The true meaning of using an ERP package finally understood.

The theme of the third session is "Accounting and Finance ✖ 'Fit to Standard'".
First of all, could you tell us what "Fit to Standard" is and why it is attracting attention now?

Fit to Standard" is a concept that considers ERP as a digital core, and for the core (core) parts of universal sales, purchasing, inventory management, and accounting, ERP should be used as it is, with business operations aligned with standard functions.

The reason why "Fit to Standard" is attracting attention now is that the true meaning of using ERP as an application package is being understood not only by the system departments of Japanese companies, but also by their management, which I think is the most significant factor. It has been about 25 years since ERP began to spread in earnest in Japan, and from my perspective as someone who has been involved with ERP from the beginning, I see this situation as "finally". This is because the operations covered by ERP, especially those required for financial accounting, are basically the same regardless of industry, with the exception of the financial industry. I believe that the concept of Works has been "Fit to Standard" since the company's establishment, which is to build a highly comprehensive standard package that incorporates Japanese business practices and does not require add-on development at the time of implementation. That concept is truly "Fit to Standard.

Accounting standards globally can be divided into IFRS (International Financial Reporting Standards) and USGAAP (U.S. Generally Accepted Accounting Principles), but I think it is safe to say that the three basic functions that are central to accounting operations, accounts payable (AP), accounts receivable (AR), and general ledger (GL), are not affected by accounting standards and are the same globally. However, in the case of Japan, business practices are not the same as those in Europe and North America. However, in addition to the fact that business practices in Japan differ from those in Europe and the U.S., from the late 1990s to the early 2000s, when ERP was first introduced to the market, there were almost no domestically produced ERPs, only foreign ERPs. Therefore, the parts of ERP that did not fit in the package were inevitably customized (modified), add-ons, or developed as peripheral systems, and this has a long history of increasing costs. This is especially true in the areas of manufacturing, sales, and logistics, where systems have been built to suit the business. Business applications are provided to users based on the experience of each company, and if the standard functions of packages such as ERP can be used without modification, the cost of IT investment can be relatively lowered. Japanese vendors, such as Works Applications, have taken into account Japanese business practices, and the functionality of the packages themselves has advanced considerably.

In the area of accounting, we need to keep up with changes in legal systems and business requirements, such as VAT (value-added tax), consumption tax in Japan, support for multiple standards (Japanese GAAP and IFRS), and more recently, the DENCHO Act and the invoice system, as well as integrated ledgers that collect and store journal entries for the entire group. I believe that there has been a growing recognition that it is preferable to use a package that is guaranteed as a product by an application vendor, rather than developing it ourselves. In other areas, for example, payroll calculation also has detailed legal and business requirements, and it would be impossible to create it from scratch nowadays in terms of cost and speed.

In the area of production management, which has recently become a hot topic due to media coverage, each company has its own unique manufacturing processes and supporting operations, and in my experience, there are many cases where foreign packages, in particular, do not fit the production management and manufacturing sites of Japanese companies. As a result of forcible implementation in such areas, there were many cases that led to an increase in add-ons and customization, and if done poorly, resulted in a situation where the system could not be put into operation.

  The key to "Fit to Standard" is to cover all data essential to the company.

In aiming for "Fit to Standard," from what perspective should we proceed with the selection of package functions?

The word ERP stands for Enterprise Resource Planning, and as you all know, the original concept is to "support decision making for reallocation of management resources. It is often said that you should adapt your business to the package, but the key to "Fit to Standard" is not the business process, but the data items including various masters. Without the ability to store and process the data necessary for business processing and management, the business cannot function. The most important point of view is "whether the application can cover the data items and data structures that are essential to the company.

It is common for packages that are used by companies with sales of 100 billion yen or more to have expandable areas in addition to the standard data items. Even though it is an extension, it is important that the extension is within the scope of the standard functions, which is the first checkpoint. Even in Works' "HUE" series, you can set up spare items and segments as standard. Especially in the case of accounting, not that many items are necessary, but for example, regarding the treatment of value-added tax, in Japan it is consumption tax, but overseas there is a sales tax specific to that country, and whether this can be itemized and processed on a country-by-country basis.

Looking at management accounting, as an easy-to-understand example, there is the universal theme of whether the classification of businesses and SBUs (strategic business units) should be structured in an organizational hierarchy or whether they should be structured by maintaining a data item called "business classification" on the journal entry statement. It is easy to understand to use an organizational hierarchy, but it is not flexible. On the other hand, if the data item "business segment" is retained, it will be easier to respond to various reporting requirements, for example, information by region by business segment. However, there is also the issue of how to get the "business category" items to be entered in the journal entries, including not only the PL but also the BS. Of course, the best way is not manual but automatic guidance. Many companies may have a requirement to have some itemized product or service line item in the PL to see profit/loss by product/service.
Business units such as sales, purchasing, inventory, manufacturing/cost, etc. also have their own requirements for accounting information. It is important that not only the system department but also all related departments identify and map out what data is really needed, and then select a package.

The next point to consider is what kind of data processing functions are available, and to what extent the standard business processing functions are provided. Automatic calculation of Japanese withholding tax may not be standard in some foreign packages. Turning to fixed assets, it is also important to check whether the system supports tax law depreciation and whether it can produce the necessary reports, such as depreciable asset tax reports. In the past, the required reports were developed on a case-by-case basis, but now there are packages that allow users to create their own reports with simple operations, as supported by the "HUE" series, so the view has changed from what to choose to whether the required reports can be created easily. This may be the reason for the change in viewpoint.

