The Enterprise Resource Planning (ERP) application is a must for companies irrespective of whether it is a small or big enterprise; it is a tool that gives visibility to management regarding the enterprise's performance on all levels. People should be familiar with the ERP concept irrespective of who implements the solution or uses it (definitely, the level of detail varies between the user and the consultant, but the core is common). This chapter covers the following topics:
Understanding the ERP characteristics
Discovering the ERP implementation team
Exploring the key intentions of ERP implementations
Understanding the ERP module's integrations
Exploring ERP and reporting
Posting types in Microsoft Dynamics AX
Exploring the common terms used in ERP implementations
Exploring Microsoft Dynamics Implementation Methodology – Sure Step
Exploring Microsoft Dynamics Lifecycle Services (LCS)
Looking at the Microsoft Dynamics AX user interface
The ERP is a mission-critical application for the business, as the day-to-day activities rely on this application where the end users enter the transactions, and the management is able to monitor the business performance on a daily basis and take decisions within a proper time period. The main characteristic that differentiates the ERP from other applications, as mentioned in the Wikipedia definition of the ERP, is as follows:
"A business management software—usually a suite of integrated applications—that a company can use to collect, store, manage, and interpret data from many business activities."
From this definition, the ERP is an integrated application. In the past, each business area had its own application, and this lead to creating isolated islands for each department in the same organization, which cost organizations a lot of time, effort, and money. This leads to lack of accurate information which directly affects management decision making, because of unavailability or redundancy of information; for example, the customer account in accounts receivable is different from the customer code in the sales department, so the management could not identify the balance of this customer. With the ERP, the data is unified, controlled, and classified. This gives the company the ability to transform this data into information that helps in the decision-making process.
It is important for companies that want to implement the ERP to understand that its implementation is not an easy task and it requires a professional partner. For example, Value Added Reseller (VAR), which has a consulting team experienced in implementing the ERP, preferably has a partner that is an expert in the customer industry. There is a high level of engagement between customers’ top management, key users, and end users in the implementation life cycle. The implementation team is considered as the key success factor for the ERP implementation.
The following diagram illustrates the ERP implementation team that consists of Subject Matter Experts (SMEs) and key users from customer- and partner-side applications, and technical consultants. This team works together closely during the implementation, where the customer representatives (SMEs and Key users) deliver the business requirements (that is, what they are expecting from the ERP), with the consulting team that bridges the gap between the business requirements and the implemented application. The implementation deliverables comes through several workshops from analysis, design, development, and testing.
The implementation team should focus on two types of internal clients: business executives and end users. Each client has a different perspective of the ERP implementation, and the implementation team should consider their requirements during the implementation lifecycle. The executives' management focuses on reporting and end results, and the implementation team delivers policies and procedures to end users who then operate the final product, which is the ERP application.
Application consultant, Functional consultant—the job title differs from one company to another, but whatever the title is, the application consultant is considered as a middle man between the ERP and the customer, where the application consultant is specialized in the ERP application and is able to understand the business requirements and adopt it to the ERP software. The application consultant can start their career after graduating from university; they can major in business administration, finance, or information systems, if it covers subjects related to business.
Alternatively, the application consultant can start working in other fields. Some people start out as an accountant, procurement agent, commercial agent, or even sales representative. I do not consider it a career shift; I consider it as an advance in one's career path. In other words, it is capitalizing on previous experiences.
Traditionally, consulting skills are divided into two main areas: the business side, which is known as a functional consultant, and the technical side, which is known as a technical consultant. Then, there is a more general soft skills set that all application consultants need, as they spend most of their time in discussions, workshops, and training, related to business.
Some of the key skills a company should look for in an application consultant are highlighted in the following diagram:
The application consultants have a very important role in the implementation of the project, as they are involved in implementation tasks and activities. Microsoft Dynamics Sure Step has defined the application consultant role during implementation phases. It is a long and broad list of tasks, and this range of tasks is what I believe keeps most application consultants motivated and satisfied with their jobs. The challenges are always changing and the career path offers many opportunities to develop new skills.
Enterprises that intend to implement Microsoft Dynamics AX ERP pursue a variety of common benefits from the ERP, but in most of the projects, there wasn't any well-defined benefits that the organization's management agreed on, and no roadmap to help them accomplish those intentions. It is vital to plan the ERP implementation carefully. In the sections that follow, we will take the key objectives of ERP implementation.
