do with choosing, designing, developing, testing or implemented ERP systems. As a result, there is a large potential for knowledge-based support of these systems. An ERP system can either reside on a centralized server or be distributed across modular hardware and software units that provide "services" and communicate on a local area network [4]. The distributed design allows a business to assemble modules from different vendors without the need for the placement of multiple copies of complex, expensive computer systems in areas which will not use their full capacity. Businesses have a wide scope of applications and processes throughout their functional units; producing ERP software systems that are typically complex and usually impose significant changes on staff work practices. Implementing ERP software is typically too complex for "in-house" skill, so it is desirable and highly advised to hire outside consultants who are professionally trained to implement these systems. This is typically the most cost effective way [5]. There are three types of services that may be employed for - Consulting, Customization, Support. The length of time to implement an ERP system depends on the size of the business, the number of modules, the extent of customization, the scope of the change and the willingness of the customer to take ownership for the project. ERP systems are modular, so they don't all need be implemented at once. It can be divided into various stages, or phase-ins. The typical project is about 14 months and requires around 150 consultants. A small project (e.g., a company of less than 100 staff) can be planned and delivered within 3 9 months; however, a large, multi-site or multi-country implementation can take years. The length of the implementations is closely tied to the amount of customization desired. To implement ERP systems, companies often seek the help of an ERP vendor or of third-party consulting companies. These firms typically provide three areas of professional services: consulting; customization; and support. The client organization can also employ independent program management, business analysis, change management, and UAT specialists to ensure their business requirements remain a priority during implementation. Data migration is one of the most important activities in determining the success of an ERP implementation. Since many decisions must be made before migration, a significant amount of planning must occur. Unfortunately, data migration is the last activity before the production phase of an ERP implementation, and therefore receives minimal attention due to time constraints. 4. FINANCIAL TRANSACTION CHARACTERISTICS An important characteristic of financial transactions is that they tend to repeat themselves. First, some transactions occur at regular intervals over time. Second, other events frequently occur. For example, an overwhelming majority of a firm's financial transactions are purchases or sales. Third, even transactions that are not frequently occurring, may repeat themselves, if only occasionally [2]. This repeating nature leads us to suggest that a case-based reasoning approach is an appropriate vehicle to capture and represent knowledge about financial transactions. Because transactions repeat themselves, capturing previous transactions and reusing those transactions can provide support to financial system users. This capability suggests that previous entries could be used to guide user construction of financial entries. Although transactions basically "repeat themselves" they are not always identical, even if it is only the amounts that change. As a result, case-based information about financial transactions is not intended to replace the user, but only provide support. 505

4 5. A PROTOTYPE SYSTEM A preliminary system design that exploits the basic underlying database requirements for financial transactions was developed. In particular, research suggests that ERP systems employ a database schema that generates information on resources, events, agents and locations from the financial transactions. As a result, the underlying database structure is used as the basis of the cases. In particular, the Resources Events Agents Location (REA/REAL) is used as the basis of capturing information about the entries for the case library. REA and its extensions REAL provide a theoretical structure to accounting and other database applications. The initial and driving matching criteria for the cases in the system are the events (E), which the system is designed to process. Additional information in the cases includes the resource (e.g., cash) and the direction of change in the resource (e.g., cash increasing), the external agent (e.g., the particular client) and the location for which the event is occurring (e.g., central office). In addition, the resulting financial system entry, in terms of debits and credits also is captured. Although REA/REAL does not require a debit credit structure, ERP systems still employ that approach. As a result, the system is designed around a debit credit structure. 5.1 Extensions This paper has focused on supporting ERP system users in the area of financial transactions using casebased reasoning. Additional system support could be generated to support users of other modules. A prototype system design, based on REA, was presented for capturing case-based knowledge about financial transactions. That approach centered on the event of concern. At this point, the system has been developed as a proof of concept. As a result, the system s case base in support of that system is minimal and could be further extended. In addition, ultimately for such a system to be used as part of an ERP system would require integration into the ERP system or into the portals that are being generated by ERP vendors. Figure 1 - Lawson's ERP Portal One approach would be to embed the system into an ERP portal, such as the one developed by Lawson and illustrated in figure 1. Similar to other knowledge support that is available from the portal, a simple virtual tab or link could tie the portal to the transaction system support system [3]. Using this approach, such a system could be loosely linked, rather than tightly integrated into the ERP. 506

5 6. CONCLUSION Having analyzed the data we have come to the following conclusion. In today s economy and with the viability of so many companies hanging in the balance, a company can t ignore the impacts of ERP systems on managing the performance of their sales teams. Leading companies are realizing the limitations of Excel for developing, managing and analyzing sales performance. The following key answers were found in the paper: Companies install ERP-systems because ERP can help companies accurately calculate, compensate and manage the impact of sales on their bottom line, enabling the sales force to focus on selling while reducing the overall cost of sales. ERP is an integrated computer-based system used to manage internal and external resources including tangible assets, financial resources, materials, and human resources. It is a software architecture whose purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. Enterprise resource planning (ERP) systems are receiving widespread adoption. Unfortunately, these systems are complex. As a result, systems are being developed to facilitate use of those ERP systems. In particular, there has been concern by ERP firms and client firms about supporting users of different modules. This paper has investigated the opportunity of supporting financial transactions. A prototype system that employed an REA/REAL structure was developed and discussed. A number of extensions were examined, including the potential for linkage of such a system to users through an ERP portal. 5. REFERENCES 1.Daniel E. O Leary Enterprise Resource Planning Systems: Systems, Life Cycle, Electronic Commerce, and Risk Cambridge UP, 2000, pp ; 2.Daniel E. O Leary Knowledge Management Across the Enterprise Resource Planning (ERP) Life Cycle International Journal of Accounting Information Systems, Volume 3, 2002, pp ; 3.Daniel E. O Leary On the Relationship Between REA and SAP International Journal of Accounting Information Systems, Volume 5, Number 1, 2004, pp.65-81; 4.Daniel E. O Leary, M. Lynne Markus Microsoft s Management Reporting: SAP, Data Warehousing and Reporting Tools? - Journal of Emerging Technologies in Accounting, Volume 3, 2006, pp ; 5.McCarthy, W., The REA Accounting Model: A Generalized Framework for Accounting Systems Shared Data Environment Accounting Review, July 1982, pp