.

Labels

ACM (1) Acumatica (1) Adobe XML Data Package (XDP) (1) agility (2) application launchers (1) Archimate (1) Audit File Logistics (1) B2MML (1) BIM (1) blockchain (2) BPM (12) BPMN (2) BPMN2 (21) Bruggenbouwer (2) Business Ecosystem (1) Business Leadership (6) CCTS (5) CDBC (1) CDE (1) CEN/BII (1) Change Management (3) cloud computing (4) CMMN (1) composable architecture (6) Consultancy (12) CRM (2) customs (1) D365 FSCM (3) data mapper (1) data mapping tool (3) data pools (4) DE&I (3) Design Thinking (1) desktop tools (1) Digital Leadership (16) Digital Manufacturing (1) Digital Thread (1) digital transformation (2) DMN (4) DOM (1) DSDM (6) e-Business (18) e-Commerce (2) e-Factureren (3) e-Fulfillment (1) e-Invoicing (31) e-Ordering (2) e-Procurement (11) eclipse (6) Economics (1) EDI (10) EDIFACT (10) electronic data interchange (21) enterprise service bus (8) Environment (1) ERP (60) ETIM (3) flexibility (1) Government (3) GS1 (3) HR-XML (9) Hybrid Work (1) IDEAS (2) Innovation (1) Interoperability-Frameworks (8) IoT (1) ISA-95 (1) Kwartiermaker (1) Legal (1) Leiderschap (4) MACH (3) mashups (1) MBEE (2) MES (3) mind mapping (1) modeling frameworks (1) MOM (3) multi-tenancy (1) NetSuite (4) NEWS (3) nimbleness (1) O2C (1) Office Open XML (OOXML) (1) OMS (1) Open Document Format (ODF) (1) open source (2) Overheid (5) PEPPOL (6) PIM (2) PLM (6) Politics (1) Prince2 (4) Process Modeling (18) Project Management (22) PropelPLM (2) Prosci ADKAR (3) resilience (2) Retail (8) robustness (1) Rootstock (2) Salesforce (2) SAP (6) Security (1) service-oriented technologies (2) SITG (2) Smart Industry (2) Social (1) Supply Chain (5) Sustainability (2) Technology (1) UBL (12) UDEF (8) UN/CEFACT (6) Wholesale (3) WMS (1)

Purchase Price Variances - why is it, you do not want to see them?

I am comparing the functionalities of different ERP systems to be able to advise my clients properly when they are selecting a solution for their business.

One thing that I have not been good at - although years ago I converted the Chart of Account of 5 QAD databases, incl. transactions, on a sunny sunday morning, is accounting.

It is not that I do not understand what these systems do, that is not the problem, I learned from the best - QAD - but what I seem not to understand - my lack of accounting knowledge - how and why certain financial reponsible people try to manipulate the system.

Let me give an example (and yes I know there is a whole lot of discussion about whether it is allowed by GAAP and/or IFRS) Standard Costing. From what I read when you process the variances incured appropriately when reporting it is allowed. (see some links in comments).

When using standard costs most ERP systems (QAD, NetSuite, D365 FSCM, ...) will create variances upon booking item receipts. These variances tells the company something about their performance - it helps understand why costs are different from what is expected. When variance is high, your purchasing people certainly should start working, you seem to pay not what you expected.

  • Purchase Price Variance (NetSuite / QAD) = difference between the price you expected for the goods and the real actual price, the expected price being the standard cost,
  • The thing here is that the cost of the purchase is the only cost that directly impacts the item cost - that is why the PPV is generated. (NetSuite)

  • AP rate variance (QAD) = discrepancy between an item’s PO cost and its invoice price
  • AP usage variance (QAD) = discrepancy between an item’s PO receipt quantity and its invoice quantity
  • But what I often see, is that companies using standard costs have procedures in place to adjust the cost of an item according to the invoice before booking the receipt OR adjust the quantity on the order to comply with the invoice quantity in case there is an over- or underdelivery.

    Does any of this make sense when using standard costs and modern ERP systems?

    Maybe it is me: I am not an accounting specialist, but how can I make financial people understand the rules of the game WHEN they do not (want to) understand the way these ERP systems deal with it.

    Not understanding (or willing to understand) the way an ERP system works and willing to adapt, is what caused a lot of companies to fail their implementation. But again maybe I am wrong - due to my lack of accounting knowledge.

    No comments:

    Post a Comment