We all have come to know the reason for Credit Crunch and its harmful effects.  However, if we try to get into microscopic view, we see the problem can be resolved.

Again  lets not solve the problem by getting into what the banks need to do or need not to do.  Lets try to get into the shoes of a person who is running a SME or a small manufacturing firm.  

Suddenly with some crisis in the West, the SME guy is not able to get credit limits from his bank.  Suppliers have reduced the credit period, his customers have increased the payment period.  Liquidity is drying up.  Adding to this,  demand is falling, inventory is piling and expenses are mounting.  What can be done!!!  The SME guy just invested some amount on a accounting software.  Wont that software help the guy in atleast in some way to control costs.  Is an accounting system just a mere replacement of books?

The answer is no- An accounting system be it Tally or any major module of renowned ERP suite can easily give you some analysis of the state.  A bit of tweaking here and there can help give you a summarised information that can not only give a true picture of the state the company is going through but also it could be a good tool to gauge the efficacy of the measures taken to tackle credit crunch and expenses.  Lets go back to basics, what we learnt in our MBA Days

Expense Analysis

Although a normal accounting software tells you where the expenses are done.  But it is also important for a software to help you analyze the data that is present in the accounting system.  Some of the important analysis could be 

• Current v/s Last Month Expense Analysis
• Current Quarter v/s Previous Quarter Expense Analysis
• Current Half Year v/s Previous Half Year Expense Analysis
• Current Year to Date v/s Previous Year to Date

These analysis are not any rocket science.  The major problem for these analysis is the proper source of the data.  Building a solution on the accounting software where it can be safely assumed that accurate data would be present is the major challenge.   Moreover, the analysis can be done at any point.

ABC Analysis 

ABC analysis is the method of classifying items involved in a decision situation on the basis of their relative importance.  The classification may be on the basis of monetary value, availability of resources, variations in lead time, part criticality to the running of a facility, new customer parts unique to that product and others

"A:- items are the highest priority, the tightest control, frequent deliveries, close follow-up and accurate records.  Planning and Scheduling these parts utilize MRP (Material Requirements Planning), DRP (Distribution Requirements Planning) or EOQ (Economic Order Quantity) or other lot sizing techniques such as Lot for Lot 10% of the "A" items volume accounts for 70% of the total inventory value

"B" items are prioriry when low or out of stock.  Normal control is used and good records are maintained.  EOQ and other lot sizing mehtods can be used effectively with these items.  "B" items account for 20% of the total inventory value, and 20% of the inventory volume.

"C" itmes are the lowest priority, simplest method of control.  Min/Max used for ordering.  These parts are usually expensed, as there are no records for them.  These parts represent 10% of the total value and 70% of the volume

Again the software designed and developed on any prevailing accounting system must have the following features

• The analysis must be carried out based on the Rate, Value, Quantity of inventory items
• Ability to define the criteria for ABC Analysis
• Choose the range for each type of groupings

Thus these are simple steps that help an SME organization to face tough times.  This is what i as a software professional felt we could combat these tough times using software.  I would really appreciate feedback on this.  

Vignesh Iyer

Pumba Class of 2008

Email: iyervigneshr@gmail.com