Research on the Information Integrated Model of ERP and ABC in the Environment of Project Manufacturing Research on the Information Integrated Model of ERP and ABC in the Environment of Project Manufa.
2010 3rd International Conference on Information Management, Innovation Management and Industrial Engineering Research on the Information Integrated Model of ERP and ABC in the Environment of Project Manufacturing Zhao Xinxin, Yang Weiping Faculty of Mechanical and Electronic Engineering, Kunming University of Science and Technology, Kunming, P.R China Email: zxxxlh@yahoo.com.cn, ywp58@yahoo.com.cn making [2] R Cooper and R Kaplan had given the explicit explanation to activity based costing [3][4] It takes “products consume activities, activities consume resources and resources consume costs” [5] as the rationale With identifying and measuring all activities involved in resources consumption of enterprises, ABC allocates the cost of consumed resource to corresponding activity accurately, and then chooses cost drivers accurately, and allocates activity costs to the particular costing object (product or service) With the rapid development of ABC and the wide application of ERP in the manufacturing, a great many of scholars began to study the relationship between them Reference [6] explored the possibility of integrating ERP with ABC and claimed they were partner Reference [7] exemplified how activity based costing would be carried out in a standard ERP system Reference [8] believed that ABC could use the database of ERP system effectively, and integrated them could promote to implement each of them successfully Reference [9] with the use of ABC and ERP, it provided reasonably accurate, reasonable cost information about government services for El Paso municipal government planning and decision-making in the United States Reference [10] pointed out ABC was able to be integrated into the ERP system successfully by some technical solutions Some Chinese scholars are engaging in researching on the integration of ABC and ERP, such as Zhu Xia, Hu Xia and Li Zhifang, and so on [11][12] However, the above mentions articles are written in general level or not describe in detail how to create the model that integrates the information of ERP with ABC Abstract—Focused on the issues of the project manufacturing enterprise without considering the proportion of overhead increased evidently in products total cost, still adopting traditional costing accounting methods may cause the cost information of project to distort and make a biased strategy decisions According to analyze the feature of ERP system and the basic principle of activity-based costing (ABC), summarized the theoretical foundation of integrating ERP and ABC, and made the basic model which integrated ERP with ABC Eventually, with considering the feature of ERP system in project manufacturing enterprise and the basic model, constructed the information integrated model of ERP and ABC in the environment of project manufacturing Keywords- enterprise resource planning (ERP); activitybased costing (ABC); information integrated model; project manufacturing I INTRODUCTION Currently, the degree of the Manufacturing Automation and Enterprise Information have been strengthened, meanwhile, ERP, CAD, CAM and other advanced management methods and management technologies are slowly used into manufacturing business production, which makes the cost of the product constitution change fundamentally, which results in high manufacturing overhead costs Nevertheless, the vast majority of the manufacturing industries, particularly manufacturing enterprises, after the introduction of ERP system, theirs cost management still follow the traditional costing accounting methods, which may lead to the phenomenon of product costs distortion That methods not only makes the objectiveness and realness of resources flow direction unable, but also makes the strategic decision-making biased and even may cause the enterprise to be unprofitable At the same time, the diversification of product also makes the traditional standard cost management system lost its significance Therefore, it must pour the new cost management idea—Activity Based Costing (ABC) into manufacturing industry In 1930s, Eric Kohler researched on activity and account of activity which laid the foundation for development of ABC [1] George J Staubus advocated that accountant is an information system, cost of operation accountant is one kind accountant which related with usefulness goal of policy978-0-7695-4279-9/10 $26.00 © 2010 IEEE DOI 10.1109/ICIII.2010.49 II BACKGROUND A group company which includes more than 10 subsidiaries is a typical project manufacturing firm, it is the order design production types and its target is to meet customer demand It is produced in multi-species and small lots During the project manufacturing, in order to ensure that individual departments are able to correctly reflect the respective cost information, this company decided to