Everyone Wins with QAD Financial Shared

Services

September, 2013

Everyone Wins with QAD Financial Shared Services Executive Summary

Multi-national enterprises face a never-ending balancing act between giving individual

business units and entities the unique resources required in order to be successful, yet

ensuring best practices and best processes cascade down from corporate. And

nowhere is this constant multi-national push and pull between centralized and

decentralized felt more than in finance and accounting.

For example, individual business entities may need their own chart of accounts, and

customer and supplier transaction visibility. At the same time, the corporation wants a

full-company view of financials, and wants to ensure that customers and suppliers do

not gain unnecessary financial advantage because of a lack of integrated visibility.

The ability to transact and report financially at the entity level, yet also do so smoothly

across all entities, might seem like a far-reaching goal, but fortunately with QAD

Financial Shared Services, or QAD FSS, it is entirely possible QAD has a long list of QAD

FSS customers to prove it.

In fact, the architectural foundation for QAD FSS already exists, built-in, as part of QAD

Enterprise Applications in general, and QAD Enterprise Financials specifically. Taking

advantage of the QAD Domain Architecture, QAD FSS does not interfere with entity-

specific financial attributes, yet reaches across all entity data in support of a long list of

centralized finance and accounting related benefits.

In addition, QAD FSS directly supports companies wishing to pursue a Shared Services

model for finance and accounting operations, whether the company desires a quick

on-ramp or an evolutionary approach. With Shared Services, companies combine the

administrative and operational units of multiple business entities into a more centralized

unit for the purposes of economies-of-scale and the establishment of best practices. A

financial application that is able to bridge the single view of finance back to the

individual entity is required, and that is exactly what QAD FSS does.

Whether an enterprise wants to rid itself of inconsistent global financial processes and

exception handling, or is looking for a consolidated financial view of the business, or is

looking to hold down costs and risk associated with financial operations, or wants to

simplify its banking and cash management infrastructure, QAD FSS helps. Particularly in

the accounts payable, accounts receivable, and General Ledger functions, QAD FSS

ensures that multi-nationals have the best of both worlds where both the corporate

purview and the specific business entities win.

An Introduction to Financial Shared Services

What is Financial Shared Services?

A growing number of large organizations use ―Shared Services‖ to gain efficiency and

effectiveness in administration and operations. With the Shared Services model,

administrative and operations teams work for more than a single business silo, versus

working strictly for a single business unit such as a subsidiary, line-of-business or

functional department. In fact, some companies create a centralized Share Services

group to service the needs of many or even all business units.

Organizations using Shared Services are better able to flex operations to address peak

workloads as they surface in various business functions. Shared Services also reduce

error-related risk associated with overstressed individual operational units. While often

centralized, Shared Services groups still answer to the business units they serve,

negotiating and meeting service levels similar to a business process outsourcing

approach. The net effect is overall improvement in internal and external service levels,

with a decrease in costs.

Finance and accounting (F&A) related business processes are usually the first, and

sometimes the only, processes to move to a Shared Services model. In the vast majority

of organizations, F&A related processes permeate more of the business than any other

set of processes. Plus, there are additional business benefits that accrue to a company

through Financial and Accounting Shared Services beyond the more obvious

―economies-of-scale.‖

In fact, the payback on Shared Services does not merely involve reorganizing

administration and operational groups and sharing work. The related ERP applications,

and specifically the financials modules, must also similarly flex, provide applicable

security, offering a consistent user experience to help make the shifting of roles by the

same worker seamless, and to maintain separation of duties for compliance and

auditing purposes.

Architecturally speaking, the best ERP approach to Shared Services involves a distinct

module designed specifically to help an organization adapt to the shared model, while

ensuring all the appropriate controls are applied – this type of architectural approach is

especially important for Shared Services used for F&A purposes.

QAD offers Financial Shared Services (FSS) within the QAD Enterprise Financials solution

set, that helps organizations to adapt and perfect a move to a Shared Services

approach for F&A. QAD FSS is designed precisely to support organizations melding their

F&A administrative and operational functions to improve service levels and gain

efficiencies, while ensuring all the necessary controls required for finance and

accounting are enforced. But beyond pure efficiency, companies using QAD FSS

realize a long list of other benefits, such as better customer and supplier visibility,

optimized document-related workflows, instituting the right controls for integrating

mergers and acquisitions, and the establishing of best practices and corporate-wide

accounting standards.

Before delving into some of the details of the F&A functions, flows and benefits

addressed by QAD FSS for the purposes of Shared Services, let us first examine how an

organization might approach putting a Shared Services model into place, and where

QAD FSS fits into that evolution.

