Question

Background and Content:

John Smith is the CEO of Alpha Manufacturing Pty Ltd. This company manufactures high value products in the form of small model aircraft jet engines that are mainly sold online.  The raw materials input for the Jet engines are a series of high value easily marketable items mainly exotic metals and electronic systems that support the engine controllers. There are five models of engine produced, each requiring about 25 components, including screws and fuel connectors. About ten of these components are made in house from the exotic raw materials. The controllers are assembled in house from about 10 electronic components and are common to all the engines. The business has been enjoying a long period of several years of continuous growth both in sales and profit. However, compared to the growth of sales net operating profit growth seems lower. John contracted with a business consulting firm to identify the reasons for this inconsistency. The consultants came up with a series of findings, the principal ones being:

• A poor inventory management system meant that it was impossible to properly identify the cost of production of the finished goods.

• The result is that management reports do not indicate the true costs of production.

• The Online Sales system was not integrated with either the inventory control system or the financial recording system.

• Alpha Manufacturing offered its own credit terms to customers but had no formal credit process.

• The computer system was linked to the internet to support the Online Sales System, but had no security system monitoring it.

In addition, the present accounting system is a hybrid of electronic and manual kept records. The result is that the growth rate of sales had diverged from the growth rate of net operating profit. The analyst has suggested redesigning the whole accounting process with a contemporary integrated accounting solution for the business.

John has taken the issue to the board and has decided to appoint you to implement an efficient automated accounting information system. As you have technical knowledge, you need to give a detailed plan about the new efficient information system including its possible cost and benefits. In addition, if the project plan is approved you need to implement this information system as project in-charge for the business.

You Required

Prepare a report for John that compares and contrasts in detail the advantages and disadvantages of attempting to develop a system in house against purchasing an integrated system such as a proprietary ERP.

Answer 1

ERP software is a tool that centralizes a company’s database of information

automates routine tasks and simplifies business processes.

The goal is to optimize operations and free up employee time so they can work on other tasks which can lead to an increase in revenue margins and efficiencies and improve communication across the company.

It’s an solution with features such as the following:

• Accounting
• Customer Relationship Management
• Manufacturing
• Inventory Management
• Human Resources
• Analytics and Reporting

Factors to check for ERP selection project:

1. Cost :Your return on investment (ROI) will depend on the overall value derived from your ERP over time.

2. Selection managemen: speak to the personnel who will use the software on a daily basis. Their needs and wants should be a top concern, as their ability to use the system will ultimately decide if it’s a success or a failure.

4. Functionality : focus on the solution that addresses each of your business’s actual needs.

5. Contact a Vendor: after the end of research phase.

Advantages of ERP:

1.focused costs

2.Visisbility

3. Better reporting and planning

4. Flexibility

5.Improved efficiency

6.Data security

7.Better collaboration and workflow

8.Uniformity

9.Scalability

10. Improved management

Disadvantages of ERP:

1. Implementation and maintenence

2. Customisation

3.Complexity

in-house developement:

• Benefits — guaranteed availability, better understanding of corporate culture and business.
• Disadvantages — high costs, time needed for recruitment, onboarding and getting to know the team.

Its better for the entity to opt for purchasing the ERP rather than attempting to develop a system in house.