reform the original cost accounting system According to its original ERP system, we analysis the integration theoretical basis between ERP and ABC, then forms the integrated model The following is the integration theoretical basis between ERP and ABC: 180 • • • III into a certain data formats by the data access interface form (It is shown in Fig.2.) are queried by the SQL Query Language, which are imported into the platform with ABC function in the form of XML finally Resource view integration—Enterprise resources are the core of ERP; ABC reflects the manage concept of “products consume activities, activities consume resources and resources consume costs”, so resources are the heart of ABC ERP resource view refers to the process of material supply, production and product sales consumes all resources from the view of supply chain in an enterprise, while ABC resource view is based on cash flow and value stream from the life cycle of product perspective enterprises consumed all required resources in the whole of life chain, such as: product development costs, service fees, complaint handling costs, etc So, they are unified in the resource view Integrated activity center with work center—The most basic information gathering feedback unit of ERP and ABC are activity center and work center respectively Activity center is divided by the principle of homogeneity Working Center is composed of the same or similar process performed by equipment or labor So, they can integrate, too Integrated activity chain and supply chain—Each activity consumes resource(s), and it creates a certain value simultaneously, then the value divert to the next activity Therefore, activity chain displays value chain (Value Chain) Supply chain is not just the material chain, information chain, money chain, but is a value-added chain, because the materials in the supply chain by processing, packaging, transporting, which increase their value to benefit the relevant business Therefore, activity chain and supply chain take value chain as the ligament, so activity chain management can instead of supply chain management Figure 1.Data information transmission process Figure 2.Data access interface form B The relationship between the ABC management function module and ERP system function modules According to the features of Activity-based costing, you can put its main function into activity-based costing management module The interface of workshop management module, production management module, inventory management module, procurement management module, financial management module and activity-based costing management module can implement activity-based costing information delivery The relationship between the ABC management function module and ERP system function modules is shown in Fig.3 • The information of process and work hours consumed in the workshop management module will be imported into activity-based costing management (ABCM) module • Integrated the information of inventory in inventory management module, and procurement management module purchase information with production management module production consumed material information to create the direct materials information, which is imported into ABCM module as the direct materials • The information of activity classification and overheads cost will be imported into ABCM module, then each activity cost will be put into this product • Depreciation expense, labor costs and other expenses in the financial control module will be imported into ABCM module for collecting all resources which will be allocated to each cost group by resource THE INFORMATON INTEGRATED MODEL OF ABC AND ERP The current ERP system takes the product for central, but ABC focuses on the central task of the activity For the product, the latter is a more detailed classification The ERP system cannot provide activity-level information so that constructs a new cost collector system, which will waste amount of manpower, material and funds resources Once this redundant data collection is tampered by human negligence, which will lead to data inconsistencies and it will be difficult to maintain Therefore, the only way to be considered is how to amend the existing data information collection methods of ERP system, in order to adapt to the requirements of ABC A Data Information Transmission Process For integrating ABC with the original project manufacturing enterprise ERP system, it is vital important to solve the problem how to make use of the existing data information The data information transmission process is shown in Fig.1 The cost data information are exported from ERP system in the form of Excel, then the Excel forms are imported into SQL Sever 2005; the cost data forms which are converted 181 drivers and be distributed into the produce finally In the end, the financial control module carries on variance analysis support for the implementation of activity-based costing, improves the operability and accuracy of ABC greatly, and improves