Financial Shared Services Evolution

What does a Shared Services model look like from an organization and an ERP

perspective? Below illustrates four approaches a company might take towards

financial administration and operations organizational structure, and related Financials

software and data instances. The four approaches may also serve as a potential

evolutionary model for companies to move from operational silos to Shared Services.

In Figure 1, each business entity possesses its own administration and operations group

for F&A, and a specific instance of QAD Enterprise Financials, with each instance using

its own data ―domain.‖ Everything is separate, such as login, chart of accounts, and

data storage for each business entity or unit, and its relevant domain.

Figure 1: Financial Operational Silos

In Figure 2, the company realizes that it makes sense for the individual finance

administration and operations groups to share work to achieve some tactical

economies-of-scale. However, since each unit remains in a silo, best practices and

common workflows have not been established, and risk may ensue due to confusion

over mixed workloads and access.

Figure 2: Shared Financial Work

In Figure 3, the company has centralized its finance administration and operations

team, which allows the team to flex to various workload demands, to share a common

calendar, and to implement best practices. However, each QAD Financials instance still

requires a separate login, with related security risks, and differing chart of accounts and

financial flows. The Shared Services organization may be in place, but the matching

enterprise financials solution is not quite ready to match the goals of the Shared

Services unit.

Figure 3: Financial Shared Services Team Centralized

Finally, in Figure 4 the QAD FSS module has been implemented which allows for a single

login for each financial administrator or operations person, a shared chart of accounts,

intercompany accounting and a long list of other benefits. QAD FSS ensures accurate

posting to the individual domains, and all administrative and operations personnel are

exposed to a common usage experience. FSS also enables the opportunity to

reengineer accounting flows, obtain better customer and supplier visibility, and a

variety of other business process improvements – which will be discussed in additional

detail the next section.

Figure 4: Completed Financial Shared Services

Business Benefits of Financial Shared Services

Companies in search of global business process optimization, particularly in financial

functions, find that QAD Financial Shared Services (QAD FSS) offers a wide range of

benefits. In terms of tactical business functions, the benefits QAD FSS are mostly realized

in Accounts Receivable (AR), Accounts Payable (AP) and General Ledger (GL)

accounting. In terms of core technical functionality, QAD FSS supports the sharing of

data to enable cross-entity visibility and transacting.

At its most basic level, QAD FSS is able to initiate payments or receive cash in a different

entity than the originating entity, and it will automatically generate and apply backend

intercompany transactions. While QAD FSS in this context of Shared Services seems

straightforward, the resulting strategic and functional business benefits are dramatic.

Examples of such benefits follow in terms of overall benefits, and then benefits

associated specifically with AP, AR and GL.

Overall Business Benefits

Agile Business: Customers of QAD FSS are able to standardize accounting

practices and charts of accounts across all legal entities and countries —

including smooth management of multiple charts of accounts, which results

in more well-understood and shorter financial process flows. Customers and

suppliers will notice the difference in responsiveness, and the company will

enjoy a more streamlined setup to enable quick entry into new markets either

organically or through acquisition.

Lower Costs: Economies-of-scale associated with QAD FSS optimized business

processes result in the reduction of back-office costs. Features like standard

financial master data shared enterprise-wide help the company better

balance workloads and help each individual worker become more effective.

Lower Risk, Fewer Errors: Features such as standard data formats and user

interfaces reduce error counts, and facilitate error and exception handling,

resulting in an overall reduction in risk associated with financial operations

and processing.

Additional Working Capital: QAD FSS enables centralized cash pooling,

which frees up working capital that previously was bottled-up in individual

business entities.

Shared Accounts Payable Benefits

Central management of suppliers: The optimal situation in AP is to keep

suppliers happy while controlling cash flow. With QAD FSS and a Shared

Services organization, companies are better able to ensure correctness of

payments to suppliers, while at the same time minimizing paperwork, rework

and unnecessary pre-payment.

Smaller financial infrastructure footprint: In a QAD FSS enabled Shared

Services implementation, companies often reduce the number of bank

accounts and check printers because of the centralized nature of payable

handling. This enables

the company to

reduce local cash

reserves, improve cash

flow and simplify

banking. Since

suppliers may receive

a single check

covering multiple

invoices,

recordkeeping

volumes decrease.

Stronger Leverage

through Supplier

Visibility: The multi-

entity visibility of

payables, supplier

balances and supplier history provided through QAD FSS enables all units and

entities to view a supplier’s position for the overall company. And with the

ability initiate a supplier payment on behalf of another entity, or to combine

QAD FSS Benefit Snapshot

Stronger Buying Leverage

In Accounts Payable with QAD FSS, different entities

receive invoices from various suppliers, and the

invoices are entered, matched, and approve for

payment. However, QAD FSS offers full visibility to

the supplier position across all business entities,

helping the company to assess appropriate

discounts and terms for the supplier. The Shared

Services unit using QAD FSS initiates a centralized

payment run, closing the payable document in the

individual entities, and creating an intercompany

position between the shared services center that

made the payment and the business entity that

owned the payable.

supplier payments with automated handling of resulting intercompany

transactions and positions, the company may leverage the best available

terms with the supplier.

