Like any business software, financial management applications are only as solid as the data feeding into them. Selecting the right manufacturing IT systems to integrate
“Customer data, bill of materials and vendor supplier data are needed for good financial data,” said Ray Wang, CEO and principal analyst at Constellation Research Inc. “Everything in the business is dependent on those three things, and the financial management system brings them all together. Understanding where all these data objects are and how they interact and relate is the key to success.”
Financial applications touch so many parts of a business that it’s easier to list which systems should not be integrated with financial management software, according to Wang. “Really, all IT systems need to be linked to financials,” he said. “Most people have inherited legacy applications and have no idea where the data is -- and that’s when problems start. Once you have the [financial] data and can create a master record, everything else is easier.”
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Paul Hamerman, an analyst with Forrester Research Inc. in Cambridge, Mass., views financial accounting systems as transactional hubs for the enterprise. “[Financial tools] need to be integrated with many systems, including expenditure -- including payroll, benefits, expense reporting and cost allocation systems -- as well as accounts payable and procurement,” Hamerman explained.
On the revenue side, financial applications should be integrated with operational systems such as order management, invoicing and tracking systems for business equipment and other assets, according to Hamerman. “You have a lot of transactions flowing into this system, usually in the form of debits and credits,” he said. "It needs to be strong, otherwise you end up manually doing what should be automated. The BI system’s job is to summarize and report; [BI] analytics need to then be integrated with financial management.”
Who’s on the financial integration team?
Once a financial management software integration plan has been formulated, the right people and departments have to be involved in the project. The chief financial officer (CFO) in particular should take an active role in integrating and managing financial applications, according to Bob Parker, group vice president at Framingham, Mass.-based IDC Manufacturing Insights. “Instead of just being a scorekeeper, [the CFO] should think, ‘How I can plug these financial assumptions into our plans to make sure we’re optimizing income?’ The financial role is becoming less passive and more innovative.” Parker stressed that this more active role for CFOs is somewhat cutting-edge for most manufacturing companies.
Hamerman takes a more wide-ranging approach to building an integration team. “Financial management will touch most of the areas of the business, so this could be a pretty wide range of people,” he said. “Anybody who’s a unit manager or a consumer of information from the financial system should be involved. The footprint of a typical ERP system will touch as much as 20% of an organization -- particularly those on the front line who will be capturing transactional data, as well as those on the receiving side and procurement side, and line managers who handle expenditures.”
Integrating financial management tools: Best practices
Before the integration process has begun, map out what sort of data -- and in what form -- the company wants to pull from the financial management software, Wang said. “Start with the end in mind. What reports are important? Figure out the metrics for these reports, which business processes support these metrics, and which departments support those business processes,” he said.
“Don’t do a point-to-point integration,” Wang added.” You’re much better off with hub-based integration.” The hub approach works best when integrating multiple business systems across a network, he explained, which makes it an attractive choice for integrating financial management applications.
Parker suggests getting started by taking a look at the organization's sales and operations planning (S&OP) practices. “Understanding your own maturity in terms of being able to absorb a continuous planning construct is critical,” he said. “If you’re still very siloed, you’ll have to focus first on change management and reach an agreement, or money will be wasted.”
“Do an audit of the financial standards you’re using today and make sure to keep your parameters current and accurate. Assess your ability to process and accept external information from outside the supply chain, sales and product development. Finally, use the financial management system to examine the implications of the data you collected,” Parker said.
Hamerman suggests looking at cloud financial management software if the IT department lacks the time or resources to thoroughly manage on-premises applications. “One of the challenges of these kinds of financial systems is that the in-house models are difficult to keep up to date,” he said. “Once systems are customized, they’re especially hard to upgrade. I’m seeing more manufacturers moving more towards a cloud environment where you outsource the care and feeding of the system.”