The Impact of Accounting Information Based on Electronic Data Interchange (EDI) on Increasing The Revenues of Small Medium
Enterprises (SMEs) in Indonesia
By: ELIZABETH T. MANURUNG Full time lecturer
in Accounting Department of Economics Faculty Parahyangan Catholic University, Bandung – INDONESIA Jl. Ciumbuluit No. 94 Bandung 40141 – West Java, Indonesia
[email protected] http://www.unpar.ac.id
Abstract
Increase in production which is produced by Small, Medium Enterprises (SMEs), such as batik handycraf, toys, miniature of temple or wayangs, and another households, nowadays, indicates good performance of economic development. The buyers of these products are tourism from abroad, or order from foreigners in their countries.
Many handycraft is promoted locally, so the craf just sold only to foreigners which come to that region. Actually, the volume of products sold can be increased, through the distribution of channel as the supermarket/mall or other retailer in the big city, in order to be easily accessable by the buyers.
To increase this type of sales, SMEs and their distributor need knowledge and information about their product. And using information technology supporting EDI can fulfill the information need by them. Direct network link between SMEs and distributors provides certain information, such as information about inventory availability, and schedule production of specific product in SMEs is useful to distributors. And also, SMEs can know the balance of each product in retailer/distributor at any time. Knowledge about these information can produce easily deliver of product,prevent from stock out and excessive inventory, reducing ordering cost, carrying cost, time consume, the complexity of distribution, and last but not least EDI via internet is also useful to promote their products through e-commerce. Finally, all of
these will result in the increase of sales volume of the SMEs
However, to implement information technology,SMEs need large amount of investment and skilled labor. Therefore to realize this idea, the government and big company as well as academic institution should cooperate to help in financing as well as training to increase labor skill.
Key words: Information technology, Electronic data interchange, accounting information, Sales Volume, Small, medium enterprises.
1. Introduction
The global-crisis has great impact on companies doing export-import. Volumes of export decline drastically due to the reduced consumption on the part of the importer countries.
On the other hand, import transactions of our country –even in the same volume—would become more expensive, due to the inflation in the exporter country.
A different situation showed by micro, small and middle level entrepreneurs (it’s called UMKM). The data shows they are more resist able in financial crisis, as the case in 1997-1998 (BPS:
2000/2001). Micro-business in general does not need materials from abroad (foreign countries).
These products are sold at local market, so, the demands are stable (no crisis impact). The micro- business will always exist. Besides, the businesses need huge number of human resources. The
banking business provide good information about micro-business, which is very small credit (loan) to those micro-business company become bad debt (Credit Dept of BI: 2002).
The crisis has been lowering the buying power of people since goods/services prices get higher and higher. In addition, those used to consume imported goods will shift to local ones, including those produced by Small and Medium Enterprises due to price increase. This becomes like a blessing in disguise for the SME, that is, their production volume increase.
Based on statistics, until May 2009 (Kontan:
26 Mei 2009) the SMEs’ production volume had been increasing at about 2.5%. As delivered by the Industrial Department, the industrial growth had been recovered since the 1st quarter of 2009. It was expected that the trend would be even better on the second quarter, especially in textile, footwear, and food-drink.
Various products, such as handicraft from villages or cities, showed an excellent growth (as mentioned a bove). These products are: various kinds of clothes, food & snacks, shoes & sandals, furniture, wood & rattan, steel, synthesis-grass, lidi & sabut kelapa, toys, food in can, home tools, knitted textiles, gerabah, etc.
Most of these products were promoted in their region, or through exhibitions, and sold to the buyer –local n foreign tourist whose visiting the exhibitions. With this kind of marketing, the buyer seems to have difficulties to get the products, if they couldn’t come to the exhibitions (in other place).
Basically, the sale of SMEs products can be made higher by making them closer to its customers. One of the marketing models followed is through retailers, such as supermarkets, malls, and other retail stores. Sales through retailers can run more smoothly if the SMEs and the Retailer are made easy for exchange of information, such as via EDI (Electronic Data Interchange).
