accountants guide to choose the right manufacturing ...the accountant’s guide to the misys small...

An Accountant’s Guide To Choosing The Right Manufacturing Software

Copyright © 2008 Manufacturing Information Systems, Inc.

All rights reserved.


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Table of Contents 1 Foreword................................................................................................................ 5

2 What Do You Want To Accomplish.................................................................... 5

3 Types of Manufacturers ....................................................................................... 6

4 Identifying Specific Objectives ............................................................................ 7

4.1.1 Maintaining The Context ........................................................................ 8

4.1.2 Reducing Costs ....................................................................................... 8

4.1.3 Planning More Effectively...................................................................... 8

4.1.4 Avoiding Mistakes.................................................................................. 9

5 Getting The Information You Need .................................................................... 9

5.1.1 Focus On Internet Searches .................................................................. 10

5.1.2 Account System Integration.................................................................. 10

5.1.2.1 General Ledger................................................................................. 11

5.1.2.2 Inventory Control.............................................................................11

5.1.2.3 Sales Order Entry.............................................................................12

5.1.2.4 Accounts Payable............................................................................. 14

5.1.3 Other Key Features To Look For.......................................................... 14

5.1.3.1 Multiple Costing Options................................................................. 14

5.1.3.2 Multi-currency Capabilities ............................................................. 16

5.1.3.3 Multi-tax Capabilities ...................................................................... 16

5.1.3.4 Multiple Locations........................................................................... 16

5.1.3.5 Multi-level Bills Of Material ........................................................... 16

5.1.3.6 Revision Control ..............................................................................17

5.1.3.7 Physical Inventory Cycle Counting ................................................. 17

5.1.3.8 Simple Planning Tools..................................................................... 17

5.1.3.9 Master Production Scheduling (MPS) ............................................. 18

5.1.3.10 Forecasting..................................................................................... 18

5.1.3.11 Material Requirements Planning (MRP I) ..................................... 19

5.1.3.12 Manufacturing Resource Planning (MRP II)................................. 19

5.1.3.13 Shop Floor Control ........................................................................ 19

5.1.3.14 Finite Capacity Planning................................................................ 20

5.1.3.15 Bin Tracking .................................................................................. 21


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5.1.3.16 Serial/Lot Tracking ........................................................................ 22

5.1.3.17 Summary........................................................................................ 23

6 The Project Timeline .......................................................................................... 23

6.1 The Short List ................................................................................................. 23

6.2 Product Demonstrations.................................................................................. 24

6.3 Line of Responsibility..................................................................................... 24

6.4 The Final Decision.......................................................................................... 24

6.5 Product Warranties.......................................................................................... 24

6.6 Licensing Considerations................................................................................ 25

6.7 Total Cost Of Ownership ................................................................................ 25

6.7.1 User Licenses........................................................................................ 26

6.7.1.1 Named User Licensing..................................................................... 26

6.7.1.2 Concurrent User Licensing .............................................................. 26

6.7.2 Installation Assistance .......................................................................... 27

6.7.3 Implementation Support........................................................................ 27

6.7.3.1 Accounting Integration .................................................................... 27

6.7.3.2 Manufacturing Integration ............................................................... 27

6.7.4 On-site Consulting ................................................................................ 28

6.7.5 On-line Consulting................................................................................ 29

6.7.6 Training................................................................................................. 29

6.7.6.1 Training As Due Diligence .............................................................. 29

6.7.7 Technical Support ................................................................................. 30

6.7.7.1 Telephone Support .......................................................................... 30

6.7.7.2 Email Support .................................................................................. 30

6.7.7.3 Incident Support............................................................................... 31

6.7.8 Software Maintenance .......................................................................... 31

6.8 Infrastructure................................................................................................... 32

6.8.1 Deployment Options ............................................................................. 32

6.8.2 Hardware............................................................................................... 32

6.8.3 Software ................................................................................................ 33

6.8.3.1 Database Engines............................................................................. 33

6.8.4 Managed Hosting.................................................................................. 34

6.8.5 Software As A Service.......................................................................... 34


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7 Summary.............................................................................................................. 35

7.1 Must Have....................................................................................................... 35

7.2 Would Be Nice................................................................................................ 35

7.3 Dream On........................................................................................................ 36


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1 Foreword This booklet was prepared specifically for accounting practitioners who find themselves in the position of helping clients who are involved in manufacturing with the task of selecting and procuring the right software to meet their needs.

In our 20+ years as developers and installers of software for small- to medium-sized manufacturing firms, we’ve learned a lot about what works (and doesn’t work) for companies of all shapes and sizes. In this paper we’ve tried to distill the key elements of what has proved to be successful – with fair warning about certain pitfalls into which the uninitiated are likely to fall.

While writing this paper, the authors (who are normally involved in the sales and marketing of a specific software product) have remained as objective as possible; sticking to broad topics and specific elements related to the acquisition of manufacturing software in general, carefully avoiding reference to any specific product.

You may reasonably ask why a manufacturing software sales and marketing company would publish advice which could quite likely steer prospects into the purchase of competing products. The answer is that, over the years, we have learned that finding the right solution for a manufacturing client is the imperative. Selling the wrong system – software that does not fit a prospect’s needs – is not only a disservice to the prospect, but damaging to our reputation and that of our dealers and consultants. For that reason, our sales staff tries to remain aware of the key features of competing products so they can be prepared to suggest an alternative should they think it would be a better fit. Gratefully, many of our competitors do the same.

As you read and ponder the topics presented in this booklet, you may find yourself thinking “I wonder how the MISys Small Business Manufacturing software addresses this?” Never ones to shy away from brazen commercialism (when appropriate), we have prepared a separate document, keyed to specific topics in this booklet, that discusses pertinent issues related to the MISys product. We recommend that you obtain a copy of the Accountant’s Guide to the MISys Small Business Manufacturing System, but put it aside until you have digested the information in this document. Your professional objectivity serves everyone well – especially your client.

2 What Do You Want To Accomplish Your initial discussions with your client will likely be prompted by his/her clipping a magazine article discussing some esoteric subject of manufacturing control such as “Double Your Profits By Going Lean” or “Get Total Control of Your Manufacturing In Just 60 Days.” Attention grabbing headlines such as these are the darlings of magazine editors bent on propping up subscriptions, but as you might expect, they never tell the whole story.

If you have a good relationship with your client, you’ll be the first to get the phone call saying “I read this article…I think we should look into getting some manufacturing software.” The client may also have done some quick search of the Internet and have the


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names of a number of products they want to investigate further. Product literature and online demos are readily available in this wired age.

Our recommendation at this point is to adopt a “go slow” approach and invite the client in for a discussion of their perceived needs and desired benefits.

When the meeting takes place, your client will likely plunk a handful of literature down on your desk, tell you about which product he or she thinks looks most appealing, and exclaim about some whiz-bang feature they saw in an online demo.

All this unbridled enthusiasm is a great indicator of the client’s openness to finding ways of increasing the effectiveness and profitability of their manufacturing operation, but this is the time to put the literature aside and ask the hard question “So, what do you want to accomplish by implementing a computerized manufacturing control system?”

Don’t settle for sweeping generalities such as “control my inventory” or “computerize my bills of material” or “get a bar coding system.” As a professional, the value you can provide to your client is to help them compile a very specific list of objectives – ones that can be accomplished in the context of the resources available to the client.

3 Types of Manufacturers Unless you have a very intimate relationship with the client, and know their business inside out, this would be a good time to review what type (or types) of manufacturing they perform. This understanding will be invaluable when it comes to mapping the needs of your client to the available products. Here is a list of the types you are most likely to encounter:

Assembler Generally takes a number of pre-assembled units and joins them together to meet the needs of a specific customer. Rarely does any original design, engineering, or procurement.

Make to stock manufacturer

Procures and stocks raw materials which are used to build sub-assemblies and top-level assembled items. These items are kept on hand to fulfill sales orders for standard products.

Make to order manufacturer

Procures and stocks raw materials which are used, in combination with other products, to build sub-assemblies and top-level assembled items needed to fulfill a specific sales order. Top-level assembled items are never kept on hand, although commonly used sub-assemblies may be inventoried when fast turn-around is required.

Custom manufacturer Procures and stocks raw materials and sub-assemblies which are used in a customer-driven configuration. Sub-assemblies may be standard products used in a custom configuration, or variations of standard products modified to meet customer requirements.


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Job shop Generally makes one-off products following a customer specification for which no standard bill of material exists. Raw materials are often provided by the customer. Rarely does any original design, engineering, or procurement.

Process manufacturer Performs some discreet process on a specific raw material such as cutting, bending, folding, forming, mixing, grading. Rarely does any original design, engineering, or procurement. Sub-assemblies are rarely identifiable.

By listing these types we do not intend to imply that these are the only types of manufacturers. These are simply the most common ones. Most likely, you will run into others, and you will run into manufacturing companies that can be characterized by more than one of these types.

4 Identifying Specific Objectives Back to the subject of “What I want to achieve”, you should be developing a list of specific objectives such as these:

• Reduce my inventory holding costs by at least 10%

• Organize my bills of material

• Identify and eliminate obsolete raw materials

• Establish multiple sources for critical components

• Plan my production 3 to 6 months ahead

• Coordinate production with Sales

• Avoid late raw material deliveries

• Avoid purchasing material before I need it

• Know which vendors perform best

• Build only as needed

• Avoid critical item shortages

• Ease the burden of performing an annual physical inventory

• Include manufacturing activity in my company financial statements

The list of objectives won’t be the same for every type of manufacturer. For example, better coordination with Sales will be critical to a Make-To-Order manufacturer, less relevant to a Make-To-Stock manufacturer, and irrelevant to a Job Shop. Tracking vendor performance may be irrelevant to a Process manufacturer, but vital to a Make-To-Stock manufacturer.


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4.1.1 Maintaining The Context As you review the list with your client, consider their objectives in the context of what you think they can reasonably achieve using their available resources. A 3-person assembly house shouldn’t be spending money on software that automates the Sales/Manufacturing relationship. Spending thousands to achieve a 10% reduction on inventory worth only $10,000 doesn’t make sense either. Expecting to implement new production and purchasing procedures without hiring additional staff is impractical, too.

Once you and the client agree on a list of manageable objectives, the next step is to determine whether any of the desired gains justify the cost of a computerized manufacturing system.

Over the years, we’ve found that most justifications for the deployment of a computerized system fall into one of three categories:

4.1.2 Reducing Costs The primary source of cost reductions is the elimination of unnecessary inventory. If through effective planning and foresight, your client could indeed reduce their inventory holding cost by 10 or 20%, then the purchase of a manufacturing inventory control system might be justified, depending on their current inventory valuation (which you are in a position to know).

Imagine that, absent any menu planning on your part, you decided to bring home 4 grocery-carts full of food each week filling 6 refrigerators, just so you wouldn’t be caught short. Similarly, manufacturing firms with no effective planning tools tend to compensate for their lack of planning by purchasing and storing a large quantity of raw materials. Either is a way to avoid unexpected shortages, but a horrible waste of cash.

Eliminating this waste can be a sufficient justification for purchasing a manufacturing system.

4.1.3 Planning More Effectively It is easy to say “We should do better planning” but actually accomplishing this goal is often very difficult – virtually impossible without strict procedures coupled with a computerized system.

Effective planning is often elusive for manufacturing firms whether they are small or large, but for different reasons:

Small manufacturing firms usually lack the manpower required to “get organized” and implement sufficiently strict policies and procedures where planning is possible. Without strict procedures, small firms generally will revert to “seat-of-the-pants” operations where all efforts of focused on getting through to the end of the day.

On the other hand, large manufacturing firms have so many activities going on – engineering, purchasing, production, quality control, order entry, shipping – among people who don’t have a natural inclination to coordinate their activities, that effective planning becomes very difficult. In companies whose size would suggest that planning


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plays a major role in their apparent success, you may find precious little planning actually being done.

Nevertheless, great benefits can be achieved if you can assist your client by implementing a reasonable set of policies and procedures, and leading the way to a right-sized planning system.

4.1.4 Avoiding Mistakes Engage any manufacturing manager, any purchasing agent, or any production worker in conversation about how well their plant is functioning, and the discussion will soon turn to some disastrous mistake that caused them to repurchase some material, rebuild some assembly, or miss some critical customer ship date.