Shared Accounts Receivable Benefits

Central management of customers: The optimal situation in AR is to ensure

customers meet their terms of payment, across all payables, and to convert

receivables to cash as quickly as possible. With FSS and a Shared Services

model, companies

have a full view of

receivables associated

with a particular

customer, and

therefore are able to

centralize dunning

notice generation

when applicable, and

more accurately

monitor and set credit

limits.

Balance Sheet

Visibility: For inter-

period financial

reporting analyses

purposes and on-

going balance sheet

management, the shared AR model engendered by QAD FSS makes it far

easier and more accurate to monitor receivables balances.

Cash Management: The shared approach offers the company insight into

the flow of cash conversion and collection. Plus, the ability to for a unit to

process a customer payment on behalf of another unit, with automated

handling of resulting intercompany transactions and positions, ensures the

most rapid collection.

Shared General Ledger Benefits

Single or Shared Chart of Accounts Eliminates Confusion: Maintaining

multiple charts of accounts often undermines the entire notion of Shared

Services for F&A purposes. With QAD FSS, however, a single, logical chart of

accounts may be identified for the Shared Services operational personnel,

with FSS handling account mappings in the background.

No More Multiple Manual Journal Entries: The Shared Services team may

directly create journal entries that cross multiple entities or unit – only once.

Reconciliation Efficiency: The intercompany postings automatically

generated by QAD FSS create links between entities, which in turn enable

automatic reconciliation and/or reduce redundant reconciliation.

QAD FSS Benefit Snapshot

Cross-Company Credit Management

In Accounts Receivable with QAD FSS, different

business entities still send invoices to the same

customer, but all business entities have visibility

into the customer’s position. The cross-entity

visibility allows for centralized and optimized

credit management and dunning processes. In

terms of collection process, the payment is

collected centrally, which closes the receivable

document in the individual entity, and creates an

intercompany position between the shared

service center that holds the cash for the entity

that held the receivable.

Every company that uses QAD FSS to help enable a Shared Services model naturally

enjoys its own unique set of benefits, and those benefits will alter over time since they

reflect a company’s business model. No business model remains static, particularly for

multi-national enterprises. But the fundamentals of being able to share financial data

cross-entity, to view customers and suppliers as if there was only a single business entity,

to build best practices for F&A operations around a common ERP Financials front-end,

and to have corporate-level visibility without sacrificing required local treatment of

financials are features that keep giving no matter how a company’s business model

evolves. Companies consistently find that an investment in QAD FSS keeps providing

ROI over the long-run.

How does QAD FSS actually work from a technology perspective? Fortunately, QAD has

gone to great lengths to ensure that the technology underlying QAD FSS is as invisible to

customers as possible. However, IT personnel and some operational business analysts

are not only curious to understand how QAD FSS works, but need to have a basic

understanding in order to help support QAD FSS. Therefore, the upcoming section offers

an overview of the secret technical sauce of QAD FSS.

QAD Financial Shared Services Architecture and

Implementation

An Introduction to the QAD Domain Architecture

QAD Financial Shared Services takes optimal advantage of the QAD Domain

Architecture. Both QAD FSS and the underlying QAD Domain Architecture are available

on QAD Enterprise Edition and the most recent editions of QAD Standard Edition.

The QAD Domain Architecture enables different business units and entities, with

potentially different financial and operational structures and needs, to operate from a

single physical QAD Enterprise Applications database. To each business unit or entity,

the setup process for all QAD applications, including QAD Enterprise Financials, looks

just like a separate version of QAD is being implemented. For example, each entity may

choose its own chart of accounts and its own base currencies. This type of logical

flexibility often proves essential for merger and acquisitions, where a newly acquired

company is added to QAD Enterprise Financials to reflect its own coding and account

structure. Similarly, companies starting to do business in new countries may have

complex subsidiary or agency structures that demand a unique ERP solution.

Using the terminology of QAD Enterprise Applications, each logical business entity or

unit setup may use its own ―domain,‖ or may share a domain with other entities.

Technically speaking, each domain is a logical partition within the single physical QAD

database, as illustrated in Figure 5.

Figure 5: Example of Domain Architecture

Most data within a QAD Enterprise Applications database includes a domain attribute

that identifies which domain the data ―resides‖ in, albeit virtually. The domain attribute

data is essential to ensure that, for example, all transactions are posted to the

appropriate entity. Furthermore, the QAD Enterprise Applications database is indexed

by domain, which contributes to QAD database and dependent applications’

performance optimization.

