Value of ERP 

Enterprise Resource Planning (ERP). The objectives of ERP are to make operations more efficient while simultaneously building financial statements, ordering from suppliers at the right time to optimize the quantity kept in the inventory, selling and fulfilling the products, processing payments efficiently, and initiating the next step in a process, without the need for human intervention. It also enables employees to communicate without having to speak to each other, thereby optimizing customer communications and reducing internal effort by allowing customer self-service while simultaneously capturing the journal entries necessary to accurately reflect the state of the business from an accounting perspective, and to create actionable business intelligence.

Yogi Berra once quipped, "if you don't know where you are going, you'll end up someplace else", which is why we start by exploring the benefits of ERP in this chapter. ERP crosses different departments in the company, requiring the administrator to take a holistic view because a process in one department has knock-on effects on processes in other departments. This also illustrates the impact a good administrator can have on the health of the company.

But that sounds more of an MBA book full of, "low hanging fruit, with soup to nuts, where the rubber meets the road" and not a book on software, so let's illustrate the value of ERP using a use case of a mobile phone reseller.

The analysis will use this paradigm—each step in the buying and selling process will be categorized as either a transaction,  a list of reusable information, a customization, and/or as having a financial impact. Doing so will not only teach us about ERP but also about the steps we as administrators will need to take to keep the process running smoothly.

The process starts by ordering five iPhones from Apple. The phones are ordered from a supplier using a purchase order that records the quantity and cost of the items being ordered:

Purchase order

This will be the first of many iPhones that will be ordered, so we should probably set the iPhone up as a reusable list with the name, the cost, and all the characteristics of the product. It will also be the first of many orders sent to Apple, so Apple should also be set up in our reusable list of vendors with their details, such as phone numbers, email address, and physical address:

Vendor Record

The transaction is entered into our system for historical purposes, as well as to alert the warehouse to expect to receive the iPhones; a copy of the transaction also needs to be sent to the vendor. Apple will not accept a screenshot of our system and requires a professional looking purchase order form before they will recognize this as a valid order. We will, therefore, need to customize the internal purchase order form as well as the external purchase order form:

Purchase order to be sent to the vendor

The categories from this one transaction will look like this:

Category	Activity
Transactions	Purchase order
Lists	Item: iPhone Vendor: Apple
Customization	Purchase order internal form; Purchase order external form
Accounting impact

When UPS delivers that inventory, the warehouse manager enters the receipt of the iPhones. To summarize, the Transactions category is updated with the Item Receipt and the Accounting Impact is that our inventory increases by $5,000:

Category	Activity
Transactions	Purchase order Receipt
Lists	Item: iPhone Vendor: Apple
Customization	Purchase order internal form; Purchase order external form
Accounting impact	Inventory: +$5,000

 

The vendor attaches an invoice to the shipment and the accountant needs to enter this transaction to reflect the indebtedness. The accountant bills the purchase order (PO), which creates the Accounting Impacts of adding the $5,000 to accounts payable (AP):

Category	Activity
Transactions	Purchase order Receipt Bill PO
Lists	Item: iPhone Vendor: Apple
Customization	Purchase order internal form; Purchase order external form
Accounting impact	Inventory: +$5,000 AP: +$5,000

 

Once Apple is paid using a Pay Bills Transaction, the debt is extinguished. In other words, the accounts payable entry is reversed and the bank account is decreased by $5,000:

Category	Activity
Transactions	Purchase order Receipt Bill PO Pay Bill
Lists	Item: iPhone Vendor: Apple
Customization	Purchase order internal form; Purchase order external form
Accounting impact	Inventory: +$5,000 AP: +$5,000 - $5,000 = $0 Bank: -$5,000

At the end of the process,  the company is left an additional $5,000 in inventory and the bank account has decreased by $5,000.

As administrators, we can see that the reusable lists of item and vendor can make entering purchase orders more efficient in the future because, once selected, all the information about the item and vendor is automatically sourced into the purchase order. We can also start compiling our task list, as it seems we will need to customize the internal purchase order form and the external form that was sent to the vendor. Now, to relate that to NetSuite specifically, you will see that NetSuite has Transactions, Lists, and Customization menus, where you will find each of these records under that category. Furthermore, there is a link to the GL Impact on each transaction, which displays the Accounting Impact of that transaction:

GL Impact

On the sales side, the starting point is a sales order that contains the item (iPhone) and the customer. The item was already created when we used it in the purchase order, so we can simply reuse it. The customer will, however, need to be created but can be reused in future transactions. It may require a customization of the sales order form, as well as the external form that needs to be given to the customer:

Category	Activity
Transactions	Sales order
List	Item: iPhone Customer: Brad Pitt
Customization	Sales order internal form; Sales order external form
Accounting impact

The order is then sent to the warehouse for fulfillment. The iPhone is picked from the warehouse, packed into a box, and shipped to the customer, requiring a pick ticket, packing slip, and shipping label. Shipping the order results in one less iPhone available in the inventory, so it decreases the inventory by $1,000:

Category	Activity
Transactions	Sales order Fulfillment
List	Item: iPhone Customer: Brad Pitt
Customization	Sales order internal form; Sales order external form Pick ticket, packing slip, shipping label
Accounting impact	Inventory: -$1,000

 

The accountant will invoice the customer as soon as the item ships, which requires an internal invoice form as well as an external professional looking invoice that is sent to the customer. It also results in an accounting impact on the accounts receivable (AR) in the amount of the sales price:

Category	Activity
Transactions	Sales order Fulfillment Invoice
List	Item: iPhone Customer: Brad Pitt
Customization	Sales order internal form; Sales order external form Pick ticket, packing slip, shipping label Invoice internal form, invoice external form
Accounting impact	Inventory: -$1,000 AR: +$1,500

 

Once payment is received, the accountant will bank the check, which will extinguish the customer's indebtedness; in other words, it will reverse the amount in accounts receivable:

Category	Activity
Transactions	Sales order Fulfillment Invoice Accept payment
List	Item: iPhone Customer: Brad Pitt
Customization	Sales order internal form; Sales order external form Pick ticket, packing slip, shipping label Invoice internal form, invoice external form
Accounting impact	Inventory: -$1,000 AR: +$1,500 Bank +$1,500

 

The accounting impact category enables the CFO to run the financial reports without having to do any further work, which is a major benefit of ERP. The Lists and Customization categories are the administrator's responsibility, to ensure the process works efficiently without the need for re-entering information. The sales rep, warehouse manager, and accountant have unwittingly created the financial statement by merely recording their work in the ERP system.