Ease of use of input screens will be eliminated by DX and automation

The concept of investment in an ERP package also includes the point of whether or not a relative cost reduction can be achieved in total. From the perspective of the ERP concept, the ease of operation of the input screen should be given less priority as long as the business can be processed and information can be obtained. In the past, however, there have been many cases where users have found the system difficult to use, and the system has failed because it was covered with add-ons for input screens only.

In the past, many companies failed because they covered only the input screen with add-ons that were difficult for users to use, which resulted in significant costs, including maintenance.

➀Digital transformation of business itself
②D2D migration of business-to-business transactions
③Automation of processing

The main thrust of DX is to transform business itself through digital technology, which is somewhat different from the area of core business application packages. The other two are that as business-to-business transactions become D2D (Digital to Digital), digital data will be automatically entered into business systems, eliminating the need for manual input, except for initial order information. If there is an automatic ordering system based on the BOM for ordering parts, it is not necessary to input all the information, although corrections are necessary for ordering. For example, automatic ordering in a convenience store would be the same. Checking may be necessary, but the input screen would no longer be important. DX is also a new technology that is being developed in conjunction with the advancement of applications. I feel that DX, combined with advances in applications, has changed the situation for the better. In the accounting department, for example, the automation of deposit and withdrawal operations, which would otherwise require a lot of man-hours, can be expected to be automated with a higher degree of accuracy with the introduction of AI.

Polarizing Choices by Turning "Fit to Standard" Inside Out

In the future, development support tools using generative AI or a combination of industry-specific external systems may be an option. How should we make choices and decisions in terms of system construction?

Postmodern ERP," which was proposed by Gartner Inc. in 2014 as the next-generation ERP, is a concept that combines various applications into a digital core ERP to meet the challenges expected in the future. While it would be great if ready-made applications could be used, it is the connectivity of these applications that is important. Ten years have passed since the announcement of ERP, and now, from an accounting perspective, it is possible to use integrated interfaces for management and APIs for real-time connections between packages, and I think we have made much progress in addressing the issue of ensuring the consistency of connections. The next generation concept of composable ERP has also been released. The concept of a digital core has been eliminated, and multiple SaaS and cloud products will be combined to create what appears to be a single core system. I think we are still in the early stages of this trend, but it is probably due to the advancement of applications, the shift to cloud computing, and the trend toward improved connectivity.

Next, I would like to consider low-code and no-code tools, which are gaining attention as an alternative to traditional scratch development. There are many opinions on these, but I believe there are two directions. First, the IT department of a company would replace traditional scratch development with these low-code/no-code tools as much as possible. Since these are basically development tools, the IT department needs to be technicians who understand the specialized tools. Another direction is to leave it to the users. While the IT department is responsible for the maintenance of the operating environment and training opportunities, the actual objects are to be created, operated, and managed by the users themselves. In my opinion, the area to be left to the user department is limited to relatively simple operations. This is an area that has only been discussed in Japan for the past three to four years, and I am sure that the discussion will deepen in the future, but EPM EPM There are some tools, such as EPM* tools, that are used for specific functional areas, but even if they are no-code tools, they are capable of performing a considerable amount of DB construction and business processing.

On the other hand, there is also the idea that continuing development from scratch may be better from the standpoint of economic efficiency if it does not require the acquisition of new technologies. It is difficult to say, but one thing that can be said is that while each has its advantages and disadvantages, top management needs to make a decision on how much to invest in areas other than ERP and accounting systems, which are the digital core, in order to create business differentiation factors and new value creation opportunities. The use of low-code/no-code tools and scratch development is the flip side of "Fit to Standard. If areas where "Fit to Standard" is not possible create value, then invest in those areas, and that is all. If areas where "Fit to Standard" is possible are thoroughly promoted and costs are lowered, such polarization is becoming clear, and I believe that this should be promoted.

EPM: Enterprise Performance Management/performance management tool

Fit to Standard" is the solution to the shortage of human resources, which is said to be the "2025 cliff

The shortage of labor in the future is an issue. What is your opinion on "Fit to Standard" from the viewpoint of securing human resources?

Through the DX Report disclosed by the Ministry of Economy, Trade and Industry in 2018, the "2025 problem" and the "2025 cliff" have become a reality. The most symbolic part is the gap between the forecasted demand for IT personnel and technicians and the realistic forecasted number of people, the obvious talent shortage. 2025 is next year, and already many companies are facing a situation where they cannot secure enough IT technicians as well as CIO-class and senior SEs who can make IT decisions. As the DX report makes clear, it will be difficult to think in terms of extensions of what has been done in the past. If scratch development and add-ons are becoming more and more difficult for in-house and SIers, we will eventually have to utilize existing applications to minimize the burden on human resources in the IT field. The human resource market situation also demands a "Fit to Standard" approach.
If we use an application package like Works, which basically does not require individual development or add-ons, the vendor will follow up with user training, and the IT human resources can be used for promoting DX, AI, and other business priorities. IT human resources can be reallocated to other areas of business priorities, such as the promotion of DX and the use of AI. I think the direction of adopting applications that are totally viable and promoting "Fit to Standard" is a bright one. There are already many products on the market that claim to be "Fit to Standard," but the key question is whether they are feasible "Fit to Japan Standard" products that fit the business practices of Japanese companies. I think it is also important to consider whether the "Fit to Japan Standard" is feasible for the product.

One last point: In the world of financial accounting, we are already seeing a similar acceleration in the shortage of human resources. I think it is also important for users to promote automation through technology and shift human resources to the business side, and to create such a trend. I believe this is the way of modern business applications based on "Fit to Standard".

The theme of the next issue of "Accounting and Finance ✖ 00 Trend Words from an Accounting and Finance Perspective" will be "Business Automation.2024 This article is scheduled to be distributed around November, 2012.

  This article is current as of September 2024.

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