The benefits of operating with an ERP system is well understood throughout the logistics industry. ERP software integrates and coordinates processes across a whole operation, facilitating strategic planning and simplifying day-to-day management—all while saving both time and costs. However, although these real-world improvements are well known, there’s still one vital business process that’s too often left out of the integrated approach: accounting.
So why do businesses still choose to omit accounting as part of their integrated ERP logistics solution? Well for some, the structure of their operation might dictate the need for an external accounting system that isn’t integrated with their wider logistics ERP. The first example of this is a logistics operation that operates as a department (a non-separate legal entity) of a much larger organization. In this case, accounting and finance must be centralized across the whole business, logistics operations included. Two separate systems would be unmanageable and so the logistics side of accounting is integrated into the whole.
The second instance is when the logistics operation is a separate legal entity of a much larger conglomerate. Although accounting isn’t centralized across legal entities, financial reporting is. In this case, the accounts payable and receivable can be managed in the logistics ERP solution from which the general ledger account can be uploaded and integrated into the wider accounting system.
In these situations, using an external accounting system makes sense. What doesn’t make sense and is all too common, is a business using an external accounting system because of the fear of change and a complacency with a system that’s been in use for years.
The small change
Change is important: it enables you to react faster than competitors and to adapt to new business practices that promote productivity. Without change, a business stalls. Many logistics businesses still use external ‘off-the-shelf’ accounting systems simply because that’s what they’ve always done. It may be a package familiar to an accounting team through their previous non-logistics-based roles, it may be a brand recognizable to the man on the street, and it might do its job perfectly well as a stand-alone product. What it won’t do is integrate your accounting with your wider strategic goals; it won’t give you an insight into your business practices; and it won’t improve the productivity, visibility and accountability of your operations.
Usually, an external accounting system accounts the monetary aspects of business transactions. It doesn’t tell the story of the business, it only summarizes it. An external accounting system can’t see what’s going on in the back-end of your business, and if it can’t see it, you might miss it. With integrated accounting, you gain operational control, credit control, limits, invoice and payment statuses—as well as the security that your accounts are tallying with your real-world operations at the end of the day.
On top of this functionality, integrated accounting also wins out when it comes to productivity. It eliminates the need to double key information across multiple systems, improving the speed of communication across the business while minimizing the chance of mistakes. Integration also gives a business high levels of visibility so transactional information can be accessed across an operation in real-time. In a world where businesses are squeezed on operating margins, these small but significant improvements soon add up to make a big difference to operations.
Adding up the difference
An external accounting system can work well for many businesses across many industries—and that’s precisely the problem. No one would employ a baker for a butcher’s job, and so a logistics business should use an accounting system that’s tailored to fit the industry. And logistics is an industry with a difference. It breaks borders and crosses compliance regulations across the globe and this can make accounting a taxing proposition. An external accounting system just may not be up to the job.
A native accounting system packaged in an ERP geared specifically towards international logistics can aid integration with globally recognized industry systems (CASS, HRMC etc), international compliance, foreign currency management and contra settlements between agents.
To help future-proof a business, a dedicated logistics ERP is also more likely to react to industry developments. This means that its integrated accounting system will receive updates to ensure its logistics-business users can stay up to date with the latest compliance regulations. Consider this compared to a generic stand-alone system which may leave a logistics provider behind while the supply chain moves forward.
It’s all about using the right tool for the right job. Logistics providers don’t just move and manage freight; they also move information and money. Just as the right machinery is used to move physical goods, the right software platform should be used to move finances and valuable data. For logistics businesses wanting to make money more manageable, the benefits of an integrated accounting system soon add up. So don’t short change your business—the cost is just too great.