While these mistakes can never be totally eliminated, they can be dramatically reduced when sufficient controls on inventory, purchasing, and production are in place.

Few people can put a price on the damage incurred by missing a ship date and angering an important customer. But manufacturing companies without sufficient systems in place to avoid the most common purchasing and production mistakes pay the price over and over.

You will hear it from one; you will hear it from many: “If we only had a system that could help us avoid making these mistakes.” The good news is that such systems are available, they cost far less than the mistakes your client will make without them, and most of them work very well.

5 Getting The Information You Need Once you have begun to come to grips with the goals and objectives you and your client believe might justify the purchase of a computerized manufacturing control system, then it is time to start looking at the available product literature.

A simple Internet search on terms such as “manufacturing software” or “inventory control software” or “MRP systems” will lead you to thousands of software products ranging in cost from a few hundred dollars to tens of millions. On the surface, most of them look the same.

If you are more inclined to visit a manufacturing trade show where you hope to meet with software vendors face-to-face and see demonstrations of their respective products, bear in mind two facts:

1) Exhibiting at a national trade show has become prohibitively expensive for all but the largest, wealthiest software vendors. Unless you represent a major division of General Motors planning to meet up with the mucky-mucks of SAP or Oracle, you’ll come home with a satchel of brochures, but little else.

2) Everyone with something to sell works diligently to get themselves “placed” in the popular Internet search engines, whether they depend on getting lucky with “organic” listings (the ones that appear for page after page on the left side of most search results), or whether they carefully craft paid advertisements that will be attracted by the “keywords”


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you type in the Search field. These advertisements generally appear down the right side of the search results page. The advertiser pays every time you click a link to learn more about their product.

5.1.1 Focus On Internet Searches We suggest you stay at home, go back to the computer, and use the greatest marketing tool ever developed: the Internet search engine. Whatever search engine you prefer, the key to success is not producing the largest selection of manufacturing systems. Instead, we recommend that you focus on manufacturing systems that are designed to work with your client’s existing accounting system.

Unless you are planning to ditch the accounting system as part of the acquisition of a new manufacturing system, this will allow you to focus on products that fairly match your client’s existing accounting system in size, complexity, and price. (If you are planning to implement a new accounting system, put this booklet back in the drawer and don’t take it out again until you have arrived at your short list of accounting systems.)

Instead of searching for “manufacturing software” which will yield over 17 million results in Google, try something like “manufacturing software for office accounting” or “manufacturing software for quickbooks” which will narrow the search to a mere 75,000. This is still far too many, but the good news is that the most relevant hits (the ones at the top) point to products that are likely to work with your client’s existing accounting system.

Visit the web sites of each of the “top ten” hits in your search to see which ones actually list “compatibility with…” as a feature. Beware that some advertisers intentionally position themselves in search engines where they do not actually have any relevance. Their ultimate intent is to switch your client to a different accounting system with which they do integrate. We consider such activity a version of “bait and switch” and urge you to shy away from such unscrupulous vendors.

5.1.2 Account System Integration If you use specific accounting system integration as a tool for narrowing down your search of potential manufacturing systems, you should also use this criteria as the basis for constructing your “top five” candidates list.

Starting with your “top ten” short list, contact each software vendor and ask for a detailed explanation of the “points of integration“ with your accounting system. In other words, you want a very specific explanation of where and how the software vendor’s manufacturing system and your client’s accounting system talk to each other. Don’t settle for generalities here. The devil is in the details. Every bit of detail you can flesh out at this point can save you worlds of headache – and a potential disaster – later on.

In our experience, here are some points of integration you are likely to find in an integrated accounting/manufacturing management system:


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5.1.2.1 General Ledger Regardless of the priorities your client has placed on getting a computerized manufacturing control system, you have every reason to include in that list (probably at the top of the list) the requirement that the manufacturing system create and maintain a manufacturing subledger which can be transferred to the client’s general ledger at the end of each fiscal period.

Your client may not know a debit from a credit, but unless the manufacturing system maintains a compatible subledger, you will never be able to control your client’s business from a financial point of view. Without integration with the client’s general ledger, a huge part of their operational activities will be missing from each financial statement. Control will be lost.

This may sound harsh, but if the manufacturing system you and your client like best does not offer integration (preferably seamless integration) with the general ledger of their existing accounting system, get out your red pen and cross it off your short list.

5.1.2.2 Inventory Control Possibly one of the most confusing aspects of creating an integrated accounting/manufacturing management system is about how inventory is kept.

In larger, industrial-strength Enterprise Resource Planning (ERP) systems, there is usually a clear distinction between finished goods inventory (often referred to as “distribution inventory” or “sales inventory”) and the raw materials inventory. Indeed, ISO-9000 standards and other “best practices” dictate that the finished goods inventory and the raw materials inventory must be kept physically isolated and controlled separately. ERP systems respect this need for isolation.

It is likely that your client has never heard of ISO-9000 – and has never given much thought to “best practices.” Consider yourself fortunate if your client has in place some formal way of controlling inventory (a controlled stockroom). More than one of our clients, using a “take what you need” inventory control system, have wondered why their manufacturing operations seemed to be so horribly out of control. The answer is, obviously, “You must start by controlling your inventory.”

If you run into such a client, stop the discussion right there. Deliver the dose of tough love: “Build a wall, build a fence, hire a stock clerk. Just do it – today!“

If your client has an existing accounting system, there is a good chance that “Inventory Control” is listed among its many features. Of equally good chance is that the inventory control module of their accounting system deals only with the sales distribution side of the house, not the manufacturing side.

Many manufacturing companies make the mistake of trying to use their accounting system’s inventory module to help them control their raw materials inventory, work in process (WIP), and sub-assembly production. Only after typing in thousands of raw material part numbers and attempting to perform the most basic manufacturing processes do they discover how ill-equipped their software is to perform the required tasks.

Writing software to control a sales distribution inventory is relatively simple; however the software needed to effectively control the inventory for a multi-level product structure


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is quite complex. Accounting software vendors usually take the easy route and include a module which addresses sales distribution inventory. Rarely do they tackle the thorny job of manufacturing inventory control.

If your client needs a manufacturing inventory control system, don’t expect it (or a good one) to be included in their accounting system.

Regardless of the size of your client’s company and the complexity of their manufacturing process, we urge you to enforce a strict set of part numbering conventions and inventory control procedures. If your client is small and operating on a shoe-string, this demand may not make you friends, but it is one you must make. Bad habits are hard to break – but in this case time never heals. If your client has only 50 raw materials and 10 sub-assemblies, insist that each have a part number and each be stored in a controlled stockroom. If the client allows free access to the inventory, all your efforts to manage their manufacturing business will be for naught.

While you have their attention and you are in the process imposing new policies and procedures, establish once and for all how raw materials, sub-assemblies, and finished goods are to be segregated.

In general, only the items your client sells belong in their accounting system’s inventory control database. Obviously this includes the finished products they make, but it may also include a quantity of selected raw materials or sub-assemblies they make available for sale as spare parts.

Ultimately, all the raw material items they naively entered into their accounting system’s inventory control database – things they don’t ever sell – will want to come out. These belong in the manufacturing system’s inventory control database.

If this looks like a daunting task, don’t make a big issue of it right now. The better manufacturing systems will offer some sort of item import feature and, if your client’s accounting system supports item exports, an hour or so of clever consulting work on your part can save your client many hours of tedious and error-prone re-entry. It’s something to look for in your choices of manufacturing software. Make a note for future reference.

5.1.2.3 Sales Order Entry Arguably of lesser importance than integration with the accounting system’s general ledger or sales inventory module, but still of potential importance, is effective integration with sales order entry. Depending on the type of manufacturer, or the number of sales orders your client processes in any day or week, this may or may not be a significant issue.

The basic concept is that your client will create a sales order for some product (or list of products) they will deliver to a customer on a specific date. Customers tend to be fussy about the date part. If these products are things they make rather than purchase for re-sale, then they will need to convert the sales order into some type of production order.

Here’s a question to ask your client: “If you were to receive 100 orders for the widget you make, would you create 100 production orders? Or would you create one production order for 100 widgets?” The answer will provide you with significant insight into the way their current manufacturing “system” actually works.


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If the answer is “Oh, we don’t create sales orders, we just build to replenish our sales inventory” then that’s the end of the story. No integration with sales order entry is necessary. Don’t press the software vendor for it.

If the answer is “Of course, we’d create 100 production orders” then you will certainly want to make sure the manufacturing software has some automated means to create a unique production order from each corresponding sales order. And when it does, make sure the production order includes a reference to the sales order number.

On the other hand, if the answer is “We’d obviously net all the sales orders into one production order for 100 widgets” the problem gets simpler to solve – or a whole lot more complicated – depending on the client’s needs.

Some of the more rudimentary manufacturing systems in the market would simply add up the number of widgets on all the sales orders and produce a production order for the total quantity. That’s the simple part.

But what if each of those sales orders, even the orders placed on the same day, contain various customer ship dates based on either the customer’s need for product or your client’s ability to produce? At this point, three types of manufacturing systems surface:

Good Nets the total sales order requirement and creates a production order for the total required quantity.

Better Nets the total sales order requirement and creates a production order for the total required quantity on the earliest customer ship date.

Best Nets the total sales order requirement and creates one or more production orders for the total required quantity on each customer ship date.

The issue at hand here is whether the sales order to production order conversion process is date sensitive.

Good systems create the production order but ignore the customer ship date issue entirely.

Better systems consider the customer ship date, but avoid thorny scheduling issues by simply using the earliest date.

The best manufacturing systems schedule production orders so work is completed just in time to meet customer commitments. Software that performs at this level is clearly more expensive than systems that take the easy way out, but considering the objective you and your client set for justifying the cost of a computerized manufacturing control system, it may well be a price they are willing to pay.

Remember our story about the menu-planning disabled shopper? Think what could happen if your manufacturing client could effectively plan their purchasing and production based on actual customer shipments? They could avoid having to horde “just in case” inventory, reduce their storage/warehousing requirements, and build nothing until they actually needed it. How much would all this be worth in monetary terms? Staggering.


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5.1.2.4 Accounts Payable The point of integrating the manufacturing system with the Accounts Payable function of the accounting system is to establish accurate costs for the raw materials your client purchases.

When a purchase order is created, the supplier quotes the market price for the material. This price may be recorded by the manufacturing system as the “recent” cost of the item. As most everyone knows, the price quoted by the supplier at the time of ordering and the price appearing on the invoice are often different. The question is: how much variance is acceptable?

Sometimes the purchase order price and the invoice price are the same, but most manufacturers will tell you that this is just coincidental. When there is a minor difference between the purchase order price and the invoice price, the invoice price is generally accepted with resignation. When the difference is significant, most manufacturers will contact the supplier and challenge the invoice.

To make such a subjective judgment, it is useful to hold the purchase order and the invoice side by side. To do so, the purchase order can be available to the Accounts Payable clerk when vouchering the invoice, or the invoicing can be done from within the purchasing system.

When the cost of the material is recorded during the invoicing process, the recent cost originally recorded during the ordering process can be updated with the actual cost.

5.1.3 Other Key Features To Look For As you thumb through the literature you’ve been collecting, you will no doubt see bullet lists of the features each software vendor is promoting in their product. Some of these are indeed key features you and your client should understand and evaluate. Others, unfortunately, are meaningless advertising fluff. How do you know what is what? Here’s a list of the features we think, based on our 20+ years of experience, should matter to you:

5.1.3.1 Multiple Costing Options One of the most important, but often overlooked, aspects of a manufacturing control system is a choice of costing options.

Naively, most manufacturers think the cost of an item is the price they most recently paid to replenish their inventory of item. As an accounting professional, you know that the issue of costing an inventory is much more complex.

If you ask your client what costing method they would like to use, most probably the answer will be “actual costing.” Despite its popularity, actual costing is the only costing method that is virtually impossible for a small- to medium-sized manufacturing to implement. The reason is that, for example, staring into a box is bolts, it is impossible to identify the cost of each individual bolt. Granted, if you owned just one bolt and you remembered that you paid 50 cents for that bolt, you could rightfully claim the actual cost of that bolt to be 50 cents. But as soon as you purchase 10 more bolts for 75 cents each


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and toss them into the box, you can no longer determine which bolt is the 50 cent bolt. The actual costing system stops working.