competitiveness of the enterprise Nowadays, ABC and ERP are widely used in enterprises (especially manufacturing industries), which has laid a good foundation for ABC/ERP integration application It can save significant time and resources if the enterprises according to their own specific circumstances to integrate fully ERP with ABC C Imformation Integrated Model of ABC and ERP in Project Manufacturing Project manufacturing cost management emphasizes the concept of life cycle costs, the costs include: research and development costs, manufacturing costs, operation and maintenance costs A combination of the ABC and ERP information integrated model and manufacturing characteristics, building information integrated model of ERP and ABC for the project manufacturing firm which is shown in Fig.4 After the project manufacturing enterprise wins the bid, it will implement to make initial design by the technical requirement of the project bid, and the information of project design will be introduced into ERP system, where the CAD system produces the product information which is converted into bills of material (BOM) and CAPP system produces process information which is converted into to routing by PDM system According to project requirement planning, BOM, inventory information of inventory management and material price in procurement management, we can obtain direct material costs A work procedure of routing is an activity center; combining the information of labor hours are consumed by routing with the labor cost rate, we can get direct labor costs ERP system consists of inventory management, sales management, procurement management, production management, financial management, whose production management module contains a lot of manufacturing cost information With the data related to cost information in work center, we can identify the name of resource and activity which consumed by the product, then the resource will be allocated to the activities and the product by the theory of ABC BOM and routing is helpful to optimize and improve the activity, and then we can import cost information into activity-based costing centers Using the cost driver rate and the quality of cost driver to allocate cost of cost group for the product, and implement cost accounting, and then the system gives the cost of the project IV ACKNOWLEDGMENT The research is supported by Yunnan province scientific and technological innovation Program (Project No.2008AA006), we appreciate their great help REFERENCES [1] Foster, George, Horngren, T Charles, “JIT: Cost Accounting and Cost Management Issues [2],” Management Accounting, Jun 1987 Vol 68, pp.19-25 [2] G Stanbus, Activity Costing and Input-output Accounting, Chicago: Richard D, Irwin, INC.1971, pp.193-198 [3] R Cooper and Kaplan, R S “Measure cost right: make the right decisions,” The CPA Journal, Feb 1990 Vol 60, pp.38-44 [4] R Cooper, “ The Rise of Activity-Based Costing-Part one: What Is an Activity-Based Cost System,” Cost Manangement, 1988(2), Vol 2, pp.45-54 [5] E Sprow, ”The new ABCs of cost justification,” Manufacturing Engineering, 1992, Vol.106, pp.30–31 [6] R Shaw, ABC and ERP: Partners at laster?” Manangement Accounting, Nov 1998, Vol 80, pp.56-58 [7] T Lahikainen J Paranko M Seppänen, “Implementing ActivityBased Costing in an Enterprise Resource Planning System,” Tampere University of Technology, 2000 [8] S Baxendale, F Jama, ”What ERP can offer ABC,“ Strategic Finance, Montvale: Aug 2003, Vol 85, pp.54-56 [9] A Solis, K Putnam, D Almonte, L Gemoets, “Enterprise Resource Planing and Activity Based Costing in A Local Government Setting: The EI Paso, Texas Case,” Americas Conference on Information Systems, 2006 pp 7301-7306 [10] E Brodeur, ” Integrating ABC and ERP System,” Focus Magazine Iss 2, Jan 2000 [11] X Zhu “The Integration of ABC Software and ERP,” Journal of Guilin University of Electronic Technology, Aug.2005, Vol.25, pp 33-35 [12] X Hu, H F Li, “The Integration of ABC and ERP System,” Economy and Management, Dec 2006, Vol.20,pp 48-50 CONCLUSION Integrated activity-based costing and ERP gives full play to the advantages of ABC and ERP, reverses the cost information distortion situation, provides strong technical 182 Figure 3.Relationship between the ABC management function module and ERP system function modules Figure 4.Information integrated model of ABC and ERP in project manufacturing 183 ... manufacturing costs, operation and maintenance costs A combination of the ABC and ERP information integrated model and manufacturing characteristics, building information integrated model of ERP and ABC. .. Integrated Model of ABC and ERP in Project Manufacturing Project manufacturing cost management emphasizes the concept of life cycle costs, the costs include: research and development costs, manufacturing. .. costing information delivery The relationship between the ABC management function module and ERP system function modules is shown in Fig.3 • The information of process and work hours consumed in the