The organization can have a legacy system and manual business processes, and they need to be unified by one single integrated application to manage, operate, and control the business areas and deliver reports to management, as shown in the following diagram:
Enterprises that have decided to implement ERP should be coordinating together with a consulting partner specialized in Microsoft Dynamics AX. The customer and partner should plainly outline the objectives of the ERP solution as early as possible in the diagnostic phase. They can replace the legacy system and reduce manual business processes by automating the business processes using the ERP solution in the organization's departments. Samples of ERP implementation intentions are as follows:
Business process: This comprises the following:
Business process automation
Streamlined business process in cross-function operations
Unified business process across holding and subsidiaries
Single point of contact for reducing the redundant data within departments
Controlling: This comprises the following:
Segregation of duties and data access privileges
Advanced workflow and managerial approval matrix and its ceiling of expenditure amounts
Tracking the actual costs against budgeted
Inventory tracking and cost control
Decision support: This comprises the following:
Real-time and ad hoc reports for all organization levels
Dynamic and dimensional reports
Key Performance Indicators (KPIs) and indicators dashboard
The core objective of running a business is to make a profit, which requires making revenue that cover the costs and adding the margin to secure the profit. This is the core role of management to achieve this profit; the ERP application gives the management the necessary business insights to monitor the business performance.
Microsoft Dynamics AX manages and controls day-to-day transactions that occur in the company; these transactions are transformed into financial information that represents the key component of the financial statements (balance sheet and income statement), which are expenditure and income; in other words, cash out and cash in. All these are shown in the following diagram:
The cash-to-cash cycle entails the core two cycles, which are commonly known by Procure to pay and Order to cash. The first cycle covers the expenditure part (cash out), that is, every aspect related to vendor management, procurement management, purchasing management, product reception, and vendor invoices, payment, and settlement. The second cycle covers the revenue part (cash in), that is, every aspect related to customer management, sales management, product delivery, customer invoices, collection, and settlement.
Microsoft Dynamics AX enables the module's integration that relates transactions to each other, and can automatically inherit information from one and pass it to another after adding additional information, along with generating automatic financial entries in the general ledger and control points to monitor the transactions. There is integration between Microsoft Dynamics AX 2012 R3 modules, where production modules are integrated with the warehouse management module and sales and marketing module, in addition to the procurement and sourcing module.
The project module is integrated with the inventory module, sales and marketing module, Accounts receivable modules, procurement and sourcing modules, and Accounts payable module. This book focuses on the integration of the financial module.
The Procure to Pay cycle linked the following business functions that are accountable for company expenditure:
Operations
Procurement
Purchasing
Warehousing Product Reception
Financial
Accounts payable
Bank management
The Procure to Pay cycle manages and controls the business processes of procuring the needed materials, receiving them, and paying to the vendor. There are specific documents to handle these business processes.
The related financial transactions to this cycle are the product receipt, vendor invoice, payment, and settlement.
The product receipt represents the physical reception of products in the company warehouse. This increases the physical quantities in the inventory and reduces the quantity of the remainder in the purchase order, in addition to changes in the inventory value according to the inventory valuation method.
The vendor sends the purchase order invoice either along with product reception or after product reception. Recoding the vendor invoice to reflect the company's liabilities to the vendor results in an increase in the open vendor balance. Microsoft Dynamics AX supports a company's internal control in vendor invoices by matching the invoice with the purchase order and the invoice amount.
It can be a three-way match for a product when comparing the purchase order quantity against the product receipt, and the purchase order invoice against the invoice amount. It is a two-way match for services when comparing the purchase order amount against the invoice amount. For the service invoices that are not related to purchase order, such as cleaning services, just issue an invoice to the vendor against delivered services. This reflects the company liabilities to the vendor.
The Order to cash cycle joined the following business functions that are accountable for a company's revenues:
Sales
Warehousing Product Issuance
Finance
Accounts receivable
Bank management
This cycle manages and controls the business processes of sales activities, customer orders, delivering goods, and collection from the customer. There are specific documents to handle these business processes, which are sales order, issuing process by packing slip, and finally the invoice document.
The related financial transactions to this cycle are packing slip, invoice, collection, and settlement.
The packing slip represents the physical issuance of products from the company warehouse. This decreases the physical quantities in the inventory and reduces the quantities remaining in the sales order.
After the delivery of goods or services to the customer, the sales team issues a customer invoice, increasing the customer open invoices. This affects the customer statement and customer aging, in addition to the revenue recognition and the cost of goods sold.
