4-page Case Study - Posted 1/17/2013
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Establishing a Transparent Accounting System for a Listed Company through Microsoft Dynamics AX
DYM enjoyed strong financial backing as it secured investments from SENAAT of the United Arab Emirates and NHN Investment. Following such profitability both inside and outside Korea and financial stability with investment promotion, DYM prepared
itself to become listed on KOSDAQ. Entering the stock market is an important event in building its brand power as a global company in many ways. However, future growth expectation is not the only requirement for being a publicly traded company. The people
at DYM knew this well. DYM regarded transparency as a key requirement for the company to be listed. In an effort to ensure management transparency, DYM turned to ERP and DYM selected Microsoft Dynamics AX. DYM chose the path of maximizing the use of basic
functions included in Microsoft Dynamics AX. It was decided early in the project deployment that DYM would not spend much time on customizing, but instead maximize the use of the basic modules. Since opening the ERP, the greatest change DYM witnessed was transparency
"Aligning financial accounting with managerial accounting is the top priority for the enterprise resource planning managers. This is an absolute requirement for securing reliability of information for management performance and status reporting. DYM have
not achieved reconciliation between financial accounting and managerial accounting with Dynamics AX, but also secured global financial and accounting transparency for our overseas branches by linking the ERP with the International Financial Reporting Standards
-Lee Il-ho, Manager of the Finance Team at DYM-
With its steady growth in the field of cable semiconductors and insulation materials since its founding in 1992, DYM now ranks third globally in the field of semi-conductive compounds as of 2012. DYM’s exports continued to grow from 1 million dollars in
1996, to 20 million dollars in 2006, and to 50 million dollars in 2011. With such performance in the overseas market, DYM enjoyed strong financial backing as it secured investments from SENAAT of the United Arab Emirates and NHN Investment. Following such
profitability both inside and outside Korea and financial stability with investment promotion, DYM prepared itself to become listed on KOSDAQ.
Entering the stock market is an important event in building its brand power as a global company in many ways. However, future growth expectation is not the only requirement for being a publicly traded company. The people at DYM knew this well. DYM regarded
transparency as a key requirement for the company to be listed. They believed that their industry-leading technology and production facilities needed to be coupled with management transparency in order to create corporate value befitting a publicly traded
In an effort to ensure management transparency, DYM turned to ERP. The main motivator for DYM to find its answers in ERP actually came from advice given by the company’s listing organizer. Lee Il-ho, Manager of the Finance Team at DYM, said, “Our listing
organizer recommended that we built an ERP to secure accounting transparency even before we went through all the steps of becoming listed such as preliminary examination, eligibility screening, and public offering. We were told by the listing organizer that
ERP would not be an absolute requirement for us to be listed, but it would certainly help us gain the trust of the auditing authorities and the market.”
DYM’s internal criteria for ERP selection was the system adequacy for the global management strategies. As a result, they had to exclude ERP solutions developed by Korean companies and instead narrow the candidates down to Microsoft and SAP.
It was not easy to make the decision between the final two candidates since they were utilized by many global enterprises and their functions were sufficiently proven worldwide. However, after stringent comparison of all functions, DYM finally selected Microsoft
Dynamics AX. Lee said, “Considering our size, we examined Microsoft Dynamics AX and SAP Business One. Both solutions were similar in the sense that they were optimized for small and medium-sized businesses, but the functions were clearly different. Microsoft
Dynamics AX seemed like an ERP for medium-sized businesses with enterprise-level functions, while SAP Business One seemed focused only on medium-sized businesses in terms of the variety of modules.”
Microsoft Dynamics AX was clearly better in terms of cost and functionality. But there was another issue to consider. The perception was that there would be more capable partners and developers for SAP. Concerning the importance DYM placed on partners, Lee
said, “We believe that the success or failure of the first ERP project for any small business depends on the consulting competence of the implementation partner. Since we are too small to make up a dedicated team of our own manpower for this project, what’s
really important for the ERP project is participation of consultants with rich experience in the industry and information technology.” When Lee was presented with the proposal by Apex, a partner of Microsoft Korea, he settled upon Microsoft Dynamics AX. As
a result, Microsoft Dynamics AX was finally selected, with high scores in all areas of cost, functionality, and partnership.
From the consulting stage, Apex made sure that the work was done to fit DYM’s context. Apex knew that the field workers had to set aside time from their busy schedules to participate in the ERP project. So, instead of wishing that the field workers would
show passion and enthusiasm, Apex consultants wanted to lead the project all the way. This was exactly what DYM wanted.