To resolve this dilemma, cost accountants have devised other costing methods including standard costing, recent costing, average costing, FIFO and LIFO costing. Each of these methods addresses the fact that there must be a value that can be applied to the inventory as a whole, acknowledging the fact that the value of a specific item cannot be established.

If your client has had previous experience managing and costing a sales distribution inventory, they may wish to use the same costing method for their manufacturing inventory. Not so fast.

The big difference between a sales distribution inventory and a manufacturing inventory is that in a manufacturing inventory, any change in the cost of the smallest, most insignificant part must force a change in the cost of every item that uses it as a component. Furthermore, a forced change in the cost of that assembled item must in turn force a change in the cost of the item that uses it, all up through the product structure. Theoretically, changing the cost of just one item could force a change in the cost of every other item – not just once, but multiple times. This is a big, big job that demands speed and accuracy.

Basically, a manufacturing inventory must have a “cost roll-up” function that revalues the entire inventory based on a change in the cost of one item. A distribution inventory needs no such function.

In North America, standard costing is the most popular choice among manufacturing firms because it makes cost-rollup simple and manageable.

The popularity of standard costing is due to the fact that the cost of any item is fixed and does not change until the decision is make to change it, perhaps just once per year. During this time, the purchase cost variance (difference between the standard cost and what you actually pay for the inventory) and the assembly cost variance (difference between the standard cost and what it actually costs to build the inventory) is accumulated and reported in the firm’s financial statement.

Annually, the purchase cost variance and assembly cost variance is analyzed by a qualified cost accountant and new standard costs are established. These new standard costs are unchanged until the cost accountant’s next visit.

Other costing methods such as recent, average, FIFO, and FIFO costing are also viable, except that choosing one of these methods implies that your client wants to continually revalue their manufacturing inventory – and that the manufacturing software they are considering has the ability to revalue the inventory in a timely fashion.

We cannot over-state to importance of a fast and reliable cost-rollup function in the manufacturing software. Too many manufacturing companies try to build a widget using $10 worth of parts and sell it for $8. “Why would anyone do that” you ask? Because, when the widget was first designed, its component parts totaled just $5, so selling the widget for $8 made sense. As component costs rise, the must be a way to know how these increases affect the total cost of the widget. Without a manufacturing control system to perform the cost-rollup (the job is far too time-consuming and tedious to attempt by


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hand) your client is likely to go out of business trying to produce products that cost more than their selling price.

5.1.3.2 Multi-currency Capabilities If your client never trades with partners outside the United States, it is likely they will never need any multi-currency capabilities in their manufacturing software (or their accounting software for that matter).

However, in this ever-widening global economy, more and more domestic manufacturing firms are purchasing raw materials from partners who do not trade in US Dollars. If your client is among these, they will need some ability to create and print purchase orders in the native currency of the raw material supplier (called the “source currency”) and convert the applicable amounts to the native currency of the accounting system (called the “functional currency”).

If you are looking for a multi-currency capable manufacturing system, ask the software supplier how the currency exchange rates are maintained. Calling the bank on a daily basis to check on the exchange between East Borindian Rallods and US Dollars is neither efficient nor a good way to make friends with your local bank CSR. Today, exchange rate information between every publicly traded currency is published electronically. Make sure your software can easily import this information.

5.1.3.3 Multi-tax Capabilities If your client lives or works in a jurisdiction where taxes are assessed on purchases (such as in Canada or the United Kingdom) your client’s manufacturing software must have the ability to calculate the applicable VAT, GST, HST, or PST due on any purchase order.

Governmental taxing authorities have complex rules for accurately calculating and reporting the taxes due on purchases (often involving taxes on taxes) so you, the practitioner, may be required to weigh in on whether the multiple tax capabilities of the software are sufficient to meet the needs of your client and the regulatory authorities.

5.1.3.4 Multiple Locations Some, if not all, manufacturing software has provisions for storing inventory in multiple locations. This complicates the transaction processing that must be done to inventory receipts and production control, but for most manufacturing companies, it should be a requirement.

Don’t be fooled into thinking that your client doesn’t need multiple locations just because they have one factory. The moment they decide to keep extra stock in a rented warehouse, a room out back, or set up an incoming inspection process, they will need multiple locations. Make sure your software supports it.

5.1.3.5 Multi-level Bills Of Material Many inventory control systems list a bill of material as a key feature. If you are talking manufacturing, your client will need multi-level bills of material. You can do very simple assembly work with single-level bills of material, but real manufacturing requires a multi-level bill of material to describe the entire product structure.


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5.1.3.6 Revision Control From time to time manufacturing companies change the way they build things. This change may be inspired by a better design coming out of Engineering, a clever cost reduction, or a substitution necessitated by a vendor part shortage. Unless your client can convince you that they have been building the same assembly the same way since just after the Pilgrims landed at Plymouth Rock, and they promise they will never ever change it in the future, then make bill of material revision control a requirement of your dream manufacturing system. Changes always – and should – happen. Be prepared for them.

5.1.3.7 Physical Inventory Cycle Counting The job of performing a physical inventory stock take is not very exciting and not very rewarding, unless you are one of the people who depend on accurate inventory records and valuations.

If you were one of the people who had to actually walk around and count what is in those little boxes, you’d probably be one of the people who complain most loudly about the existing system. You would be looking for anything in a new manufacturing system that would help you get the job done more easily, more quickly, and with less pain.

Virtually every manufacturing inventory control system has a provision for collecting item counts and posting those counts to the item master record. Less frequently, you will see “cycle counting” included in the feature set.

Cycle counting is the dividing of the inventory into discreet “slices” (as if they were slices of a pie). Rather than counting the entire pie each time, you count just once slice, or cycle. You don’t need to count every item every time you count the physical inventory anyway. Some items (those with high valuation or high traffic) require more frequent counting; others (with low valuation or low traffic) require less frequent counting. Some “cycles” consist of items you want to count weekly, others monthly, quarterly, annually, or every time the moon is full. With physical inventory cycle counting, the choice is yours. It is a tool that will ease a lot of pain, and get an otherwise tedious job done much sooner. Make certain you get it.

5.1.3.8 Simple Planning Tools Clients who are suffering at the hands of bloated inventories, missing deliveries, and angry customers don’t usually bring up planning as one of their objectives in acquiring a manufacturing system. “Who’s supposed to be steering the boat when both of us have to be down here bailing the bilge” they cry.

Assuming there is some real hope of staunching the flood and relieving at least some of your client’s staff to do some steering of the boat, you should have a good look at the tools prospective manufacturing software offers for simple planning.

By using the word “simple” we mean planning that is not necessarily time-phased. It is a view of the world that looks straight down at the tips of your shoes, but it is a valuable view nonetheless.


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The most rudimentary manufacturing software should feature some sort of shortage report which will alert you to items whose stock level is falling below a pre-determined level or “reorder point.” Running this report once a week and dropping it on the desk of the purchasing manager would be a vast improvement over what your client is doing now – most likely roaming through the stockroom groping in empty cardboard boxes.

Given that your client can maintain reasonably accurate inventory records and bills of material, they should be able to perform some decent production planning, too.

If you know what you have in stock today, and you know what you want to make, and you know how to make it, then your manufacturing software should be able to perform a “what-if” analysis and alert you to impending shortages. Based on the results of this what-if analysis, you could either change your production plans, or purchase any of the material you will need to complete it.

Even the simple planning tools described here can go a long way to helping your client reduce their inventory holding costs and achieve one of the major objectives for acquiring an automated manufacturing control system.

5.1.3.9 Master Production Scheduling (MPS) A master production scheduling system takes the purchasing and production planning to the next level. It expands the view that was formally pointing straight at your toes and expands it along a time-line, showing your client not only what they are short today, but what they will be short next week, next month, even next year, based on any number of production scenarios. MPS is the difference between staring into your refrigerator thinking about what you will have to eat tonight, and producing a menu plan for the next week or month, then shopping with that plan in mind. With MPS capabilities in their manufacturing software, your client can do some smart shopping, they can reduce their inventory, avoid purchasing the wrong items at the right time (or the right items at the wrong time). Best of all, missed customer ship dates can be all but eliminated.

5.1.3.10 Forecasting For some manufacturing companies, being able to forecast future production and purchasing activities is central to being able to operate efficiently. Your client might list effective forecasting as one of their key objectives, but in our experience, it is not something that belongs high on the list.

We say this primarily because there are so many other aspects of controlling a manufacturing operation effectively that need critical attention, that forecasting seems best relegated to the “someday” pile.

However your client intends to perform their forecasting – by stimulating a master production schedule with a list of “what-if” entries, or by drawing on historical sales from previous months, quarters, or years and projecting them into the future, the whole task of forecasting demands a level of sophistication and comfort rarely experienced with newcomers to automated manufacturing systems. Mark this one for the future. A worthy objective, but one for the future.


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5.1.3.11 Material Requirements Planning (MRP I) Following the strict APICS definition, MRP (more accurately MRP I, read MRP-one) is a system that helps a manufacturer plan their purchasing and production activities, and when necessary, create the required purchase orders and production orders in time to meet customer commitments.

This leads to the Great Paradox of Manufacturing:

• An inventory control system helps you maintain an inventory of your materials.

• An MRP system helps you maintain no inventory of your materials.

Without an MRP system, manufacturers typically react by purchasing material they might need. With an MRP system, manufacturers purchase material they definitely do need. Which do you think is a better use of limited financial resources?

Many manufacturing systems combine the distinct functions of MPS and MRP into one called MRP. It is possible to create and MPS without an MRP, but impossible to create an MRP without an MPS. If you are convinced that the software you are considering performs the functions described here, then strict adherence to the terminology is not that important.

5.1.3.12 Manufacturing Resource Planning (MRP II) As the term implies, Manufacturing Resource Planning (aka MRP II, read MRP-two), is an extension to MRP I that goes far beyond planning and acquiring the materials needed for production, but every other resource related to the successful operation of a manufacturing plant, including people and machinery.

Some impressive demonstrations can be made by manufacturing software vendors selling “fix all your problems with one click” systems. In our opinion, MRP II requires a level of sophistication far beyond that of most of your clients. Ford Motors and Caterpillar depend on MRP II to run their manufacturing operations. MRP II is a big job – one best reserved for the big boys.

Few low-end to mid-ranged manufacturing systems offer MRP II, but if they do, beware. Systems that perform real MRP II functions cost hundreds of thousands, often millions of dollars. If the system you are looking at claims MRP II capabilities for far, far less, turn your fluff detector to stun.

5.1.3.13 Shop Floor Control Technically, shop floor control is a component of MRP II because it deals with the allocation of labor and other resources used in various production tasks. The theory is that by accurately controlling and analyzing the amount of planned and un-planned work done on any particular production order, your client can derive a very accurate cost for everything they make and thus produce a financial statement that will bring tears to the eyes of any CPA.

We believe there is great benefit from implementing a shop floor control system, mainly because it provides an insight into your client’s production activities that cannot be achieved otherwise: a line by line view of each task (or operation) and, ultimately, the


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ability to analyze how well your production workers met their efficiency (and profitability) targets.

Without a shop floor control system, your client will know something is wrong because they won’t be making as much profit as they expected.

With a shop floor control system, they will know that the guy who does the welding in Operation 17 of some product they make reliably takes twice as long to complete his work as was projected, sending the estimated-to-actual cost variances for the job through the roof. Or, that on that big, potentially profitable job that was completed last week, an expensive component was broken and had to be replaced.

All this sounds great – and it is – except for one thing: in order to implement a useful shop floor control system, you must demand that:

• Accurate routings (detailed operations and the estimated time/cost for each) are available and thoroughly documented.

• There is a reliable system in place for recording the actual material, labor, and overhead used in each operation (read people with stop watches and clip-boards running around the shop, writing down numbers and entering them into the computer).

If your reaction to that idea is “Fat chance - it will never happen!” then, for all the good that shop floor control could do for your client, cross it off the wish list.