The main principles of reporting are reliability of business information and the ability to produce the right information at the right time for the right person. Reports that analyze the ERP data in a meaningful way represent the output of the ERP implementation; it is considered as the cream of the implementation, the next level of value that the solution owners should aim for. This ideal outcome results from building all reports based on a single information source, the ERP solution where the business is recording all transactions on a daily basis.
As shown in the following diagram, the organizational reporting levels are divided into the following three main layers:
Operational management
Middle management
Senior management
Each level has a different perspective of report usage, irrespective of whether it is tactical/short-term usage or strategic/long-term usage, and a different opinion on a report's complexity.
The dimensional characteristic of information is divided into two dimensions; the first is scope of information and the second is types of decision making.
The scope of information defines the required level of detail for each managerial level. Typically, the scope can be described as follows:
Narrow, specified, and detailed: This is the first layer of the information scope for operational management level. Managers in this level, typically, receive information relevant to their particular subunit. They require narrow scope of reports, with details to the lowest level of information (transactional level) and specific to the daily operational work.
Focused, specific, and scheduled: This is the second layer of the information scope for managerial level. Managers in this level, typically, receive summarized information. They require the reports with a scope focused on aggregate and summarized transactional information. These reports cover specific periods: weekly, monthly, quarterly, half yearly, and yearly.
Broad, interactive, and general: This is the third layer of the information scope and is the highest level for top management. They require reports with a broader scope to get more comparisons, actual versus budget, period comparisons, and KPIs, in addition to the aggregated reports that cover specific monthly, quarterly, half yearly, and yearly performance.
The type of decision making used by an organization is another dimension of reporting analysis. Typically, decision-making styles can be described as follows:
Structured: This is a repetitive and routine decision-making style and is best used in the operational layer. This style requires reports that are considered as static.
Semi-structured: This is a mix between the structured and unstructured decision-making style and is best used in the middle management layer. This style requires reports that are considered as static or dynamic.
Unstructured: This style is used by the decision makers at the executive level, who must provide judgment, evaluation, and business insight to evaluate the overall business performance. This style requires reports that are considered as dynamic.
In Microsoft Dynamics AX, there are two ways to post transactions to general ledger accounts. The first type is through the posting profile that represents the integration point between general ledger and subledgers, and it generates the entries automatically according to the posting profile setup. The second type is journal entries that post directly to ledger accounts. The two ways are explained in detail as follows:
Posting profile: This is the integration point between the subledgers (fixed assets, payables, inventory, banks, receivables, project, and production) and the general ledger. It is a set of ledger accounts that are used in generating the automatic ledger entry in which a transaction occurred. It is possible to select different ledger accounts for each type of subledger transaction. Microsoft Dynamics AX offers flexibility in posting profile setups.
Journal posting: The journal model in Microsoft Dynamics AX is a journal header that contains voucher lines, in which the default data in the journal name (header) is copied into voucher lines such as currency and sales tax, which can be changed in the voucher line. Every subledger has its own journal name based on the transaction type.
The voucher line can be a ledger account, vendor account, customer account, fixed asset, bank, or project. If the selected account is an option other than the ledger account, the subledger posting profile will directly post to the ledger account.
There are some common terms that are used in all the phases of the ERP implementation. These terms describe a specific task or activity during the implementation lifecycle, and they are as follows:
Installation: This process is the first step to have the application on your server and client machines. This process examines the installation prerequisites and makes the application ready to be used.
Configuration: This process identifies which options will be activated (checked) according to customer requirements and this will be followed in the day-to-day business (module parameters).
Setup: This process sets up the data within the application, identifying how to group the data according to customer requirements, vendors, items, and chart of accounts.
Microsoft Dynamics AX gives flexibility to be adopted into business needs by personalizing the application, modifying it, or customizing it. This is described as follows:
Personalization: The personalization or enhancements are small changes that occur in the application to fit customer requirements, such as rearrangement of form fields, or it can be company-wide enhancements or can be user based on preferences. The purpose of enhancements delivers more usability to operational data entry users.
Modification: The modifications are medium to large changes that occur in the application to fit customer requirements, such as changing a field's property to make it mandatory, setting a default value for a checkbox in a transaction form instead of making the user select it every time, and developing file validations. It can also be company-wide modifications. The purpose of these modifications is to have more control on application options and behavior rather than modules' parameters.
Customization: The customizations are the largest changes occurring in the application to fit customer requirements, such as changes in an application's business logic and calculations, changes in modules integration concepts and posting profile, and developing new module that are not covered in the standard application modules. Although customization is not recommended in ERP implementation, the purpose of customization is to cover a critical business need to be handled by the application.
