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Better Accounting Visibility + Real-Time Financial Insights = Enterprise-Wide Cost Reduction

insightsoftware -
November 30, 2020

insightsoftware is a global provider of reporting, analytics, and performance management solutions, empowering organizations to unlock business data and transform the way finance and data teams operate.

Better Accounting Visibility + Real Time Financial Insights = Enterprise Wide Cost Reduction

This article is part of our multi-part series about the challenges that CFOs face going into 2021. Please be sure to check back for other posts in the series coming soon.

Information is power, and in a business, information is profitability. An organization’s performance rests on the management team’s ability to identify trends, detect anomalies, discover opportunities, and distinguish the levers that generate higher margins for the business.

ERP vendors often claim that their software will help customers achieve significant cost savings. While there is a lot of truth to that statement, it is often the case that the biggest cost savings opportunities arise well after a new ERP system has been implemented. ERP software provides a reliable and consistent means of recording transactions and processing information that touches on multiple departments throughout an organization.

Without a means of extracting and refining all that information, though, ERP can fall far short of delivering on its potential for generating cost savings. When people throughout the organization have access to a common set of data and have the freedom to extract, manipulate, and analyze real-time information from across the business, new opportunities start to surface. This is particularly true in the case of finance and accounting personnel whose careers are built around their ability to digest and analyze quantitative information.

Given the right real-time reporting tools, businesses have a multitude of opportunities to find and capitalize on cost savings. Let’s look at a few examples.

Increasing Purchasing Power

insightsoftware recently worked with a client in the construction industry that often manages many complex building projects at the same time. Their project managers usually work with many of the same suppliers on different projects. In the past, project leaders would negotiate costs and delivery dates on an individual basis. Unfortunately, this often resulted in varying quotes from suppliers, but the company had virtually no visibility into those price discrepancies.

As a result, the cost of materials varied significantly across many projects, even in cases in which the company was using the same supplier. Pricing often had more to do with the negotiating skills of the project manager than with the availability of materials or delivery dates.

Cement Truck

The company decided to take a closer look at material costs. Because it had flexible reporting tools capable of drawing from many different data sources easily, the company was able to perform analysis against the cost of materials for a range of projects over three years. The analysis revealed a lack of consistency in the price of concrete across those projects.

Company leaders identified this as an opportunity to change their approach to purchasing, giving them greater control over the cost of concrete and other materials. Until the company had the right reporting tools in place, leaders were not even aware that they had a problem.

Decreasing Discounts

Another customer described a situation in which several sales managers had begun to relax their discounting practices, sometimes offering larger discounts than were normally necessary to close deals. Given the complexity of the sales organization and the limited transparency around discounts, the problem initially failed to show up on management’s radar.

After the company implemented insightsoftware’s Jet Analytics product, management began to take a closer look at some of the key levers that affect the company’s margins. By establishing clear visibility to sales discounting patterns across the company, analysts were able to identify territories that needed closer monitoring and take corrective action to improve margins.

Reduce Inventory Costs

Any discussion about reducing inventory is usually part of a larger conversation about freeing up working capital. To be sure, that’s a worthwhile aim, but there are significant carrying costs associated with inventory as well.

Excess product consumes space in the warehouse; on the other hand, insufficient quantities can result in unnecessary spending on warehouse space. There are insurance costs associated with carrying excess inventory as well, and in many states, excise taxes are imposed on inventory held by the company throughout the year.

Warehouse

Finally, there is the cost of stale inventory. Whether it’s a perishable product with an expiration date or a slow mover that may be replaced by a newer product, inventory that sits on the shelf often loses value over time.

When companies have clear visibility to the quantity, value, type, and location of their inventory, they are far better positioned to act fast to disposition old inventory, manage quantities, and keep inventory carrying costs at a minimum.

Better Forecasting = Lower Production Costs

Although forecasting is important for almost any company, manufacturing companies can benefit more than most from their ability to accurately forecast demand for their products. By ordering raw materials earlier in the process, companies can take advantage of longer delivery lead times, resulting in fewer expedited orders from suppliers.

Labor and production planning, likewise, can be performed more accurately, reducing or eliminating overtime and resulting in more efficient use of resources.

Unfortunately, many companies have limited visibility into all the underlying factors that could have a potential impact on demand. Most ERP systems can calculate requirements based on prior sales trends, seasonality, and open customer orders, but if salespeople are managing pipeline in a separate CRM system (or worse yet, in a collection of Excel spreadsheets), then it’s hard to supply an accurate demand forecast based on actual customer opportunities.

Likewise, if slow payments from one or more large customers are likely to result in a credit hold, it’s unlikely that most off-the-shelf forecasting tools will account for that fact. When reporting tools provide visibility across many different domains within the organization (including ERP, CRM, or any other data sources), the quality and accuracy of forecasts improve, resulting in better planning and lower production costs.

Reducing Taxes

Tax laws are always changing, and because the ERP software vendors aren’t focused on tax compliance, they don’t provide the tools necessary to keep up with those changes. Reducing the company’s tax burden often requires a rapid analysis of very specific data.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), for example, was passed in March of 2020 by the US Congress. The CARES Act contained provisions to expand net operating loss (NOL) carrybacks. Briefly stated, section 2303 of that law allowed certain taxpayers to retroactively reduce their tax liability from prior years by carrying back losses incurred in more recent years, including 2020. By accelerating certain types of capital expenditures, tax-savvy businesses could show tax losses in 2020, retroactively apply those losses to prior years’ tax liability, and generate an immediate tax refund.

Unfortunately, the window of opportunity for that tax-saving strategy did not last very long. Companies that had flexible, powerful analysis tools in place were far better positioned to capitalize on this kind of opportunity.

Efficient Accounting Processes 

Finance and accounting teams are tasked with analyzing and interpreting data from across the organization. Although ERP systems offer significant advantages in automating procedures, enforcing process discipline, and supporting internal controls, they often do little to relieve the burden on accounting professionals, especially when it comes to gathering and analyzing information.

Period-end closing processes require that information is gathered from a wide variety of sources, that numbers are checked, and balances are confirmed against external sources. Reporting tools empower the finance team to automate many of the processes associated with those tasks.

Imagine, for example, that your company runs a specialized billing system that is not connected to the general ledger. By building a report that links to source data from both the general ledger and the separate billing system, accounting personnel can produce a templated report to validate the end-of-month A/R balance against the general ledger. For every period closing, the finance team can refresh the data from those two source systems to create an up-to-date version of the closing worksheet. A process that used to take hours can be reduced to just a few minutes.

Charts And Graphs

Preparing for audits, likewise, can be much more efficient when the finance team has robust self-service reporting tools at its disposal.

Time is money. When highly skilled accounting professionals spend an excessive amount of their time copying and pasting data from system reports into Microsoft Excel, valuable time is wasted.

What finance teams need is a robust, flexible, and intuitive reporting tool. Unfortunately, most ERP software vendors don’t provide user-friendly tools for reporting. That means bringing in high-cost consultants to make modifications and build custom reports or training internal IT staff to do the job and allocating a large chunk of their valuable time to the job.

With insightsoftware’s reporting tools, the finance team can take full ownership of the reporting process, without extensive use of outside consultants to create or modify reports for them. Anyone who understands the ERP system can create a report using simple and intuitive tools.

With powerful and flexible reporting tools from insightsoftware, a variety of cost-saving strategies are available to organizations running a wide range of ERP, CRM, and other business software systems. To learn more about how insightsoftware can help you lower your costs and increase agility, contact us for a free demo.