5.1.3.14 Finite Capacity Planning Finite Capacity Planning is technically a component of MRP II. It is a system that analyzes your capacity to produce a product (more likely a long list of products) and compares that to what it knows about your ability to produce the product.

A few low- to mid-range manufacturing control systems advertise capacity planning capabilities. Based on the comparison of production demand and supply, they can alert your client to impending “bottlenecks.” We believe a system such as this should more properly be called a Capacity Analysis system. While its output can be illuminating, it performs no actual planning, and the benefits achieved are far less than what is typically advertised.

A true planning system, know as Capacity Resource Planning, CRP for short, not only tells you where the production bottlenecks are bound to show up, but they tell you what to do about them to minimize the impact on other tasks.

For example, a CRP system knows that Bill and Fred and Sally are scheduled to work on Project A starting June 1st. It knows that Mike and Sally and Jim are scheduled to work on Project B starting June 15th. It knows that Fred is due for a week’s vacation starting June 12th. It knows that Mary isn’t scheduled to work on any project until July 1st. If Fred leaves on vacation as planned, but Project A isn’t yet complete, a CRP system would suggest someone who could jump in to help (that’s the planning part). It would know that Mary is available in the required timeframe, but that she works 75% as fast as Fred and takes every other Wednesday afternoon off as a community volunteer. If Mary does join Project A, but slows it down and the project isn’t complete until June 20th, a CRP system


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can plan the impact on Project B which Sally was supposed to start, along with Mike and Jim on June 15th.

Now, if just reading the paragraph makes your head hurt, you’re not alone. Some very complex and very expensive manufacturing control systems claim to do effective CRP. We have had personal experience with one $20+ million MRP II system that created more bottlenecks than it resolved with each click of the “fix it” button. And the salesman said it was a bargain at $20M. We are not recommending it.

If we have convinced you to steer your client away from Capacity Planning, the question remains whether the “capacity lite” capability of the software you may be looking at is going to be of any value to your client.

Bear in mind, that to do any capacity analysis/planning, the software must know about every operation associated with the production your client performs. This means that a simple bill of material, even a multi-level bill of material, is insufficient if you intend to perform capacity analysis/planning. The bill of material must include what are termed “routings” or “routing operations” – a step by step list of the processes that must be performed, in sequence, in order to produce a given product. For anyone with rudimentary (or non-existent) bills of material, collecting and entering that level of detail is a big, big task.

Coupled to the bill of material routings, the software must have a detailed description of every work center – area of the plant where some specific task is performed: when the work center is open for business, how fast it can operate, and what additional resources (material, labor, and overhead) it requires.

To perform capacity analysis, the manufacturing software computes the “capacity demand” (derived from the BOM routings) and the “capacity supply” (derived from the work center descriptions). From this, it can highlight any impending “capacity bottlenecks.” It is unlikely that any software can tell your client what to do about these bottlenecks.

From our experience, true capacity planning is out of the reach of all but the most sophisticated manufacturers. Capacity analysis is nice to have if your client is willing to invest in creating – and maintaining – all the supporting data for routings and work centers.

5.1.3.15 Bin Tracking Our guess is that Bin Tracking grew out of manufacturing software vendors need to track inventory for customers who keep their stock distributed in multiple containers. For example, injection molding companies keep raw plastic pellets in multiple silos. Fabric manufacturers roll finished material on cardboard tubes called “bolts.” Chemical manufacturers may have multiple railcars-full of any particular raw material.

Consider the following scenario: “I’m making this product at Location One and one of the required components, powdered paint, is stored in any one of three bins. I pick up my bucket, scoop, and weigh scale, walk over to one of the bins and take what I need.”

You should expect the manufacturing software to know how much powdered paint is in stock at Location One. But ask your client this question: “Do you need to know how


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much powdered paint is in each bin?” If the answer is “Yes” they definitely need bin tracking capability.

5.1.3.16 Serial/Lot Tracking Serial/lot tracking is another one of the “deal-breaker” features that, if your client needs to perform this level of tracking, will eliminate a great many prospective manufacturing solutions.

Serial/lot tracking is difficult by any measure.

First, the software required to track serial numbers and lot numbers in a manufacturing environment is difficult to write (we have seen a number of effective but totally unworkable serial/lot tracking systems).

Second, the task of accurately maintaining records detailing the movement of tracked items from raw material receipts to customer shipments is time-consuming and error-prone.

So why do serial/lot tracking? Regulatory agencies require it.

If your client is in the pharmaceuticals manufacturing business, the Food and Drug Administration will require them to track lot numbers and maintain a detailed audit of every production run. FDA won’t ask your client if they would like to do serial/lot tracking. It is a requirement – no matter the cost.

If your client makes aircraft engine parts, the FAA inspectors will demand scrupulous records showing the serial numbers of the purchased parts and the serial numbers of the assemblies in which these parts were used.

Some of the most basic and low-cost manufacturing software products feature serial/lot tracking, but the devil is in the details: beware!

For some manufacturers (well, actually very few manufacturers) serial/lot tracking means making a permanent record of the serial number or lot number of the finished good they just assembled. Their record-keeping amounts to keeping track of the serial number or lot number of the product they built, the date they built it, and possibly the customer to whom it was shipped.

If this is what your client needs (and we suggest you grill them thoroughly on this point) then consider yourself lucky. The software to perform this task is relatively easy to write, inexpensive to obtain, and is often included as a “feature” in an inventory control system.

However, if the audit requirement is that copious records be maintained for serialized or lot-tracked raw materials, through all levels of sub-assembly to the finished good and beyond, then the job gets a lot tougher. The software gets harder to design, more difficult to use, and more expensive.

A manufacturing-oriented serial/lot tracking system (of the sort required by FDA, FAA, and others) must maintain 2 views:

1) A view showing the serial number or lot number of every tracked component, tracking its use throughout the entire product structure. We call this the “Where Did It Go” view.


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2) A view showing the serial number or lot number of every assembled product, tracking its production back throughout the entire product structure to every tracked component. This is what we call the “Where Did It Come From” view.

If the software you recommend to your client does not allow for such a bi-directional view, do not allow the FDA or FAA auditors in the door. Your client will most certainly fail the audit and be shut down.

Nobody likes to perform serial/lot tracking. But when a regulatory agency says “jump” you do it.

5.1.3.17 Summary This list may include every key feature you should look for (or will find) in a manufacturing system. Based on our 20+ years of experience with tens of thousands of manufacturing clients, ranging from “mom and pop” assembly houses to divisions of large multi-national firms, the list covers everything we have seen purchased, installed, and used. Not everything on the list will be appropriate for your client.

6 The Project Timeline Once you determine which features your client really needs – and can reasonably implement and use – you should sit down with them and establish a time-line for the project. On the timeline, you want to establish what you think is a reasonable amount of time to reduce your selection of manufacturing software products to two or three. From there, plan on an appropriate amount of time for thorough product demonstrations, a final review by those responsible for making the final decision, and a reasonable amount of time to prepare for and implement the system. The big question is “How much is an appropriate and reasonable amount of time?” The answer is: probably more than you had planned – and much more than your client could imagine. The good news is that with your professional guidance, the task is manageable and, with care and attention to detail, success can be assured.

6.1 The Short List The best way to pare down a long list of prospective software products is to compare your list of “must have” and “would like” features to the feature set advertised with the products being offered. Beware that salespeople will attempt to convince you that you don’t really need the features their software doesn’t have. If you have done your homework and you know what your client wants and why, you are much less likely to be sold a product that, ultimately, won’t satisfy your client’s needs.

Sticking to your guns about what you want and need, you should be able to reduce your short list to two or three prospective systems.


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6.2 Product Demonstrations Once you have a firm “short list” in hand, it is time to arrange detailed product demonstrations with the software vendors. Don’t waste your time with “quickie sales demos” showing off the most saleable features of the software.

Instead, insist on a demonstration from someone who is intimately knowledgeable about the software. Many software vendors will bring in what they call a “sales engineer” at this point. The salesman’s job is to identify you as a legitimate, prospective user. There are millions of tire-kickers out there (especially now that software vendors depend on low or no-cost search engine hits to produce sales leads) so most vendors employ “qualifiers” whose sole job is to strain out those who don’t have an immediate and substantial need.

If the vendor’s software is on your short list, insist on spending time with a sales engineer doing a detailed on-line demonstration of their product. Expect to spend no less than 2 hours in each demonstration and do not allow yourself to be brushed off until you have seen exactly how the software will do the things your client wants it to do.

6.3 Line of Responsibility At this point, you should help the client assemble a team of people familiar with the internal workings of the manufacturing processes, whose job it will be to evaluate how well the software meets their needs. Every one of them should be present in each demonstration. You should also be involved in each demonstration. If you need to postpone a demonstration because one of the team members is temporarily unavailable, do so. The vendor may seem impatient (especially near the end of a month) but they will cope.

6.4 The Final Decision When assembling a team of reviewers, make sure that:

1. The owner, the boss, the person making the final decision (and who is going to sign the check) is included on the team, or

2. That the person who is going to sign the check has given full authority to the team. Unless this happens, the team does not have ultimate authority and the entire project can be set back, or lost, by someone who has been outside the loop, wasting months of careful work on your part.

At this stage, cold feet on the part of a heretofore uninvolved owner is your greatest risk factor for TPF (Total Project Failure). Do not allow this to happen. Early on, demand and document exactly who will make the final purchase decision.

6.5 Product Warranties Regardless of how carefully you analyze and weigh the features your client needs and the ability of the software you ultimately select to satisfy these needs, mistakes happen. Expensive mistakes happen. The sooner you identify a purchasing mistake, the less expensive it is (in terms of time, effort, and money) to rectify it.


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Before you enter into a purchase contract with a software vendor, make sure you understand the terms of any warranty offered by the vendor. A warranty should offer you a reasonable time to get the software installed, some (if not all) data migrated to the new system, and all the basic functions of the software exercised with your client’s own (not sample) data. In our experience, software vendors often guarantee that their software will run on your computer, but shy away any sort of “suitability” warranty.

6.6 Licensing Considerations In your practice, you have probably installed many software products for yourself or for clients. How many times have you thoroughly read the EULA (End User License Agreement)? We concur that when you are installing Reading Rabbit clicking the “I Agree” button is probably a safe bet. Even when installing Microsoft Windows Vista, you might as well agree to the EULA because clicking on “I Do Not Agree” will simply terminate the installation process. You can place a call to Microsoft’s legal department, but don’t expect a callback. They have bigger fish to fry.

When dealing with relatively low volume specialty software such as a manufacturing control system, we advise you, the professional accountant and trusted advisor, to review the EULA and consider its implications before your client gets to the point of installing the software. If there is some aspect of the EULA that causes you concern, you will want to raise the issue during the selection process, not the installation process. Make sure you obtain a copy of the EULA and include its terms in your decision process.

Every manufacturing software vendor should have their EULA posted on their web site for all to see. If they do not, you have the right to be suspicious.

Do not expect your client to know that virtually all software is sold as a “license to use” the software. If they think they own a copy of Microsoft Windows (or even Reading Rabbit) point out to them that the EULA conveys to them the license to use the software. Never do they own the software. As long as the terms of the license are honored, your client’s right to use the software continues. Violate the terms of the license, and their right to use the software ends right there.

While most software EULAs contain paragraph after paragraph of fine print, most of it is designed to protect the rights of the vendor who invested hundreds of thousands of dollars, often millions, in the development of the product. Since years of expensive R&D is ultimately reduced to a file or two that can be mailed on a CD-ROM, or downloaded from a web server via the Internet, the vendor has every reason to protect his rights. Such protection rarely imposes an unreasonable restriction on how you will use the software and the benefits you will gain from it.

If there is some provision of the EULA that you don’t understand, raise it during the sales process.

6.7 Total Cost Of Ownership Your client may focus on the cost of the software as a major consideration during the selection process. Other than knowing that the software is, say, an order of magnitude


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higher than what your client can afford, make sure you help them evaluate what we call the “total cost of ownership” or TCO.

By this we mean that the cost of purchasing the software (no… a license to use the software) is likely to be just part of the total cost of the system. Services such as user licenses, installation assistance, implementation support, onsite consulting, ongoing technical support, and software maintenance (upgrade) fees all contribute to the TCO.