Veteran ERP consultants understand how to execute an implementation project. They can call on their years of experience to design a new project that will have a good chance at success. When the next generation of consultants joins the team, these practices will be passed along, even if there is no process in place to manage the knowledge transfer. Many implementation consultants can probably recall their own experience learning as the way it was always done in their previous jobs.
Consulting companies can apply their own implementation methodology based on previous projects, and there is no problem with this as long as the company achieves its objectives and satisfies its customers. The company should also be committed to continuously improving its own methodology and building on it by experience.
However, there is a range of problems with an implementation methodology based on transferring the senior consultant's knowledge and experience to the next class of junior consultants. Such informal or small-scale approaches will lead to variances in implementation approach between different consultants, even in the same company, and it can create differences from one project to another, even for the same consultant. To add to the risk, a consulting firm that depends on consultants to provide an implementation methodology is exposed to a loss creditability with their customers if the consultant is changed and the new consultant will follow his own approach in the implementation methodology, which is different from his colleague.
Alternatively, there is an implementation methodology built up by an experienced organization where information and data have been gathered from a range of experienced implementers, based on the best practices from a broad range of previous projects and experiences, across a range of business domains and client types. That organization is, of course, Microsoft, and the methodology is Microsoft Dynamics Sure Step.
Microsoft brought Sure Step to the Microsoft Dynamics market in 2007 and they have recently launched its online version. The common question from implementers is: why do we need a standard implementation methodology for ERP when we have our own?
At a high level, there are common phases of an ERP implementation project, but the depth and complexity of each phase depends on the nature of the project itself. The procedure to execute the project will depend on the consulting firm and its approach in project execution, as well was its style in managing customers. The phases are diagnostic, analysis, design, development, deployment, and operation. The key characteristics of the Microsoft Dynamics Sure Step methodology are as follows:
It covers the main implementation project phases, activities, tasks, document templates, and output.
It minimizes consultant effort to stop reinventing the documentation and templates.
It not only covers the implementation phases (analysis, design, development, deployment, and operation), but also takes into consideration the sales and presales activities in the diagnostic phase.
It is aligned with other Microsoft methodologies such as Microsoft Delivery Methodology (SDM), Microsoft Solution Selling Sales (MSSP), and Microsoft Solution Framework (MSF). This gives it a variety of guidance built on Microsoft methodologies.
It is designed especially for Microsoft Dynamics products (such as AX, NAV, SL, GP, and CRM).
It complies with Project Management Institute (PMI) methodologies (scope management, time management, cost management, resource management, risk management, quality management, and procurement management).
It includes a huge collection of templates and documents according to phase activity, and shows the integration between phases and activities.
It contains implementation project types customization (Enterprise, Standard, Rapid, Agile, and Upgrade).
Microsoft has announced the Lifecycle Services (LCS) tools to help partner and customer to be more engaged in the Microsoft Dynamics AX implementation project. LCS is a cloud-based solution that provides the required tools to let a customer collaborate with a partner and Microsoft in planning, managing, and operating the implementation project.
The Microsoft Dynamics LCS offers an assortment of services as follows:
Business process modeling
Infrastructure sizing
Rapid configuration
Customization analysis
System diagnosis
Issue search
Upgrade analysis
Microsoft Dynamics AX 2012 revealed significant changes in the user interface, making it more user friendly and easy to use for complex business transactions, in addition to the richness in accessing the application by the client whether via a tablet or mobile.
The Microsoft Dynamics AX application is considered as a single sign-in application, where the active directory is the base of logging in AX. The user logs in to Windows using the username and password chosen at the time of joining the domain on the active directory. In order to add a user to AX, they should be registered on the active directory first.
Rich client is the most commonly used interface accessed by users from their PC or laptop. The Microsoft Dynamics AX workspace is the main screen when starting the rich client.
