Evaluating an accounting system by setting up a single inventory item

By J. Carlton Collins, CPA

 

This article is part of a series entitled “Evaluating Accounting Software” in which J. Carlton Collins explains his quick and dirty 20-minute guide to evaluating an accounting software package. The article series starts here:

Setting Up an Inventory Item

The simple process of setting up a single inventory item is very telling. This process allows the user to explore the look and feel of the accounting system, gain an understanding of the depth of features within an advance core module, and in general, take the system for a ride.

As you begin the task of setting up a new inventory item, allow yourself to determine how intuitive the system is laid out. Is the starting menu obvious? Can you easily find the correct screen on which to begin this process? Upon finding the inventory item setup screen, try clicking the help button. Does the help screen offer step-by-step instructions,

Some products have organized the inventory data entry screens very logically – they are easy to understand and use. Others are not so easy. Some products force the user to visit multiple screens to set up a single inventory item. In Microsoft Great Plains for example, there are ten separate screens for entering a single inventory item. This is very powerful mind you and I applaud Microsoft for their wide breadth of features; still, the entry is awkward, especially when you have thousands of items to set up. As you set up the inventory item, ask yourself the following questions:

• Is Matrix pricing supported?
• Are Multiple Warehouses supported?
• Is Bar code Tracking supported?
• Is Consignment Inventory supported?
• Are Exploding & Imploding Quantities supported?
• How long is the description field? (256 characters is preferred)
• Is there a second description field?
• Does the product support Bill of Materials? If so, how many levels?
• Are Inventory Classes supported?
• Is Price Unit Conversion supported?
• Are Shelf/Bin Numbers supported?
• Are Sales Quantity Discounts supported?
• Are Commissions supported?
• Are Margin Pricing and Markup Pricing supported?
• Is a Default Vendor supported?
• Are Lead Times supported?
• Area Reorder Points supported?
• Are Reorder Quantities supported?
• Are Minimum Order Quantities supported?
• Are Maximum Order Quantities supported?
• Is Safety Lead Time supported?
• Are Alternative items or Substitutes supported?
• Is the Item Weight supported?
• Is a Default Freight Type supported?
• Are Country Purchased Codes supported?
• Are Product Comments supported?
• Are Drop Shipments supported?
• Are Item Pictures supported?
• Are Lots supported?
• Are Serial Numbers supported?
• Are Scrap Percentages supported?
• Are multiple Bins supported?

By the time you have completed the process of entering a single inventory item, you should have a fairly good feel for the inventory module in terms of navigation, look and feel, usability, and breadth of features.

Example:

Presented below are the ten screens the user must visit to set up a single inventory item in Microsoft Great Plains. As you can see by these screens, the product is very powerful, but visiting ten screens borders on the ridiculous. If you don’t think so, just try setting up a few items on your own, then look down at the other 800 items remaining to be entered – you’ll eventually agree with me. In my opinion, a tabbed dialog box approach would be a little easier and faster. (To be fair, Great Plains makes it pretty easy to enter your inventory data into an Excel spreadsheet and then import the results directly into Great Plains. This is indeed the preferred approach if you have a great deal of inventory data). In the screen below, we start out with the main Item Maintenance screen. You can also see the buttons that give you access to the other nine item maintenance screens – I’ve numbered them for you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There are many nice features to be seen in these screens. Above we see shipping weight, control over the number of decimal places, standard costing, quantity on hand and available, class maintenance, type maintenance…

In this screen we see control of back ordering on an item-by-item basis, ABC codes, 6 blank user-definable data fields, and substitute items – although Great Plains limits substitutes to just two – which is probably enough, but most products support more. For example MAS 90 supports up to 8 alternates items.

In the screen above we see that there are up to 15 chart-of-account numbers that must be associated with each inventory item. To the novice, inputting this much data may seem like a living nightmare. However I really like this feature. These default-rich settings helps Great Plains understand which accounts to debit and credit – as a result, the user does not have to even think about it. This is important because user error is the number one cause for improper book keeping. If you remove the debit/credit account decision from the user, not only do you speed up the data entry process, but you increase accuracy of the accounting system as well. Well done Great Plains!

Here we see that Great Plains supports multiple currencies – perhaps a big yawn to many people out there. However, don’t overlook this feature too quickly. With the advent of the Internet, the loosening of border restrictions via NAFTA, and merger mania that transcends countries, you could find yourself doing business in a foreign currency very by this time next year. If this happens to you, you’ll be glad that you selected a product that supports multiple currencies.

In this screen (above) we see some of the item pricing options supported by Great Plains. I am particularly fond of markup and margin pricing options. With these options, companies can price their inventory as a percentage of costs. If the cost goes up, it chases up the sales price of the item. If costs decline, the sales price drops in step to pass along the savings to the customer. This pricing method allows the company to sell goods at the lowest possible price which still covers their fixed costs, variable costs, and desired profit margin. All a company needs to do is determine it’s desired profit margin and they are “off to the races”

If you are having trouble understanding what I am talking about, here is an example: 

Stephanie has owned and operated a furniture store for the past 17 years. I ask her two questions as follows: How much profit do you want to make next year and how much sales do you anticipate next year? Stephanie responds – “that’s easy, we’ve been growing at 8% a year for the past five years so we will probably hit $12 million in revenue next year. Also, I’d like to make a million bucks profit – that’s a reasonable goal. With just this little bit of data, we can work backwards based on Stephanie’s prior year financial statements and advise her as follows: Your fixed costs are $2 million and you want to make another $1 million in profit. $3 million is 25% of $12 million, therefore you need to price your furniture with a 25% margin to achieve the desired results. Stephanie complains that it is difficult to achieve a set profit margin because her costs fluctuate widely from one month to the next. Also, further analysis shows that the furniture is currently priced at just 22% margin, which projects a potential profit of just $640,000. At this point we tell Stephanie the story about the Georgia boys who were selling onions. It goes like this: 

These two Florida boys were running up to Georgia and buying Vidalia onions at 4 for $1.00 which they then sold for quarter a piece on the streets of Jacksonville. After six months, one boy turned to the other and said – you know, I don’t think we’re making any money – what do you think we need to do? The other boy thought real hard and then blurted – I think we need a bigger truck.

OK, it’s an old story. Also, it’s an exaggerated story as well. But there is a lesson to be learned here. If you don’t price your products to make a profit, you will never make a profit. And, if you don’t price your products to make your desired profit, you will never make your desired profits. In our example above, Stephanie should consider using Dynamic’s margin pricing option to target a profit margin of 25%. In this manner, if her costs go up or down, her price will adjust accordingly to provide the desired profit margin. The result is that Stephanie will then have the chance to achieve her goals. There are of course other factors at play that may prevent success, but without adequate pricing, Stephanie has now chance at all of hitting her target. Think about it.

In this screen (above) we see some EOQ modeling options, and other critical item information. In the screens below we see the ability to control the units of measure (imploding and exploding quantities), default vendor settings, and other features.

The following screens depict item kitting capabilities and historical item data.

Great Plains is not perfect, no product is. There is no support for alias names, date sensitive sales, or inventory renumbering just to name a few missing features. However, you can see that Great Plains offers a great deal of functionality when it comes to control over an inventory item. This makes Great Plains an idea product to compare all other products too when evaluating the inventory setup screens.