Mid-sized to large companies often plan to spend as much for installation and implementation as they do on licensing. For small- to mid-sized companies, the cost of installation and implementation is likely to be greater as a percent of the software license fees, although dollar-wise, they are much less, primarily because on-site consultation is rarely needed.

6.7.1 User Licenses When you are evaluating manufacturing software, make certain that you understand how the software vendor charges for multi-user access to the manufacturing data.

Except in very rare cases, your client will require that multiple people be logged into the software simultaneously so they can share the wealth of information contained in the database.

Do not allow your client to purchase software that does not allow multi-user access. Even if the client can argue that they don’t need to have more than one person logged in at a time right now, they will someday need to have multi-user access – or they will be out of business.

6.7.1.1 Named User Licensing Software that allows for “Named Users” requires you to purchase a license for each individual person who will be logging in and using the software. The license is attached to the name of the person, although there is usually a provision for changing the name of the user should he/she leave the company and be replaced by someone with a different name.

We believe named user licensing is unreasonably expensive, inflexible, and should be avoided.

6.7.1.2 Concurrent User Licensing Software that features “Concurrent” user licensing requires you to purchase only as many user licenses (or “seats”) as you need to satisfy the demands of workers logging in and using the software.

Your client can get along with a 1-user system as long as other workers are content to wait in line until one user logs out, allowing the next user to log in. If you are thinking “That doesn’t sound very efficient” then software that allows you to purchase additional user licenses at some point in the future is particularly attractive.


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6.7.2 Installation Assistance A large manufacturing control system usually consists of a number of software components that must be installed and tested to make sure that the program can connect successfully to the underlying database, and that each user can log in and access the data.

Most commercially available software has an automated “installer” that guides you through the installation process and does much of the work without ever telling you what it is doing.

But what if you run into trouble? In this case, performing the installation over again probably won’t be any more successful. Computers have the habit of doing the same thing over and over and over. Indeed, we depend on computers doing the same thing over and over again and coming up with the same answer each time. During a faulty installation, this perfect repeatability is not going to be your friend. You’ll need someone whose expertise you can lean on.

Ask your prospective software vendor what services you can expect them to provide should you have trouble getting the software installed.

In our opinion, installation assistance should not be part of the vendor’s usual technical support service (for which additional fees may be assessed). Installation assistance should help you get to the point where you can successfully log into the manufacturing system. This service should be free of charge.

6.7.3 Implementation Support Your client may look to you for help when implementing the software. After all, you’ve been onboard since the beginning advising the client on what will work (and what won’t work) for the client.

6.7.3.1 Accounting Integration As the client’s accountant, you do have a unique insight into how the company operates and the way they report the results of their operations to the management and shareholders. If integrating with an existing accounting system is one of the key objectives in implementing a computerized manufacturing control system, then your services are critical to the success of the project.

Make sure that your client clearly understands the role you will play after the software is installed and how you will be compensated for it. Establish a budget based on a specific number of hours of your services. That way, should the project require more hours than anyone could have anticipated, you can renegotiate your continued involvement.

We recommend that you create a engagement for this project separate from any other services you may provide.

6.7.3.2 Manufacturing Integration Details of how the software works and how it integrates with various components of the accounting system is knowledge that you do not have.


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Ask the vendor about any implementation services that may be available to your client. Using the vendor’s consulting services is generally much more cost-effective than bringing in an independent manufacturing consultant who will have to learn all about the new software as well as the client’s existing systems.

If implementation services are not available from the software vendor, you may need to find an independent consultant who can help your client prepare their data and get them started using the new software. If you don’t have the names of several manufacturing consultants to suggest to your client, check with your state’s chapter of APICS (American Production and Inventory Control Society) for their recommendations. In our experience, local APICS members often include retired or semi-retired experts who are eager to accept short term engagements. Their affiliation with APICS gives you some assurance of their expertise. Before hiring an independent consultant, make sure you participate with the client in the interview process.

Hiring an implementation consultant may seem to be an unnecessary extravagance, but it is actually one of the wisest expenditures your client can make. The expertise the consultant brings to the table by helping your client establish workable policies and procedures and organizing any existing data can avoid a very expensive and time consuming project restart.

6.7.4 On-site Consulting Suppliers of high-end manufacturing software automatically send their team of on-site consultants to help new users install and get the software up and running. A friend of ours is currently helping a nationally known clothing retailer install an online sales order/fulfillment system. The price tag for the software includes a $2.2 million fee to have the friend be available on-site for up to 2 weeks per month for a period of 6 months. The retailer has gratefully provided the friend with an office and desk, just down the hall from the company’s IT Manager.

Needless to say, your client is not going to have this level of assistance included in the price of software that costs a thousand dollars, or even ten thousand dollars. But this level of service may be available from the software vendor at an additional charge. This is a good question to bring up during the selection process. The answer may draw you to a supplier who provides on-site consulting at a reasonable cost, or away from a supplier who either has no experience providing it or who charges what your client may perceive as exorbitant rates.

In our experience, a rate of $1000/day plus travel and expenses for an experienced on-site consultant is not unreasonable. Before entering into such an arrangement, be sure to speak with two or more references who are satisfied with the consultant’s performance.

Unless you don’t mind your consultant flying on a First Class ticket and staying in the Presidential Suite at the Four Seasons, we recommend that you book the consultant’s travel and hotel yourself. Your client will be paying for it anyway.


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6.7.5 On-line Consulting As an alternative to what could be prohibitively expensive on-site consulting, more and more software suppliers are providing on-line consulting. This type of engagement provides the 1-on-1 relationship with the supplier that your client may need while eliminating the cost of putting a body on the ground at the client site.

In general, the on-line consultant connects electronically to the client’s computer, taking control of it when necessary, and helping with the installation and setup remotely.

Ascertain whether this type of consulting is available, whether it is available privately or in a group, whether it is available on demand or as “sessions” at specific times of the day.

It is unreasonable to expect an on-line consultant to be available for every step along the way, or for as long as the implementation continues. Think of the on-line consultant as a coach who observes your work to date, helps set the pace, makes suggestions for the next accomplishment, commends you for your progress, and urges you on. Remind your client that the coach does not play the game.

In our opinion, private on-line consulting is worth at least $100/hour – more if there is no limit to the amount of time the consultant will spend with you.

6.7.6 Training Once the software is installed and operating, your client may think that additional training is unnecessary. Nothing could be further from the truth. In our many years of hosting live training workshops, we have witnessed the faces of experienced users light up with what we call “Aha! moments” — a discovery about the capability of software that they never before realized, or didn’t know to ask about.

In this day of high speed inter-connectivity, most software suppliers are turning to Internet-based webinars to deliver training to their new users. This works very well if your client has:

• A reliable broadband Internet connection

• A conference room where the client’s staff can work without being interrupted with normal workday issues

If they have no broadband Internet connection, book the conference room of a local business hotel where such service is available.

If there is any chance that the client’s staff will be interrupted (or be tempted to interrupt themselves) with normal workday issues, book the conference room of a local business hotel where they can sequester themselves for the duration of the training. Just make sure the hotel offers broadband Internet.

6.7.6.1 Training As Due Diligence Naturally, your client will not be inclined to participate in a formal training course until after the software is installed and operating. But consider enrolling in the software supplier’s training course as a component in your selection due diligence.


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What better way to learn whether the software will perform all the functions required of it than to work through a thorough training on it?

If this exposure reveals that, indeed the software does everything you hoped it would (and more) your client is already trained and ready to get the most value from their investment.

If the experience reveals serious shortcomings that the salespeople failed to mention (it happens sometimes) or you failed to uncover in your inspection of the software, then the cost of the training is a small price to pay to avoid what could be a very expensive mistake.

Ask the software vendor whether your client can participate in the training before making the purchase decision. If the vendor charges for training, we would be suspect of any vendor who disallows prospective users. If the vendor does not charge for training (that is, the cost of training is included in the cost of the software) suggest that you pay for the training and apply that payment to the cost of the software only if your client decides to purchase the software.

6.7.7 Technical Support No matter how carefully the manufacturing software is installed, how completely any implementation consultant sets up the system, or how thoroughly your client learns to use the features of the software, there will be times when technical support from the software supplier is needed.

6.7.7.1 Telephone Support In general, technical support for software is provided via telephone or email. Telephone support is desirable because it provides a simultaneous 2-way discussion of the problems and solutions. Understandably, it is very expensive for a software supplier to maintain a staff of experts who are available 24/7 just in case your client gets the urge to call.

During the discovery and selection process, ask each supplier how they provide on-going technical support. If telephone support is available, ask what hours it is available, what days of the week it is available, and most importantly, who your client will be speaking with when and if they do call.

In an effort to control costs, many American software companies have outsourced their technical support services – with what we consider to be disastrous results. If you have had first-hand experience trying to communicate with someone who simply echoes back your questions while they feverishly enter keywords into a computerized knowledgebase, you don’t need convincing that the price of in-house support from a trained technician is worth every penny.

6.7.7.2 Email Support Email-based technical support can be an acceptable alternative to telephone support if your client is particularly cost-sensitive. Despite the fact that email messages are usually delivered anywhere on Earth within minutes, your client should not expect a response to an emailed request for technical support in less than 24 hours.


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The unseen cost of email support is two-fold: 1) the delay in getting the first response, and 2) the fact that a resolution may require several cycles of emailing back and forth, each requiring 24 hours to complete. In times of stress, a delayed resolution can be intolerable.

Unless there is a vast difference in cost between telephone support and email support, we believe telephone support is the better bet. If cost is the issue, then consider purchasing telephone support for the shortest term possible, then down-grading to email support as your client becomes more proficient with the software.

6.7.7.3 Incident Support An “incident contract” is a short-term relationship with the software supplier to provide telephone support for a specific issue. Unlimited support is provided while the issue is outstanding; it ends when the issue is resolved.

Email support occasionally supplemented with an incident contract is often a cost-effective alternative to telephone support.

6.7.8 Software Maintenance Bug-free software does not exist. Good software vendors extensively test their software prior to release, but it is statistically impossible to test every aspect of every feature of a software product, on every known platform, and in every user environment.

Therefore software suppliers rely on users to report problems they encounter when using the software. Your client is likely to run into a problem which can be attributed to a bug in the software, however obscure. The issue here is how the supplier responds to reports of software bugs.

Some software suppliers issue an annual update for their software from which they derive significant revenue. If you purchased Microsoft Office Accounting 2007, you soon received a solicitation urging you to purchase the upgrade to Microsoft Office Accounting 2008. The current version of Intuit’s flagship product may be called QuickBooks 2008, but there are still millions of copies of QuickBooks 2007, QuickBooks 2006, and QuickBooks 2005 in use every day.

Your client may argue that the cost of upgrading to the current version of accounting or manufacturing software is prohibitively expensive and therefore unnecessary. The argument could be valid except for one thing: software developers tend to roll bug fixes into their “periodic updates.” In order to have the bugs inherent in any software fixed, your client must purchase the “new version” including new functionality which he or she may not need.

The fact is, software requires periodic maintenance. We believe that not updating the software because there isn’t a sufficiently appealing list of new features is a serious mistake — one that you as a professional should make every effort to counter. Explain it to your client this way:

Updating software is much like changing the oil in your automobile. You don’t have to do it (and you can get away without doing it for a while) but considering the capital


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investment in the automobile (or the software), not performing the maintenance is a foolish move.

Try to obtain from the software supplier a history of software updates going back three or four years. You are looking for a signal that the supplier is willing and able to issue an update whenever a sufficient number of “improvements” have been made. For all but the most mature software, we’re thinking quarterly or more often.

Besides determining how often software updates are likely to be issued, find out what they cost on an a-la-carte basis, or whether a software maintenance plan is available that covers all updates.

6.8 Infrastructure If your client’s experience with purchasing software is limited to what is sitting on the shelf at their local Staples office supply store, or even a low-end accounting system, they may be thinking that they can install the new manufacturing software on their existing office computer and have everything spinning like a top.

6.8.1 Deployment Options Discuss with the supplier a detailed plan for deploying their software. Determine the maximum number of simultaneous users that can be accommodated, how far each user’s computer may be from the other workstations, and how a user operating off-site can log in remotely.