Lee said, “Given our small size, it’s difficult for our field workers to actively participate in the project to redefine the business process and code it into the system. In most small and medium-sized businesses, it would be impossible for field workers
to spend 50% or more of their working hours on the ERP project. ERP could easily be seen as an obstacle for those with a lot of work to do already. It would be difficult to expect their active participation. This means that we had to rely on the consultants
on many issues. Apex understood our situation very well.”
In fact, the business users were not given burdensome demands concerning the ERP. Instead, they simply explained the current business process to the consultants and told them the kinds of improvements they would like to see. After short meetings with people
in various departments, the Apex consultants were able to identify and redefine the business process based on advanced processes. This was later used as the basis for developing the system implementation strategy and direction.”
Two main approaches to ERP implementation include customizing the ERP to fit the company’s business environment, and innovating the organization according to the advanced processes in the basic modules. From the two options, DYM chose the path of maximizing
the use of basic functions included in Microsoft Dynamics AX. It was decided early in the project deployment that DYM would not spend much time on customizing, but instead maximize the use of the basic modules. They not only thought it wise to make full use
of the ERP following the global standards but practical to open the system as soon as possible instead of spending more time and money on development. In fact, DYM opened the system about a month ahead of the original schedule in order to foster early stabilization
of the business process defined through the ERP.
DYM also adopted a Data Loss Prevention (DLP) solution in time for the ERP implementation. Ready for systematic management of key management information, they also wanted to handle unstructured information in a more systematic manner. Lee said, “In our materials
industry, raw material mixing ratios must be handled with great care for industrial security. That is why we adopted a DLP solution to prevent loss of data in time for our ERP adoption.”
Matching Financial Accounting and Managerial Accounting
Since opening the ERP, the greatest change DYM witnessed was transparency in accounting. As with any company, DYM’s most important objective in ERP implementation was to match financial accounting and managerial accounting. DYM had been using a financial
accounting program developed by a Korean company. Records on raw material purchases and product sales were meticulously entered into the system for profit calculation and settlement of accounts. However, as the company kept growing as a globally renowned player
and as the company was about to be listed on the stock market, DYM could not be satisfied with good financial accounting. It also needed to bring managerial accounting under strict control. DYM used its ERP to achieve reconciliation between financial accounting
and managerial accounting which were required for providing processed accounting information to its executives and investors in the form of management information. Lee said, “For the people working on the ERP, matching financial accounting with managerial
accounting was top priority. This is an absolute requirement for securing reliability of information for management performance and status reporting. For us at DYM, we not only achieved reconciliation between financial accounting and managerial accounting
with our ERP, but we also secured global financial and accounting transparency for our overseas branches by linking the ERP with the International Financial Reporting Standards (IFRS).”
Transparent Cost Management
Costs are probably the most important factor of management for a manufacturing company. This is why many consider cost management as an absolute variable for achieving management goals and as a key management factor in manufacturing. Costs are the basic
information for cost competitiveness analysis, raw material management, and cost reduction. With the recent ERP implementation, DYM began to enjoy new horizons in cost management. They can now define various allocation bases and routes by considering all indirect
and direct costs for systematic management of manufacturing costs.
Lee said, “We have three factories. In the past we had to use Excel spreadsheets to allocate costs. Cost management itself wasn’t too difficult since there was very little loss from inventory shrinkage. But as each product would require so many different
raw materials, we could not identify costs for each product.” “However, since the launch of the ERP, we can see material costs, labor costs, and manufacturing costs for each product. The transparent cost management raised the bar for us to identify the essential
and the non-essential, and eliminate causes of increase in manufacturing costs,” Lee added.
Process Management, Sales, and Purchase Integrated into a Single System
Microsoft Dynamics AX had the effect of binding all of DYM’s domestic and overseas operations under one roof. In terms of production, manufacturing process management, which was previously done separately in three factories, is now carried out in a single
system. Procurement and purchase for the three factories are also integrated into one system. As production and procurement/purchase information for different factories is brought into one ERP system, the company enjoys much better inventory management for
key raw materials which are sensitive to international prices. In terms of sales, the system not only allows the domestic sales and export information to be pooled together but also integrated sales figures from overseas branches. This means that DYM no longer
needs to rely on emails and documents for exchanging important business information between the headquarters and overseas offices since the information is shared efficiently on the ERP system.
Enhancing Organizational Culture
DYM is working to increase user interest and participation in the ERP so that the organizational culture can be changed and the company better positioned for global management. Lee said, “Long-term success of the ERP will be determined by consideration for
users. Only when workers pay attention to the system and utilize it for their work, the advanced process defined with the ERP become part of the company. We once ran a promotion and gave gifts to users who utilized the ERP well. We plan to stage many different
activities to increase the interest and participation of our users.” DYM is also considering a medium and long-term plan to add BI to the ERP to make the system more attractive to its users.
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