Manufacturing Accounting Software

Every company has basic accounting needs, such as general ledger, accounts payable, accounts receivable, inventory, and payroll. Manufacturers have additional requirements, for example, job costing, work-in-progress (WIP) reports, change orders, and job payroll tracking. However, the market for these systems is complex due to consolidation, new entrants, and the increasing demands of enterprise resource planning (ERP) systems.  We wrote this buyer’s guide to untangle the web of this technology.

Here’s what we’ll cover:

What is Manufacturing Accounting Software?
What Type of Buyer Are You?
The Accounting Vendor Landscape

Market Trends You Should Understand
Benefits & Potential Issues

What is Manufacturing Accounting Software?

Manufacturing accounting software manages all of the financial transactions and operations for manufacturers. Generic accounting programs don't have the unique capabilities that manufacturers require. Additional features found in accounting software for manufacturers include support for sales orders, purchase orders, change orders, and work-in-progress (WIP) reports. For engineer-to-order and make-to-order manufacturers, job costing modules are especially beneficial. These modules help manufacturers track actual project costs by materials, equipment, and labor, and then compare those actual costs to estimated costs to determine cost differentials.

Most systems are offered in a suite of modules that include customer relationship management (CRM), manufacturing resource planning (MRP), and manufacturing execution software (MES). This complete suite of modules is often referred to as enterprise resource planning (ERP) software and can manage the entire operations of an enterprise. 

It is this integration with other modules that is a key difference between a generic accounting system and one designed for manufacturers. For example, inventory requirements determined by the MRP system pass through to the inventory system to check availability, then to the procurement system to create a purchase order, and on to the accounts payable system for payment. The MES system tracks workers time on projects and reports that information to the payroll systems.

Most systems are still installed on-premise. In a manufacturing environment the workstations are networked, usually with a mix of wired and wireless connections. One of the cost justifications for cloud-based systems is the reduced cost for infrastructure, but that is often offset by the added networking infrastructure requirements of the environment. Even so, cloud-based systems have long-term benefits for manufacturers. While the shop floor needs a network, it does not necessarily need to have servers. With the server in the cloud, the facility does not have to have staff to maintain it or back it up.

What Type of Buyer Are You?

It is the “manufacturing” part of manufacturing accounting systems that is hard. Buyers need to match the enhanced functions to shop floor needs. Over 90% of buyers fall into one of these three groups:

• Enterprise resource planning suite buyer. These buyers value the seamless integration of data and processes that comes from having one system for all functions. For example, they prefer a full-suite system for estimating, work-in-progress management and accounting that can automatically turn an estimate into a budget for project management, and then match invoices to project status and allocate job costs. These buyers favor complete software suites like Oracle, SAP, Sage ERP or Microsoft Dynamics.
• Specialist buyer. Specialists in one function, such as job costing or inventory management, may value the feature depth of best-of-breed solutions designed for their function. These buyers may need specific functionality, like the ability to interface with an MRP system.
• Small manufacturer. Small organizations often have limited budgets and fewer IT resources to dedicate to software. They may be deciding between a new software system and a new piece of equipment. These buyers need cost-effective tools that are easy to implement and use. Some will prefer full-suite systems, while others may just want one application, such as bill-of-materials production or shop equipment scheduling operations.

The Vendor Landscape

Market Trends You Should Understand

You could consider these market trends as you research software:

• Use of cloud-based computing. The use of cloud-based accounting systems is growing. NetSuite, for example, is only available as a subscription service. While the cost of running a network is the same as as an on-premises system, there are security and cost benefits to having the accounting systems managed and replicated in the cloud.
• Use of web-based front ends. Whether the accounting systems is on premises or in the cloud, more and more systems are allowing the use of web-based technologies like browsers to run the systems. This means that the computer power can be centralized and workstations only need to be able to run a browser.
• Integration with other systems. As manufacturing software evolves, accounting systems must change in step. More information is generated by newer MES and MRP systems than previous versions. Accounting systems are constantly evolving to keep pace.

Benefits & Potential Issues

There must be specific benefits to justify the additional costs of a manufacturing-specific system over a generic accounting system.

• Better cost control. Accounting software for manufacturers gives a much better view of costs due to the MRP integration, MES integration, and job costing functions. Increased information lets managers understand and control costs better.
• Increased business visibility. Because the accounting systems keep information at the job-cost level, managers have a view of costs and profits of all operations and can judge profitability at each level.
• Better compliance reporting. Since accounting systems interface with systems throughout the firm, it serves as a convenient library for all of the compliance reports. This can significantly reduce the cost of preparing compliance documents for government agencies.

Any accounting system is a challenge to implement. Because of the increased complexity and the interfaces to other company and operations systems, accounting systems are more challenging than most. This can lead to delays in installing the systems. Worse, a bad installation can yield incorrect results down the line.

Have an opinion on this guide? Email the authors. We appreciate the feedback.