Also determine whether the software can take advantage of a live connection to the Internet.

6.8.2 Hardware Some very low-end manufacturing software will run in single-user mode and deliver adequate performance on an inexpensive desktop computer. However, manufacturing software that could be classified as “industrial strength” usually requires more hardware horsepower that is usually sitting around the office.

Your client make be convinced that he or she can get along with having their manufacturing software installed on the same computer as is their accounting software. That may well be the case, for a while. If the manufacturing software is going to deliver full value to your client, it must serve not only the accounting department, but also people in purchasing, production, quality control, the stockroom, and more. This implies that the software must be accessible from more than one workstation. Portions of the manufacturing software will run on the user’s workstation (often called the “client” workstation) and other portions may be run on a dedicated computer (called the “server”).

Ask the software supplier for very specific recommendations for the client and server computers. You will want to know the minimum processor speed (measured in gigahertz.), the minimum hard drive space (measured in gigabytes), and the minimum memory requirement (measured in megabytes).


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Expect the minimum requirements for the client workstations to be less than that of the server computer.

6.8.3 Software If you plan to run the manufacturing software, the accounting software, and other desktop applications from each user’s workstation, then the Windows XP or Windows Vista operating systems should be sufficient. In some cases, the “business” versions of these operating systems may be required, so be sure to ask the software supplier if this is the case. Your client may need to upgrade from Windows XP Home to Windows XP Professional, or from Windows Vista Home to Windows Vista Business.

If you plan to run the manufacturing software on a dedicated computer, then that computer should be running Windows Server 2005 and not one of the desktop operating systems listed above. The reason for having a dedicated server is that you can optimize it to do the heavy lifting required by manufacturing software. This can only be accomplished with a server operating system such as Windows Server 2005.

The manufacturing software you select may be advertised as a 1-tier, 2-tier, or 3-tier application, meaning:

1 Tier The manufacturing client and server software and its database are combined as one application running on a single computer.

2 Tier The manufacturing client software and the manufacturing server software (and the server’s database) are separate applications which may be run on a single computer, or deployed on separate computers each optimized for the task.

3 Tier The manufacturing client software, the manufacturing server software, and the server’s database engine are separate applications which may be run on a single computer, or deployed on separate computers each optimized for the task.

Asking a single computer to perform all the work required of a capable manufacturing control system (especially one designed to serve multiple users) is, in our estimation, unreasonable.

We advise you to consider only 2-tier or 3-tier applications where the processing can be spread over multiple computers. This deployment option may not be critical now, but as your client’s needs grow and more is demanded of the software, the ability to separate the client and server components will help keep the system from bogging down. Especially attractive are 3-tier applications where the database engine itself can be moved to a dedicated computer.

6.8.3.1 Database Engines If this is your client’s first experience with an industrial-strength transaction processing system, they are unlikely to know what a “database engine” is and what role it plays in a manufacturing control system.


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The database engine is responsible for storing the data a computer program collects in a way that facilitates quick and easy retrieval. The more powerful database engines are responsible for much of the heavy lifting a program must do to deliver the information the user wants.

Every computer program that stores data for later retrieval uses some sort of database engine. For low-end products, a very simple database engine may be imbedded in the software and is invisible to the user.

Mid-range to high-end software is usually built around an industry-standard database engine such as Microsoft SQL Server, Oracle Database, or IBM DB2. These database engines are separate programs that can be run on the client workstation, on the dedicated application server, or on a dedicated database server.

6.8.4 Managed Hosting If the complexity of deploying and managing a manufacturing system spread over several computers, each running a separate operating system, is beginning to feel daunting, your client might consider the benefits to be gained from handing the entire process over to a 3rd-party manager who will host the manufacturing system on their computers and allow your client to access the system remotely.

For today’s users (what we like to call “digital immigrants” — ourselves included) hosting a manufacturing system or an accounting system (or both) is a matter of economics. Here’s the question to ask “Is the annualized cost of acquiring and the required hardware and operating system software, plus the cost of hiring a network administrator to manage it, more than what the managed hosting service will be charging us?”

If the answer is yes, expect your client to express some worries about having their valuable data floating somewhere out there in cyberspace. This is typical of digital immigrants who tend to forget that their manufacturing data will travel on the same pipeline as their most precious banking information and can be secured using the same encryption algorithms.

On the other hand, “digital natives” (the people who grew up transferring music, videos, and other data over the Internet and the people who will most likely be running our manufacturing plants in a few years) are quite comfortable keeping their manufacturing data on a server they cannot see or touch.

Expect considerable resistance to managed hosting by digital immigrants; welcome acceptance by digital natives. Either way, managed hosting should be an economic decision for your client.

6.8.5 Software As A Service The latest buzzword floating about the cutting edge of internet technology is called “software as a service” (or SaaS for short). The idea is that the application software and its associated data is stored on some computer somewhere out in cyberspace. As a user of


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the service, you connect to the remote computer from your office using nothing more than an internet browser.

A handful of accounting software suppliers have attracted considerable curiosity from traditional software suppliers with their early efforts to deploy accounting as a service. To date, these suppliers have offered very simple and lightweight accounting/bookkeeping applications. To our knowledge, none of them have any serious manufacturing capabilities.

We believe SaaS is today still a bit of a curiosity which will require a number of years to develop as a mature platform.

7 Summary Whether or not a client firm has an appreciation for the accounting implications of their manufacturing activities, no firm should pursue they task of selecting and implementing a manufacturing control system without the close cooperation of their accounting practitioner. There are so many activities affected by a manufacturing system, that the accounting implications – the impact on the firm’s financial well-being – must be addressed by an accounting professional.

In this guide we have highlighted some of the features of an automated manufacturing control system that we consider to be “must haves.” Others fall into the “would be nice” category, and others better fit the “dream on” category. Here they are in bullet form:

7.1 Must Have • Management commitment

• Realistic implementation plan

• Integration with general ledger

• Physical inventory

• Multi-level bills of material

• Multiple costing options with cost roll-up

• Simple stock check

• Concurrent user licensing

• Industrial-strength database engine

• Serial/Lot Tracking (if food, pharmaceutical, or otherwise mandated)

7.2 Would Be Nice • Multiple locations

• BOM revision control


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• Physical inventory cycle counting

• Integration with distribution inventory

• Integration with sales order entry

• Integration with accounts payable

• Master production scheduling

• Material requirement planning

• Forecasting based on historical invoices

• Multiple currency purchasing

• Purchase tax support

• Bin Tracking

• Shop floor control

7.3 Dream On • Manufacturing Resource Planning (MRP II)

• Finite Capacity Planning


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An Accountant’s Guide To MISys® Small Business Manufacturing

Copyright © 2008 Manufacturing Information Systems, Inc. 4 Maxham Meadow Way

P.O. Box 795 Woodstock, Vermont 05091

Appendix: An Accountant’s Guide To MISys Small Business Manufacturing

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MISys is a registered trademark of Manufacturing Information Systems, Inc.


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Table of Contents 1 Foreword.............................................................................................................. 42

5.1.2 Account System Integration.................................................................. 42

5.1.2.1 General Ledger................................................................................. 42

5.1.2.2 Inventory Control.............................................................................45

5.1.2.3 Sales Order Entry.............................................................................45

5.1.3.2 Multi-currency Capabilities ............................................................. 50

5.1.3.3 Multi-tax Capabilities ...................................................................... 51

5.1.3.4 Multiple Locations........................................................................... 52

5.1.3.5 Multi-level Bills Of Material ........................................................... 53

5.1.3.6 Revision Control ..............................................................................54

5.1.3.7 Physical Inventory Cycle Counting ................................................. 55

5.1.3.8 Simple Planning Tools..................................................................... 56

5.1.3.9 Master Production Scheduling (MPS) ............................................. 58

5.1.3.10 Forecasting..................................................................................... 59

5.1.3.11 Material Requirements Planning (MRP I) ..................................... 60

5.1.3.13 Shop Floor Control ........................................................................ 62

5.1.3.14 Finite Capacity Planning................................................................ 62

5.1.3.15 Bin Tracking .................................................................................. 62

5.1.3.16 Serial/Lot Tracking ........................................................................ 65

6.2 Product Demonstrations.................................................................................. 67

6.3 Line of Responsibility..................................................................................... 67

6.4 The Final Decision.......................................................................................... 68

6.5 Product Warranties.......................................................................................... 68

6.6 Licensing Considerations................................................................................ 68

6.7 Total Cost Of Ownership ................................................................................ 68

6.7.1 User Licenses........................................................................................ 69

6.7.1.2 Concurrent User Licensing .............................................................. 69

6.7.2 Installation Assistance .......................................................................... 69

6.7.3 Implementation Support........................................................................ 69

6.7.3.1 Accounting Integration .................................................................... 69

6.7.4 On-site Consulting ................................................................................ 70


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6.7.5 On-line Consulting................................................................................ 70

6.7.2 Training................................................................................................. 70

6.7.6.1 Training As Due Diligence .............................................................. 70

6.7.7 Technical Support ................................................................................. 70

6.7.7.1 Telephone Support ........................................................................... 70

6.7.7.2 Email Support .................................................................................. 71

6.7.7.3 Incident Support............................................................................... 71

6.7.7.4 Peer Support..................................................................................... 71

6.7.2 Software Maintenance .......................................................................... 71

6.8 Infrastructure................................................................................................... 71

6.8.1 Deployment Options ............................................................................. 72

6.8.2 Hardware............................................................................................... 72

6.8.3 Software ................................................................................................ 73

6.8.3.1 Database Engines............................................................................. 73

6.8.4 Managed Hosting.................................................................................. 73


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8 Foreword This document is an appendix to the Accountant’s Guide To Choosing The Right Manufacturing Software. It is intended to explain how the MISys Small Business Manufacturing System meets the needs of small- to medium-sized manufacturing firms intent on implementing a computerized manufacturing inventory control and planning system.

The topics in this appendix are keyed to corresponding topics in the main document through topic numbers. For example, the appendix topic on General Ledger integration (paragraph 5.1.2.1) discusses the details of how MISys SBM fulfills the requirements described in the main document topic on General Ledger integration (paragraph 5.1.2.1)

5.1.2 Account System Integration MISys SBM has been aptly called an “accounting-centric” manufacturing system because, under the covers, its primary role is to create and maintain a manufacturing subledger. Many of the processes performed by MISys SBM have significant accounting implications. Great effort has been made by the designers of MISys SBM to preserve the accounting integrity of these processes.

Although some users have no interest in the accounting aspects of the MISys SBM system, the vast majority successfully integrate the product with the existing accounting system.

MISys SBM provides integration with the follow accounting systems:

• QuickBooks

• Sage Accpac ERP

• Microsoft Office Accounting

• Adagio Accounting

• Sage Simply Accounting

• Peachtree Accounting by Sage

Integrations with other accounting systems may be available. If your accounting system is not on this list, please check with the MISys Sales Department (802/457-4600) for the latest list of compatible accounting systems.

5.1.2.1 General Ledger Controlling a manufacturing operation requires cooperation from several departments. MISys SBM lends much of its functionality to controlling inventory, purchasing, and production activities. Common to all these activities is the creation of accounting journal entries which are transferred and posted to the client’s General Ledger on a regular basis.

MISys SBM maintains a default Chart of Accounts which must be properly aligned with the company’s Chart of Accounts to facilitate integration at the General Ledger level.


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The software uses 17 named accounts in order to transfer changes in manufacturing inventory assets into the company’s General Ledger. These named accounts must be mapped into correspondingly named (or numbered) accounts in the company’s General Ledger.

For more advanced users, MISys SBM offers an unlimited number of alternative charts of accounts (called an Account Set) which may be associated with a specific item, job, or location. During the Period End process, MISys SBM consults the Account Set for the item, job, or location being processed and, if there is an account number/name declared for that particular control, then that account is used instead of the account declared in the default chart of accounts.


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This scheme provides tremendous accounting flexibility, allowing the accounting implication for any item, job, or location to be redirected to a unique account in the company’s Chart of Accounts and ultimately into a unique part of the company’s financial statement.

The task of mapping the new manufacturing subledger accounts into the General Ledger is not one you should entrust to the client. A thorough understanding of the existing ledgers and the implication of a new subledger should be referred to the firm’s accounting and audit staff.

