Even to today's uncertain and challenging economic climate, opportunities abound for FBS software users to tap into the "silver linings using high-tech tools and advanced management strategies.
Last month we covered the first competitive advantage, greater data processing efficiency due to electronic interfaces with trading partners and data collection technologies and FBS's exclusive integrated production/financial database design. Both technologies can cut hours out of the workday by eliminating redundant data entry from other programs and data sources. In this issue we will look at a less-obvious, but just as material benefit from the integrated data model.
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Error Trapping.
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How do you know your records are right; or just as essential, how do you know whether your vendors' invoices and statements are correct? The following graphic depicts this dilemma.
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Here
before us are the two "worlds" in which non-integrated software
forces us to cope.
Production records (field and feedlot events) are only as accurate
as the diligence and timeliness of the employees who provide this
information. To verify they are correct ultimately requires periodic
physical inventories, or at least "spot checks." Livestock
feeders are familiar with this process for animal inventories-it's
called a "closeout," the point in time when inventories
must be zeroed out between groups. Crop growers have a similar opportunity
to cross-check stored crop and input inventories at the end of a
growing and/or marketing season (when inventories are minimal and
easier to audit).
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The accuracy of accounting records can both be internally verified through trial balances and externally through reconciling with bank accounts and statements from vendors. While a bank statement is generally the "gold standard" for accuracy, vendor statements (including contracts and grain bank balances) should not be considered inerrant...for reasons we'll explain in a moment.
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First, let's consider what's at stake when you don't catch errors in a timely manner:
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Animals or crops could be receiving the wrong rations or rates of products resulting in reduced performance, "off-label" practices and higher production costs. |
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Disease, wastage or theft could be occurring under your nose. |
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Sales and costs could be assigned to the wrong location, management segment or owner. |
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You could be billed for the wrong product, wrong rate, wrong location, wrong unit price or even receive someone else's bill. |
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Marketing plans could be based on faulty assumptions creating expensive shortfalls or missed opportunities.
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From our experience there are two categories of producers: 1) those who have already uncovered problems like these and 2) those who are experiencing these problems but don't yet realize it.
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The next graphic describes how integrated production and financial records are used to reconcile inventories and trap errors.
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Why are inventories key to this process?
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Inventories are the common denominator between production and accounting records because the same raw materials and finished goods that are produced and consumed in the production department are purchased, sold and valued through the accounting department. |
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They also provide the checks and balances between internal production records, internal accounting and external trading partners.
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Although the graphic describes a livestock operation, the principle applies to any product or commodity with only slight variations in each of these equations.
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Raw
Material (Seed-Chemical-Fertilizer-Feed-Drugs-Fuel) Inventories
Beginning Inventory + Purchases - Consumption = Ending Inventory
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Crop Inventories
Beginning Inventory + Purchases + Production - Consumption - Sales = Ending Inventory
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Livestock Inventories
Beginning Inventory + Purchases + Production (Births/Weaning) - Death Loss - Sales = Ending Inventory
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Note that each equation encompasses both production and accounting records. In theory inventory reconciliation can be done between two unrelated systems, but throw in differences in terminology, units and valuation methods, then multiply by all the various products, commodities, production stages, locations and groups and only the most determined producers will attempt this critical process.
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Integrated production and accounting records, however, make inventory reconciliation not only a much less daunting chore, but also provide a tangible return on investment.
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This brings us back to your vendors. It's quite likely they don't have an integrated order entry-production-accounting-inventory system. This applies to the big co-ops just as well as the local seed corn dealer using hand-written order and delivery tickers.
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That's why FBS integrated software users routinely discover significant vendor errors that their neighbors miss, and why they are respected (or maybe considered "thorns in the flesh") by their trading partners.
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In the next installment we'll look at an even greater opportunity to extract silver from within the dark clouds.
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