It should be noted that the first domain setup in QAD Enterprise Applications acts as the

default domain, or template, for all future domains. Therefore, the initial domain often

reflects the ―corporate‖ defaults, and the initial domain should be pre-populated with

common codes and settings. Also, when a new domain is created customers need to

identify at least one ―shared set‖ of code and data across the domain, including

customers, suppliers, accounts, sub-accounts, cost centers, projects, daybooks, and

exchange rates.

However, QAD Enterprise Financials operates a little differently than the rest of QAD

Enterprise Applications and that difference is what makes QAD FSS work: QAD

Enterprise Financials shares data in the financial tables without replicating it to individual

domains, whereas QAD Enterprise Applications replicates data automatically to all

operational and transactional tables once the domain setup is complete.

That means that QAD FSS can reach across and into the shared sets of data in each

domain yet maintain its own core set of data. This best-of-both-world architectural

approach, supporting entity-specific requirements, yet spanning the organization

financially, is what enables QAD customers the flexibility of using domains for different

entities, yet use to QAD FSS to treat financial data and transactions as if they were

taking place centrally. QAD FSS contains all the data knowledge and logic to tie it all

together cross-domain.

Security Considerations

It is precisely the combination of QAD Domain Architecture and QAD FSS that ensures

that proper security is applied for a full, centralized Shared Services implementation and

in cases where there is a mix of domain-specific operations and Shared Services

operations.

Quite simply, all security in QAD Enterprise Financials and QAD Enterprise Applications is

handled centrally, with further security overrides and customization at the domain level.

That way, standards for role-based access, and separation of duties, are enforced at

the corporate level, with additional refinement that might apply, for example, for a

specific country implemented as a domain. QAD FSS uses that layered security model

to deal with, for example, which worker(s) may or may not post transactions for a

specific entity from a Shared Services unit.

Implementation Considerations

Customers using QAD Standard Edition will find that it requires that all entities and

domains must use the same base currency and a very similar chart of accounts – QAD

Standard Edition lacks some of the domain-oriented flexibility offered by QAD Enterprise

Edition. Similarly, entities, part numbers, customers and other shared information must

be identical in Standard Edition, albeit not in Enterprise Edition. That said, however,

Standard Edition with FSS handles centralized procurement and Accounts Payable.

QAD Enterprise Applications Enterprise Edition does not require common base

currencies, charts of accounts or other information to be identical across entities and/or

domains. Thus, QAD EE in conjunction with QAD FSS fully handles intra-company orders,

centralized receivables and payables, and GL, but it does not yet handle centralized

procurement.

When you plan to use customer or supplier records across multiple entities, assigning a

profile code to the record maps transactions to the correct general ledger account for

the entity so that it is possible to generate entity specific reports and financial

statements. This trick helps QAD FSS access certain data required for cross-entity

customer and supplier visibility.

While implementing the QAD FSS module is a relatively straightforward IT undertaking,

QAD suggests that interested customers engage with QAD experts and educational

services. It is imperative that the proper QAD Enterprise Applications and QAD

Enterprise Financial versions are implemented, and that certain data characteristics

have been enabled. Customizations may need to be addressed as well. Finally, QAD

wants to ensure applicable administration and operations personnel are well-versed in

the business flows availed by QAD FSS.

Conclusion

QAD Financial Shared Services provides a foundation for any multi-national or multi-site

corporation to increase the effectiveness and control of the financial management of

the company, and is a perfect partner to Shared Services organizational efforts. Once

deployed, the company will enjoy simple yet flexible transaction processing and

reporting with unprecedented customer and supplier visibility and control across the

entire business. Some of the key benefits include:

Establishing standardize business and accounting processes by consolidating

processing into a single group or location, which results in improved data

accuracy, reduced costs and the elimination of redundant financial

infrastructure.

Providing better supplier and customer visibility because all external financial

activities are ―shared,‖ resulting in reduced risk through centralized credit

management, improved contract compliance in procurement, and ensured

consistency in pricing and discounting with customers.

Freeing up working capital and increasing cash flow by eliminating local cash

reserves and speeding cash receipts availability

Enable better financial controls by improving audit processes, providing full

cash and accounts payable visibility.

QAD FSS, combined with the QAD Domain Architecture, enables companies to enjoy

the best of both financial worlds: The ability to meet business entity-specific

requirements through unique domain implementations, yet the ability to view, transact

and report across the breadth of the multi-national company.

For those multi-national organizations that are exploring the potential path of Shared

Services, or are already down the path partially, and would like to understand more

about how QAD FSS will help them in that pursuit, please visit QAD.com to learn more.