Every business can leverage the benefits of the right accounting software, and manufacturing businesses are no exception.
In a previous article, we mentioned how manufacturers can improve efficiency, automate repetitive tasks, and always ensure businesses stay compliant with a modern accounting system.
But hold on for a hot second, wouldn't it make more sense to invest in an ERP solution, which already comes with an accounting module, rather than a standalone accounting software? Which approach should manufacturers choose?
ERP accounting module or standalone accounting software, which solution is the right one for manufacturers?
When first started, many manufacturers opted for simple spreadsheets for their accounting. As the business grows, spreadsheets can no longer accommodate the growing demands and requirements. It is only natural for manufacturers to implement a more sophisticated system. This is where the dilemma ERP versus standalone (best-of-breed) accounting solution strikes.
With accounting software, manufacturers can automate, standardise, and streamline repetitive tasks, from journal entries and management to reporting, from creating transactions to reviewing and approving.
Eliminating manual processes also enable accounting departments to produce more accurate and timely financial results, make on-time payments while staying compliant to both local and international regulations.
Many modern accounting systems today come with multi-language, multi-currency, built-in business intelligence tools, or capabilities to integrate with these tools to further simplify the accounting processes, eliminate data silos, produce more accurate reports, and make more impactful strategic decisions.
On the other hand, benefits of having an ERP system in place stretches beyond the accounting department. This integrated software enables manufacturers to gain complete visibility into how their businesses are functioning in a centralised platform. As a result, manufacturers can instantly gain insights into critical areas in not only accounting but also in sales, marketing, warehouse, or human resources.
An added advantage of ERP is its industry-specific functionalities that allow manufacturers and distributors to seamlessly optimise inventory, lower costs, and effectively manage production planning, supply chain, shipments and much more.
The degree of fit
ERP is known as an all-in-one solution that covers many facets of the organisation. As such, manufacturers will not need separate systems for each department. A noticeable advantage for having an integrated solution like ERP is all company data is stored in a centralised platform, thereby, significantly reducing silos.
Accounting software, on the other hand, is specifically designed to satisfy all unique financial needs a business or an industry has.
Another critical factor to take into consideration is customisation if the manufacturing business has unique requirements. Customising ERP software can quickly become complex and costly due to the sheer intricacy of the system itself. It also does not mean customising accounting software requires fewer resources. But since the scale of an accounting solution is much smaller, it will take the business much less time, effort, and money to implement one.
The implementation times
Time taken to implement an ERP solution is also much longer compared to accounting software. On average, it can take a midsized manufacturing business anywhere from 6 to 12 months to complete an ERP implementation project.
The process of planning, implementing, training, and signing off accounting software projects will be much faster as the system serves a smaller group of users. Its features also do not affect other departments activities or the wider business ecosystem.
Software trends – The “cloud movements” are gaining more traction
ERP software is a highly competitive market. According to an ERP Software Market Outlook study conducted in 2019 by the Allied Market Research, the ERP software market is projected to grow at CAGR of 10.2% from 2019 to 2026.
The manufacturing industry remains the main user of ERP software and dominates the majority of the market share. But in recent years, the market welcomes several new entrants, such as pharmaceutical, automotive, garment, and consumer electronics manufacturing markets.
Read more: Buyer’s guide to market-leading ERP software
The penetration of these new industries along with an increase in adoption rate, new emerging markets, and other factors have made traditional on-premise ERP solutions less favourable, thus, giving rise to a more scalable model, cloud-enabled ERP software.
In addition to cloud ERP, many manufacturers also adopt a wide array of advanced technologies, among which, IoT, AI, and big data analytics received the most attention and investments, and are believed to help boost on-time operations, minimise issue with minimal human interventions.
ERP is not the only software that received all the attention. Accounting software also underwent drastic developments to accommodate the changing regulatory requirements and business demands, particularly the demand for a more advanced, also cloud-based accounting system that enables automation.
Studies reveal that automation will drive the growth of software businesses and make the highest impact across multiple industries as half of the accounting tasks should be automated. Moreover, 58% of accountants in the Sage Practice of Now 2019 report see themselves using AI to automate and improve efficiency as well as assisting the decision-making process through more in-depth analyses.
Accountants will move away from simple spreadsheets to adopt more technologically advanced finance and accounting solutions. Statistics stated in a Finances Online's article showed an expected CAGR of 8.5% for accounting software from 2019 to 2024. North America will be the first to adopt next-gen accounting software, closely followed by countries in the Asia Pacific region.
What's worth noting are the percentages of firms that are using cloud-based solutions mentioned in the same Finances Online's article. Many would expect small and medium-sized organisations to dominate the cloud accounting software market share. Think again! Did you know that 58% of large firms have already implemented one? This indicates that cloud solutions are becoming essential, and their scalable and powerful features can benefit all firms regardless of size and industry.
More often than not, the two terms ERP and accounting software are used interchangeably, which is incorrect as they are two very different systems that are built with specific purposes in mind.
For manufacturers, each software has its own pros and cons, which solution is right for the business depends largely on their needs. One thing for certain is manufacturers should stop relying on manually compiling files after files of spreadsheets. Not only will it lead to siloes but also it would be impossible for businesses to compete in today's fast-paced market.