The Microsoft Dynamics AX workspace is shown in the following screenshot:
The main workspace is divided into the following sections:
The address bar: The address bar or breadcrumb that provides access to Microsoft Dynamics AX companies and or modules is as follows:
The user could navigate to the company by pressing on the arrow icon as shown in the following screenshot:
The user can navigate to the module by clicking on the arrow icon, as shown in the following screenshot:
The user can navigate to the company modules' component by pressing on the arrow icon, as shown in the following screenshot:
The jewel menu: The second part of the Microsoft Dynamics AX workspace is the jewel menu that contains the basic AX commands under the File menu, as shown in the following screenshot:
Under File, there are commonly known commands such as New, Open, and Save, and other specific Microsoft Dynamics AX commands such as Export to Microsoft Excel, Tools (session date, calculator, and so on), and View, as shown in the following screenshot:
The jewel menu also contains the Help icon on the right-hand side, as shown in the following screenshot:
The jewel menu also contains the View icon on the right-hand side to modify the workspace setting, as shown in the following screenshot:
The jewel bar also contains the Windows icon on the right-hand side, to switch between open forms, as shown in the following screenshot:
The Favorites menu: The third part of the Microsoft Dynamics AX workspace is the Favorites menu, which is the upper part of the Navigation Pane. The Favorites menu contains the commonly used submenus, and it is personalized per user. Each user can add or arrange the favorites as per his/their needs. It is similar to the Windows explorer where a user can make a tree of folders and subfolders, as shown in the following screenshot:
In order to add menus to Favorites, go to the content pane and navigate to General Ledger| Journals. Right-click on Journals and then select Add to favorites, as shown in the following screenshot:
Then, move to the Favorites menu, right-click on Favorites, and select Organize favorites, as shown in the following screenshot:
In the Organize favorites form, the user can manage their favorites and arrange the menu according to their needs by adding folders and subfolders, as shown in the following screenshot:
The Navigation Pane option: The Navigation Pane option in Microsoft Dynamics AX is the workspace where the user can access the modules, forms, and list pages, as shown in the following screenshot:
The Chevron icon shows the other modules. The user can arrange the order of modules by clicking on the Navigation Pane Options…. In the Navigation pane options window, use the up and down buttons to order the modules, and it is personalized per user, as shown in the following screenshot:
The Status bar option: This is located at the bottom of the Microsoft Dynamics AX workspace. The Status bar option contains several types of information, as shown in the following screenshot:
The Status bar option has the following information:
Document handling
Help text
Notifications
Currency
Application object model
Application object layer
Current company
CapsLock status
NumLock status
Current user
Session date
Session time
Application object server name
Operation progress indicator
Database activity
The user can manage the information on Status bar from the user options, by navigating to File | Tools | Options | Status bar, as shown in the following screenshot:
The content pane: The center of the Microsoft Dynamics AX workspace is the content pane, where the user can access forms, list pages, reports, and setup. As shown in the following screenshot, the content pane contains the following main sections:
Common: This represents access to commonly used list pages for master data or transactions, for example, in accounts receivable, access to customer details and sales orders.
Journals: This represents access to module journals to create and post journal transactions.
Inquiries: This represents access to modules reporting in the form style.
Reports: This represents access to printable reports that can be shown on screen or printed in hard copy.
Periodic: This represents access to periodic jobs that are being run on a monthly or weekly basis.
Setup: This represents access to module setups and configuration.
The list page: The list page, as shown in the following screenshot (all vendors), shows the vendor list. The user can create a new record from the list page by pressing Ctrl + N, editing an existing record, and/or posting daily transactions.
The list page has the following characteristics:
The action pane: The action pane consists of the action buttons to execute a specific task or activity, as shown in the following screenshot. This is similar to the Microsoft Office ribbon.
The filter pane: The filter pane is a quick filtration on the list page, as shown in the following screenshot:
The search can be executed from the search text, filter by selection, filter by grid, and advanced filter or sort.
Grid checkboxes: The grid checkboxes are used for multiple selections of records, as shown in the following screenshot:
The fact box: The fact box is a new component that has been introduced in AX 2012 to display summarized information about the selected record, as shown in the following screenshot:
The preview pane: This displays more detailed information about the selected record, as shown in the following screenshot:
The fast tab: This consists of a group of fields. The fast tab replaces the regular tabs on the form and also displays some summary fields, as shown in the following screenshot:
In this chapter, we discussed the introduction of ERP and its main characteristics of modules integration, with general ledger (it will be covered in detail in the next chapters), and then discussed posting types in Microsoft Dynamics AX. We also explored the ERP implementation team and the role of the application consultant in the implementation project. Then, we covered ERP reporting levels and needs, after which we moved on to Microsoft Dynamics Implementation Methodology Sure Step and LCS, and explored the interface of Microsoft Dynamics AX 2012.
In the next chapter, we will cover the general ledger, the types of main accounts, classifications, and control points. We will also explore the practices in the financial implementations of Microsoft Dynamics AX 2012.
