Introduction
Disk4U is a retail company that sells CDs and Vinyl Records. The majority of business operations are conducted through physical shops, email, and phone orders, as well as online retail channels such as eBay. Therefore, the optimization of the manual processes of accounting and business reporting is one of the primary aims of the company. Finding a suitable Accounting information system and an Enterprise resource planning software will become the focus of the report.
An accounting information system (AIS) is a framework that encompasses a range of activities for a business to collect, retrieve, store, process, and manage financial data, which is then used by professionals. In the majority of cases, AIS is composed of six components that include people, data, software, procedures and instructions, internal controls, and information technology infrastructure (Fontinelle 2016, para. 2). Enterprise resource planning (ERP) is defined as a process, which is beneficial for a company to integrate the most important components into the business. Components that companies integrate into their business process include planning, purchasing, finance, marketing, and sales, as well as human resources (Enterprise resource planning – ERP 2016, para. 1). The process of enterprise resource planning is predominantly conducted in the context of software applications, which help companies saving time and resources that then go towards planning.
Accounting Information System
Definition and Characteristics
Businesses use different types of AISs, which depend on the size of the business, its type, needs, and objectives. For example, because Disk4U is a small family-owned business, it uses manual accounting information systems. Manual systems are quite inexpensive, although they require more operational time, which, subsequently, slows the business down. Accounting business information plays an integral part in sustaining and improving the activity of the enterprise. It is worth mentioning that the implementation of Accounting Information Systems can be very costly. However, a business can use specific AISs based on advertisement and mutual cooperation. For instance, Disk4U can cooperate with MYOB (intended for both small and big businesses), and get a good deal for advertising the accounting services in their shops and on the website. According to the research conducted by Salehi, Rostami, and Mogadam (2010), the effectiveness of an AIS a company implements is directly related to the level of cooperation with service providers (p. 189).
AIS Benefits and Requirements
According to the results of the research conducted by Muhindo, Mzuza, and Zhou (2014), small-scale businesses’ lack of implementation of the Accounting Information System results in poor levels of performance and the lack of information necessary for sustaining successful operations (p. 188). Therefore, the following AIS model is proposed for the effective implementation in the company:
Accounting Information Systems can greatly improve the operational performance of Disk4U and subsequently, positively impact the company’s revenue and help grow. Everything Disk4U employees do on paper can be done in a digital form. Stacks of paper and files will be replaced with digital files, which will contain important information on accounts payable, will automate the process of human resource management, and will make all operations accessible, streamlined, and accessible (Improve organizational automation n.d., para. 4). With AIS, the company will be able to save more time usually needed for accomplishing tasks manually. Furthermore, it is impossible to monitor all business processes manually, so Accounting Information Systems will reduce waste, increase automation, and positively influence overall productivity.
Requirements of Accounting Information Systems encompass five activities. First, a company should collect data, required for adequate accounting reporting. Second, business is required to document all accounting activities and accounting transactions. Third, the AIS should be designed in such a way that it is easy in navigation. The fourth requirement of AIS is the generation of lists and the ability to correct book entries. Lastly, the company should have a strict definition of the management requirements for accounting information (Requirements of the accounting system 2016, para. 3)
Recommendations – MYOB
Because small-scale businesses, especially family-owned businesses, rarely see the need to atomizing their accounting processes, Disk4U can bring its company to a new level and set it apart from similar vendors. It is advised to start transferring the paperwork into a digital format to reduce overall hours, increasing the process of accountability optimization, and working towards expanding the business.
As a software and vendor selection, Disk4U is advised to use MYOB Accounting Information System software, which allows small businesses to take care of their Goods and services taxes, reporting, invoices, expenses, and payroll. The benefits of the software include the ability to conduct easy tax updates, timely payroll, and cash flow management. The solution is very easy to set up and has the same requirements as standard Accounting Information Systems. The price of the service varies on the businesses’ needs and requirements. For example, the MYOB Essentials Accounting (Payroll for one) software costs $35 per month while MYOB AccountRight (Premier) is the most expensive and costs $110 per month (MYOB n.d., para. 4).
Although Accounting Information Systems can be costly for implementing in small businesses, it is recommended that Disk4U find a service provider that will be open for cooperation and mutual aid such as advertising in exchange for a discount for the accounting services. It is predicted that the implementation of the Accounting Information System in Disk4U will take the management process to the next level, including the improvement of time and human resource management skills, data collection and data storage processes, reduction of costs, and improvement of profitability.
Enterprise Resource Planning
Definition and Characteristics
Whether to implement Enterprise Resource Planning (ERP) or not is a question asked by the management of small businesses regularly. Compared to Accounting Information Systems, ERPs are much more expensive and are regarded as the largest investments a company can make for business optimization (Gratch 2015, para. 1). Therefore, Disk4U should take into consideration a full range of characteristics ERPs have to make a sound decision on whether to implement them.