Once the mapping is established between the manufacturing subledger and the general ledger, MISys SBM will feed accurate and reliable financial data to the company’s general ledger.

A thorough understanding of the 17 accounting controls used by MISys SBM is required before any mapping of the manufacturing subledger to the general ledger should be attempted. For your benefit, the MISys SBM User Guide includes a chapter entitled “Accountant’s Guide” which was written by a practicing accountant familiar with the inner workings of MISys SBM. Please read and understand it.

The Period End function of MISys SBM processes all unprocessed transactions within the stated range of dates and creates from them balanced journal entries for the GL accounts related to the 17 account controls. These journal entries are transferred and posted to the accounting system’s General Ledger.


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The Period End function may be run as often as necessary, depending on the volume of transactions your client processes. There is no requirement that Period End be run on any particular schedule. Some users choose to perform a Period End daily, or even weekly. Most users run Period End at least monthly because most companies create a monthly financial statement. The General Ledger (and thus the company financial statement) is not updated until the Period End is run.

5.1.2.2 Inventory Control MISys Small Business Manufacturing controls the inventory of raw materials, work-in-process, and sub-assemblies. It knows about finished goods and you are certainly free to maintain an inventory of finished goods in MISys SBM but, in general, once a finished good item is produced, it’s inventory is transferred to the sales distribution inventory of the integrated accounting system.

5.1.2.3 Sales Order Entry MISys SBM has the ability to read sales orders from the accounting system’s sales order entry component and process them in a number of ways.

For make-to-order manufacturers, MISys SBM has the ability to retrieve sales orders and create corresponding production orders.


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In one mode, MISys SBM will create one production order (work order or manufacturing order) for each sales order line item. If the accounting system assigns a ship date to each sales order detail, then MISys SBM will use that date to set the default completion date for each production order. If there is no ship date at the sales order detail level, then MISys SBM will use the due date for the sales order itself. In companies where a unique production order is created for each sales order, this works fine.

However, other companies may wish to net all sales orders, or sales orders for a specific range of ship dates, and create one or more production orders for the total quantity. In MISys SBM, this is best accomplished using the Master Production Scheduling function to schedule production (and supporting purchasing) based on the ship date of each sales order.


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Expect clients who have attempted to use the inventory control functions of their accounting system to have raw materials, work-in-process, sub-assemblies, and finished goods all mixed together. This is a serious mistake which must be rectified before an effective manufacturing and distribution can be implemented in MISys SBM.

The program expects that all saleable items be recorded in the distribution inventory of the accounting system. Items that are not sold (raw materials and sub-assemblies) should be removed from the distribution inventory unless, or course, they are sold as spare parts.

To facilitate the transfer, MISys SBM has an import function that will create item records based on corresponding records in the accounting system. Since it is likely that your client’s accounting system does not have certain information that MISys SBM needs about items, the program allows you to set up a template item in MISys SBM containing the otherwise unknown information, then use that template as you import records from your distribution inventory system.


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Once records are created in MISys SBM for every raw material item, sub-assembly, and finished-good item, the next task is to transfer the inventory quantities. Not necessarily the quickest method, but certainly the most reliable, is to perform a physical inventory on each side. Zero the quantity of non-salable items in the distribution inventory. While you are at it, delete the item records if you are able.

Perform a new (accurate) count of raw materials and sub-assemblies in MISys SBM and you will be in business.

5.1.2.4 Accounts Payable

MISys Small Business Manufacturing creates purchase orders for the raw materials you need and tracks the purchase along the way. Until you receive the material on the order, there is no accounting implication to any purchasing activity and MISys SBM creates no manufacturing journal entries for these activities.

When the material is received, MISys SBM increases the inventory asset value at the selected cost basis and creates a corresponding “PO liability” transaction to reflect the fact that, ultimately, an invoice for the material will be received.

Some users choose to process the material invoice along with other invoices in their Accounts Payable system. However, doing so prevents MISys SBM from learning what you actually paid for the material (as compared to what the supplier promised to charge you). To make it easy to process a material invoice from within MISys SBM, the program has an Invoice PO function.


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By entering the invoice in MISys SBM, you accomplish 2 things simultaneously:

• You tell MISys SBM what you actually paid for the material. This information can be used to update the recent, average, FIFO and LIFO costs maintained by the system.

• You create an invoice (“vendor bill”) in your integrated accounting software without having to duplicate any data entries.

5.1.3.1 Multiple Costing Options

MISys Small Business Manufacturing offers your client their choice of four costing options.


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By far, the majority of MISys SBM users elect the Standard Costing method because it lends a significant degree of stability to the cost of items throughout the product structure.

While Average, FIFO, and LIFO may be more familiar to some users, these methods require a constant, potentially time-consuming revaluing of the entire inventory and the creation of many corresponding journal entries.

With Standard costing, no inventory revaluation is performed (unless required).

If your client is intent on using one particular costing method, be aware that the program allows you to change costing methods midstream and it creates any journal entries required by the switch.

5.1.3.2 Multi-currency Capabilities MISys SBM maintains a table of currencies, any of which can be associated with a supplier.


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When creating a purchase order for that supplier, the program will default to creating that purchase order in the supplier’s home currency (“source currency” to MISys SBM) using the most current exchange rate between the source currency and the function currency (that is, the currency in which your accounting is maintained).

MISys SBM stores the exchange rate in the purchase order record so that subsequent currency rate fluctuations will not affect the purchase order in any way.

MISys SBM requires a live connection to the Internet to support a number of web service integrations. For example, the currency table may be updated automatically from the US Federal Reserve Bank if you use ISO standard currency codes.

Multi-tax Capabilities MISys SBM allows you to create an unlimited number of tax authorities.


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In the system, these authorities can be associated with suppliers, identifying suppliers who are responsible for collecting certain taxes.

Likewise, the program allows you to associate tax authorities with items, identifying items that are subject to various taxes.

When creating a purchase order, the program combines the supplier tax information and the item tax information to calculate the tax due on each purchase order line item.

5.1.3.4 Multiple Locations MISys Small Business Manufacturing supports up to 4 billion locations.


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It does not matter whether a location has a physical presence (roof, windows, and door) or whether the location is virtual. Such locations can be created for incoming inspection, quarantine areas, etc.

5.1.3.5 Multi-level Bills Of Material Multi-level bills of material are a core feature of MISys SBM. They are used to perform complex back-flushing operations, roll-up costs throughout the product structure, and to create work orders and manufacturing orders.


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The program provides a number of views of the BOM structure which may be up to 16 levels deep and contain as many as 4 billion items at any level.

5.1.3.6 Revision Control Associated with bills of material is the notion of a BOM Revision, an optional but included feature of MISys SBM.


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Depending on your needs, the creation of a new BOM Revision may obsolete previous revisions. Alternatively, the system can be set to allow multiple revisions to be built at any time.

5.1.3.7 Physical Inventory Cycle Counting MISys SBM supports cycle counting as one of several physical inventory modes. Each item can be assigned a Physical Inventory Cycle Number ranging from 00-99.

You use this arbitrary number to signify the frequency of counts you wish to perform for the item.

The Print Physical Inventory Worksheet function allows you to identify the Cycles you wish to include in the count. It then prints a worksheet for only those items.


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5.1.3.8 Simple Planning Tools One of the simplest (yet one of the most popular) planning tools offered by MISys SBM is called Check Stock.


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Basically, this function allows you to simulate any stock transfer without actually affecting inventory counts or creating any accounting transactions. Over the years, Check Stock has been referred to as “poor man’s MRP” although it is not a true MRP system because it has no dimension of time. Essentially, Check Stock is a view of your inventory looking straight down at your toes. Nevertheless, it has proved to be an invaluable tool for predicting impending stock shortages and for helping to take corrective actions – however short-term they may be.

MISys SBM also has a Buyer’s Advice Report that has some partially hidden but magical abilities.


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Originally designed to create a list of items needing replenishment, recent enhancements to the program now automatically create purchase orders for the short items. Like Check Stock, the Buyer’s Advice is still a quick solution to a short-term requirement, but for many users, it does exactly what they need.

5.1.3.9 Master Production Scheduling (MPS) The Master Production Scheduling function of MISys SBM takes a snapshot of all inventory, purchase orders, production orders, and (optionally) sales orders, and lays out the projected inventory for every item across a timeline.


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Depending on your needs, the timeline can extend weeks, months, even years into the future.

Various tools are provided to help you analyze shortages appearing on the timeline and to plan corrective actions.

5.1.3.10 Forecasting To facilitate the creation of a sales forecast, MISys SBM retrieves historical invoices from the accounting system and places them in what is called a “scheduling batch.”


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The program allows you to modify the invoice dates and/or the invoice quantities (singly or as a group) before you introduce the forecast to a Master Production Schedule.

5.1.3.11 Material Requirements Planning (MRP I) MISys SBM very tightly integrates the functions of Master Production Scheduling (MPS) and Material Requirements Planning. The Create MRP function (launched by clicking a button on the top right of the MPS window) analyzes the Master Production Schedule looking for item shortages within the date range of the schedule.

Having compiled a list of shortages, the program displays the items that need to be purchased along with the required quantity and the required order date.


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The program offers two options: the opportunity to purchase a selected item (Buy Item), and the opportunity to purchase all the items automatically (Buy All). Either way, MISys SBM creates a purchase order for the correct quantity and the proper date to insure that the required material is in stock when needed.

Similarly, the software is able to create production orders for items that are assembled in-house.


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With just a few more mouse clicks, MISys SBM is able to create individual production orders using the Build Item function or all the required production orders at one time using the Build All function.

5.1.3.13 Shop Floor Control Currently there is no shop floor control functionality built into MISys SBM. However, Shop Floor Control has been a standard feature of the program’s big brother, MISys SAE, for many years. The intent is to migrate the shop floor control functions of MISys SAE into MISys SBM by the end of calendar 2008.

5.1.3.14 Finite Capacity Planning While the developers of MISys Small Business Manufacturing remain convinced that an effective finite capacity planning system is out of their reach for the foreseeable future, they believe that a number of valuable tools designed to help analyze capacity constraints can be included in a future version of MISys SBM slated for the end of calendar 2008.

5.1.3.15 Bin Tracking MISys offers an extra-cost module called “Bin Tracking” designed especially for customers who keep their stock distributed in multiple containers. For example, injection molding companies keep raw plastic pellets in multiple silos. Fabric manufacturers roll finished material on cardboard tubes called “bolts.” Chemical manufacturers may have multiple railcars-full of any particular raw material.


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Once the Bin Tracking option is enabled, the MISys SBM Location Master acquires two new tabs:

The Bin tab shows all the bins associated with the specified stockroom location, including the quantity of the inventory in each bin.

Once enabled, nearly every stock transfer screen (like the one below) displays a Bin field to help identify the bin into or out of which the inventory was transferred.


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The Bin History tab reveals the perpetual history of every transaction processed for a given item and bin.


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5.1.3.16 Serial/Lot Tracking For a client in the food processing, pharmaceuticals manufacturing, and other regulated business, the regulatory agency will require them to track lot numbers and maintain a detailed audit of every production run.

MISys SBM offers an optional Serial/Lot Tracking module that tracks the use of tracked items from “cradle to grave.”

You begin by identifying certain items as either lot-tracked or serialized.

Once an item is identified as lot-tracked or serialized, MISys records a lot number or serial number for every transaction related to the item.

You can assign serial/lot numbers immediately or at a later time.


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Once a serial/lot number is assigned to a transaction, you have up to 30 days to confirm it.


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This is a great safety feature guarding against human error — and fully auditable by regulatory agencies such as the US Food and Drug Administration.

6.2 Product Demonstrations The MISys Sales Department invites you to participate in a live demonstration of MISys SBM. These hour-long demonstrations are presented to small groups of prospective users several times each week.

You will need a computer with a high speed connection to the Internet and a telephone (or speakerphone) for the audio portion of the demonstration.

Please contact the MISys Sales Department at 802/457-4600 to book a convenient time for your demonstration.

6.3 Line of Responsibility MISys invites everyone involved in the selection process to participate in the live product demonstration, especially the accountant, CFO, and executive staff.


