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.

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.

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

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);

activity-based costing (ABC); information integrated model; project

manufacturing

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

policy-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 do not describe in detail how to create the model that integrates the information of ERP with ABC

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:

2010 3rd International Conference on Information Management, Innovation Management and Industrial Engineering

2010 3rd International Conference on Information Management, Innovation Management and Industrial Engineering

• 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

III 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

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

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

drivers and be distributed into the produce finally In

the end, the financial control module carries on

variance analysis

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 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

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

The research is supported by Yunnan province scientific and technological innovation Program (Project No.2008AA006), we appreciate their great help

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[2] G Stanbus, Activity Costing and Input-output Accounting, Chicago: Richard D, Irwin, INC.1971, pp.193-198

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[7] T Lahikainen J Paranko M Seppänen, “Implementing Activity-Based Costing in an Enterprise Resource Planning System,” Tampere University of Technology, 2000

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[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

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[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

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