Many young and small businesses think that they are ‘too small’ for Enterprise Resource Planning. However, it is important to understand that small companies like Disk4U employees play a range of different roles due to the lack of available human resources. Therefore, multitasking calls for the manual management of different spreadsheets, which often takes a lot of time. Enterprise Resource Planning systems, created specifically to fit the needs of small businesses, can combine and automate important business processes like production, finances, and order processing.
On the other hand, ERP applications and software are integrated with all business departments, which means that they require careful planning for minimizing the risk of possible failure and making sure that the goals of the company are met to the fullest extent (Gratch 2015, para. 12). Careful planning for the implementation of an Enterprise Resource Planning system calls for the established strategy before the involvement in the business process, a standardized plan of the system’s implementation.
Design and analysis tools necessary for the introduction of both ERP and AIS solutions depend on the type of business and its objectives. However, it is important to mention that the design and implementation of ERP and AIS do not result in solutions to a wide application spectrum, as mentioned in the study by Zykov (2006). Analysis and design of Enterprise Resource Planning Systems and Accounting Information Systems software used in the sphere of sales help companies develop a unified framework for accounting and business management. Taking into account the available human resources of the company, assessing future demand and revenue, and analyzing the effectiveness of the current state of accounting information methods, Disk4U’s management will come up with the most suitable way to analyze the efficiency of the implemented Enterprise Resource Planning system and Accounting Information System.
ERP Advantages and Requirements
One of the primary advantages of ERP systems is their ability to provide all departments of the company with the same information on their operational processes. Such a benefit eliminates the necessity of re-entering the same data and subsequently, reduces the possibility of mistakes and increases productivity (Linton n.d., para. 2). The second advantage of ERPs is associated with improvements in the process of decision-making. Because the same data is available to all key stakeholders, potential production and distribution issues can be eliminated promptly. The third benefit of Enterprise Resource Planning systems is that they can help small businesses cope with growth and development challenges. Because the duplication of data is minimized, the management can streamline key operational processes and increase the volumes production or distribution tasks.
Compared to Accounting Information Systems, ERP software includes a wider range of requirements. They encompass:
- Accounting and financials (payroll, deposits, invoices, etc.);
- Human capital management (benefits administration, payroll integration, etc.);
- Manufacturing and distribution (capacity requirements planning, forecasting, etc.);
- Materials management (pricing, sales order management, etc.);
- Supply chain management (sourcing, logistics planning, etc.);
- Integration capabilities (application and software integration);
- Support (training, maintenance, phone, email, etc.).
- The main disadvantage of ERPs is the high cost, which is the primary reason why many small businesses choose to stay away from such systems.
Additionally, to effectively implement ERPs in a small business, extra time and effort are needed to train employees. The deployment of business modules can potentially cause a disruption in the company’s operation for the time in which employees learn to use new Enterprise Resource Planning systems. Therefore, a company should go through a range of changes and adaptations so that the system will bring value to the business in the future.
Does Disk4U Need an Enterprise Resource Planning System?
Enterprise Resource Planning systems will help automate and optimize manual processes that employees implement and find more time for workflow improvement and business development. If the Disk4U’s management confirms that the following conditions apply to their business, the time for ERP implementation has likely come:
- The amount of CD and vinyl records inventory is hard to determine;
- Prediction of potential sales volumes has become ‘guesswork’ (Gratch 2015, para. 17);
- The majority of business operations are based on Excel spreadsheets;
- The rise in the company’s sales is complicated to maintain;
- Getting cohesive data about the company’s operations is complicated.
It is advised that the company’s management reviews the mentioned-above conditions. If at least three of them apply to the current situation in a company, Disk4U should consider implementing Enterprise Resource Planning systems, taking into account all of the benefits and limitations.
Due to the range of benefits that come with the implementation of ERPs, they have become the ‘backbone of business intelligence for organizations by giving managers an integrated view of business processes’ (Seo 2013, p. 9). Many small companies refuse to invest in ERP solutions because of the high risks and costs; however, if a business gets a full understanding of key processes, the decision about solutions’ implementation will become naturally.
ERP vs. AIS
To conclude whether to implement an Enterprise Resource Planning system or Accounting Information Software, Disk4U should assess its revenue and the efficiency of the business. It is important to mention that an Accounting Software is just a subset of an Enterprise Resource Planning system, which encompasses a range of components (What is the difference between ERP and accounting software 2010, para. 4). Therefore, the company may either implement an AIS and work its way to the introduction of a much expensive ERP system. On the other hand, Disk4U can invest in an ERP system and spend more time and effort on teaching employees and optimizing the business process.
By assessing the current state of the business, analyzing the condition of inventory, and reviewing the time that goes towards the manual implementation of different processes, the management will be able to make the most suitable decision. Because the budget ($150,000) allows for the investment into an ERP system, it is possible to integrate it into the business process. However, if the company is new to the accounting automation processes, it is advised to start with Accounting Information Software and move up from it.
Reference List
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