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6.4 The Final Decision Please involve the corporate management in your final decision to purchase a manufacturing software system. The more they know about MISys SBM, the more likely they will be able to properly evaluate the relative merits of competing products.

Product Warranties All MISys software is sold with a 60-day no-quibble money-back guarantee. If for any reason you decide that MISys SBM is not the best solution for your client, return it within 60 days for a full refund of all monies paid (except custom report design work).

6.6 Licensing Considerations The MISys End User License Agreement allows your client to use the program to create one company database. Additional company databases can be created for an additional license fee.

Their license to use MISys SBM will continue from year to year as long as they pay the annual subscription fee. Should they fail to pay the annual subscription fee, their license will lapse and they will no longer be able to access their data.

The complete MISys End User License Agreement is available for your review online at www.misysinc.com/eula.php.

8.1 Total Cost Of Ownership The developers and marketers of MISys SBM have made a concerted effort to keep the cost of ownership of their software as low as possible.

The software is modular so that your client needs only purchase the functionality they require right now. As their business expands and their needs grow, they can add additional functionality by licensing additional modules. They can also add user licenses as needed to accommodate all simultaneous users.

Whenever required, free software updates are delivered automatically as part of the MISys SBM license and can be installed by the end-user.

MISys employs a 2-part pricing model for MISys SBM: an initial license fee and an annual subscription fee. The subscription fee is a fixed percentage of the MSRP of the licensed modules so the cost of owning MISys SBM is known from year to year. There are no hidden costs or surprise fees.

Most users find they can install MISys SBM on their own, saving themselves thousands in professional installation fees. Should they need assistance, MISys provides installation assistance free of charge.


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6.7.1 User Licenses A basic MISys Small Business Manufacturing system includes one (1) user license. Any number of people can access the MISys SBM database as long as they are content to log in one user at a time.

The program supports up to 256 users in multi-user mode. User licenses can be added, one at a time, as the need for simultaneous access increases.

6.7.1.2 Concurrent User Licensing MISys SBM users are licensed concurrently. Your client should carefully consider how many people need simultaneous access to the MISys SBM data. There is no need to purchase a user license for each employee unless each one of those employees needs to be logged in at the same time.

If in the future your client needs additional user licenses, the MISys Customer Service Department can have them added in just a few moments. No end-user installation is required.

8.1.1 Installation Assistance To ensure that everyone is able to get MISys Small Business Manufacturing installed quickly and successfully, MISys maintains a team of highly skilled installation technicians who are able to assist with the installation of the software on your client’s computer. There is no charge for this service.

6.7.3 Implementation Support Every MISys SBM user is automatically enrolled in one of three MISys Sure Start Programs. As soon as the license contract is completed and license fees paid, the MISys Sales Advisor will contact your client to introduce their Sure Start Coach, who will serve as their personal implementation manager to guide them through the installation and initial setup of the software.

During your client’s first 60 days as a user of MISys SBM, their Coach will be checking with them on a regular basis by telephone and web conference to make sure their installation is going smoothly and that they are making good progress setting up the program, establishing the required master files, performing their initial physical inventory, and posting their first inventory transactions successfully.

At the end of 60 days, your client’s Sure Start Coach will review the Technical Support option they have selected and make certain that they know how to contact the MISys experts whenever the need arises.

6.7.3.1 Accounting Integration As the client’s accountant, you do have a unique insight into how the company operates and the way they report the results of their operations to the management and shareholders. Your involvement in the Sure Start process, during which accounting integration is discussed, is strongly encouraged.


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Because neither the Sure Start Coach nor the MISys Technicians are practicing accountants, they cannot design a financial reporting system for your client. This is work you as their accountant should be prepared to do.

In case your client does not bring it up, the MISys SBM User Guide includes a chapter entitled “Accountants Guide” that describes in detail the accounting implication of every MISys SBM function.

6.7.4 On-site Consulting Should your client should desire additional consulting services from the MISys experts, your client’s Sure Start Coach can help them make arrangements with the MISys Professional Services Group.

On-site consulting is available from MISys PSG at an hourly rate plus travel expense. For more information, please contact MISys Customer Service at 802/457-4600.

6.7.5 On-line Consulting The MISys Sure Start Coach will work with your client sporadically over a period of 60 days. The coach will not perform any work for your client, but will show them what needs to be done and how to do it. Periodically, the coach will be checking back with your client to make sure they are progressing as planned. When needed, the Sure Start Coach will be able to log in to your client’s system and operate the software remotely.

If your client would like to engage the services of the Sure Start Coach beyond the prescribed 60 days, advise them to contact MISys Customer Service at 802/457-4600.

8.1.2 Training MISys University hosts regularly-scheduled MISys SBM training workshops. These workshops are held on-line and generally meet for about 4 hours.

The current training schedule is posted at www.misysinc.com/misbm/training.php.

6.7.6.1 Training As Due Diligence MISys encourages prospective customers to register for one or more MISys SBM training workshops as a means for determining whether the product is right for them. A modest charge is made for each workshop session.

6.7.7 Technical Support MISys provides comprehensive technical support to its customers. Users of MISys Small Business Manufacturing may select from four different support options: Priority Support, Standard Support, Incident Support, and Peer Support.

6.7.7.1 Telephone Support Priority Support provides your client with unlimited telephone access to the MISys SBM experts who are standing by to answer their questions from 9-5 Eastern Time (weekends


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and holidays excepted). Priority Support contracts may be purchased on a monthly basis, or less expensively on an annual basis. Payment for this service renews automatically until cancelled. Available in North America, the United Kingdom, and selected areas only.

6.7.7.2 Email Support Standard Support gives your client email access to the MISys SBM experts who are available to answer your questions within 24 hours from 9-5 Eastern Time (weekends and holidays excepted). Standard Support contracts may be purchased on a monthly basis, or less expensively on an annual basis. Payment for this service renews automatically until cancelled.

6.7.7.3 Incident Support Incident contracts are available to assist with a specific issue. Unlimited support is provided while the issue is outstanding; it ends when the issue is resolved.

8.1.2.1 Peer Support Peer Support gives your client free password-protected access to the MISys SBM Peer Support Forums where they can post their questions about MISys Small Business Manufacturing and get a reply from another MISys SBM user or one of the Team MISys volunteers who regularly monitor the forums.

8.1.3 Software Maintenance The MISys engineers work diligently to ensure that the software functions as advertised and provides the most value possible to its users. Whenever a maintenance issue is identified, the matter is immediately investigated and resolved. Depending on the nature of the problem, a new release of the software may be immediately issued, or held for the next maintenance release.

There is no specific schedule for software maintenance releases. The MISys engineers tend to be very conservative and will release a new version as soon as it has been thoroughly tested.

When a new version is available, MISys SBM users are notified whenever they log in. They are given the option of installing the update immediately, or deferring the installation until a more convenient time.

There is never a charge for a MISys SBM maintenance release.

6.8 Infrastructure Because MISys Small Business Manufacturing was designed to fit in a broad range of manufacturing environments, if offers a number of deployment options.


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6.8.1 Deployment Options

MISys SBM is a 3-tier client-server application consisting of a client component, a server component, and a database engine component. These components can be installed on a single computer or distributed onto multiple computers.

Single User, Single Computer Deployment

MISys SBM can be deployed on a single computer, operating in single-user mode, by installing the client component, the server component, and the database engine component on a common computer. Be aware that this deployment option places the maximum load on a single processor. Make sure this computer is sized appropriately with a fast CPU and at least 4Gb of RAM.

Multiple User, Network Deployment

MISys SBM can be deployed on a network of computers, some of which are designated client workstations, and one of which is designated as the MISys SBM server component.

The MISys SBM database engine can be installed on the same computer as the MISys SBM server component or on a separate computer.

For performance considerations, we warn against running MISys SBM on a peer-to-peer network.

Multiple User, Internet Deployment

As a Microsoft .NET-based product, MISys SBM uses .NET Web Services for communication between the MISys SBM Client and the MISys SBM Server.

For this reason, it does not matter whether a computer running the MISys SBM Client is connected to the MISys SBM Server via a 6-foot network cable connection -- or via a 6,000-mile Internet connection.

All communication is accomplished via HTTP so MISys SBM is firewall-friendly.

Hardware MISys SBM is a state-of-the-art Microsoft .NET-based system that requires state-of-the-art hardware running underneath it.

Your client should be running a workstation computer with a 2GHz or better processor and at least 2GB of memory. This will probably mean purchasing a new workstation computer to run MISys SBM – it is unlikely that any “old computer laying around” meets this specification.

If your client wishes to run MISys SBM in multi-user mode on a network of computers, it is advisable to dedicate one computer as the MISys SBM server. That computer should have at least 4GB of memory and it should be running a server operating system such as Windows 2005 Server or better. We advise against running client operating systems and applications on the server computer.

If you anticipate a very large transaction flow, you may wish to set up a dedicated database server: a computer dedicated to running Microsoft SQL Server.


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6.8.3 Software If you plan to run MISys SBM, the accounting software, and other desktop applications from each user’s workstation, then the Windows XP or Windows Vista operating systems should be sufficient. In some cases, the “business” versions of these operating systems may be required, so be sure to ask the software supplier if this is the case. Your client may need to upgrade from Windows XP Home to Windows XP Professional, or from Windows Vista Home to Windows Vista Business.

If you plan to run MISys SBM on a dedicated computer, that computer should be running Windows Server 2005 and not one of the desktop operating systems listed above. The reason for having a dedicated server is that you can optimize it to do the heavy lifting required by MISys SBM. This can only be accomplished with a server operating system such as Windows Server 2005.

6.8.3.1 Database Engines MISys SBM uses the industry-standard Microsoft SQL Server as its database engine. A 5-user license for Microsoft SQL Server Express Edition is included in the price of the software. In actuality, many more people than 5 will be able to use MISys SBM because Microsoft SQL Server Express Edition only measures the number of users accessing the database engine at any instant in time. Database requests for more than 5 users are simply deferred until the primary requests have been processed.

If this restriction in Microsoft SQL Server Express Edition poses a limitation to your client, they should upgrade to Microsoft SQL Server.

Managed Hosting The MISys Managed Hosting Service eliminates all the costs, responsibilities, and headaches that come with buying, setting up, updating, and managing your client’s installation of MISys SBM.

More and more companies are turning to hosting services as a way to eliminate the burden and expense of maintaining their own IT Infrastructure. This allows your client to focus their time and resources on running their manufacturing businesses, while someone else worries about maintaining their MISys SBM software.

Our goal is to eliminate the need to buy servers and software and employ staff computer technicians by providing your client’s business with quality technology implementation and built-in maintenance at a cost that will incur substantial long-term savings.

Our Managed Hosting Service provides your client with round-the-clock maintenance that includes guaranteed monitoring of their system elements by specially trained technicians, day and night, 365 days a year, and the application management for the MISys SBM software, installation of all program updates, tweaking for maximum system performance and monitoring for high availability.

Part of the managed hosting strategy is to engineer and maintain a superior infrastructure for continuous support of Internet operations. To achieve this goal, our host has invested heavily in its facilities and network infrastructure. The Data Center infrastructure consists of two major components - nationwide Internet Data Centers and a high-speed Internet


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backbone. The security and integrity of each Internet Data Center is maintained by video surveillance cameras and security alarms with automatic police notification and on-site 24-hour security personnel.

Firewalls are an indispensable element of any web security implementation. The firewall intercepts all traffic entering the site and uses a set of sophisticated rules to weed out potentially harmful access. Thus, the system provides a front gate to protect against malicious entrants.

The host provides 24 x 7 firewall service using leading software and hardware platforms to protect network assets from hostile attacks. Your client will save money because they won’t need to hire and train network security experts. Our Managed Hosting Service brings your client peace of mind as our host’s security team is carefully and continuously monitoring their systems for any security breaches.

The Data Center utilizes the Veritas NetBackup solution and DLT tape storage technology. This service offers full management of your MISys SBM database with fully-managed backup and restore processes and verification of successfully completed backup processes.

More About MISys Small Business Manufacturing Additional information about MISys SBM is available on the Web at www.misysinc.com.

For a free trial copy of MISys SBM, go to www.misysinc.com/misbm/try.

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