Through EDI, databases between SMEs and the Retailer will be linked electronically, so each party will be able to transact the exchange of relevant information. Information that can be known by retailers such as the mutation of inventory, production schedules in SMEs, while SMEs can find the final balance of each product on the retailers. (O Brien et al: 2008). Knowledge
of this information is very important to facilitate and accelerate the delivery of goods to the retailer-retailer network of SMEs in the various regions. The seemingly good growth of goods turnover trade between the parties will increase sales of SMEs which in turn will add to earnings in the SME sector.
2. Electronic Data Interchange (EDI)
2.1. The Concept of EDICISA Review manual (2008: 230) defined EDI as : “Electronic Data Interchange is one of the first e-commerce applications in use between business partners for transmitting business transaction between organization with dissimilar computer systems”
EDI document describes the changes in the processing of electronic-based business transactions, via the Internet and other networks, among the parties to a transaction (the company, customers, suppliers, banks, etc.) data in the form of business transaction documents in the transaction connected via the Internet, such as purchase orders, invoices, requests for quotations, shipping notices, etc., electronically transformed into an electronic document formats that have been standardized. In order that there is specificity in the use of EDI software, the company will convert the document format that has been used, the EDI standard format that is relevant to related industries. Therefore, said differently, EDI is an example of almost complete automation in the supply chain based on electronic processes. (O Brien et al: 2008)
The data in EDI transactions are conducted through the transmission network connections between different computers on the parties concerned without paper documents and without the direct influence of humans. Data can be associated with a third party, such as banks. For example, EDI is used by Global Exchange Services: General Electric Company, who acknowledged providing various value added by various offers its EDI services to various parties.
Even if, at the time of its formation, is still recognized need substantial cost. In today's development, a provider of EDI services has offered a relatively cheap, with the benefits and improved security. (O Brien et al: 2008)
The following image shows an illustration of one type of system that can be used Electronic Data Inetrchange
Figure 1. An Example of Electronic Data Interchange activities
The explanation about Figure 1:
Purchasers will order goods to the supplier to send a purchase order online. Supplier will check the goods ordered. When matched, it will be sent to the buyer. Then, through the electronic media, shipping notice will be sent also. Buyers contact the bank and send the order to pay some money to suppliers. The bank will contact the bank's supplier partners through the clearing process, banks will credit the supplier partner supplier's account, meaning the money to the buyer, has been accepted.
2.2. The Benefits of EDI
Some of the benefits gained when companies implement EDI, including the following (CISA Review Manual: 2008, 230):
1. Reduce use of paper
2. Reduce mistakes (errors) during the process / exchange of information
3. Improve the flow of information: a database to database, company to company
4. There are no data account is not required 5. Reduce the communication delay
6. The process of preparing invoices and payment are better
3. The information produced by accounting
Weygandt et. Al: 2004, describes the definition of accounting as a financial information system that can be defined as “…accounting is a process
of three activities: identifying, recording, and communicating the economic events of an organization (business or non-business) to interested users of the information.”
Financial Report of an enterprise consists of:
Balance Sheet, Profit-Loss, Cash Flow Statement and Notes to the Financial Statements. These reports describe the company's financial condition, revenues and expenses, cash flow, and other records to be published.
4.
The resulting accounting information related to EDI
A few major accounting information resulting from EDI implementation, including the following:
a) Request for quote (buyer ask supplier price list)
b) Purchase Order
c) Purchase Order Change
d) Receiving Notice (summary of goods receipt) e) Payment Advice (information about cash payment for certain order)
f) Response to request for quote (information price list from supplier)
g) Purchase Order acknowledgement (order confirmation from supplier)
h) Status response (information about order that have been processed by supplier)
i) Shipping Notice (delivery order) j) Invoice
k) Payment Remittance Notice (summary of order have been paid)
l) Inventory Subsidiary Ledger
In addition to documents that are exchanged, there are also some relevant data and can be accessed from a database of connected, between the parties that deal. Some examples, as follows:
(1) Material Requirement Planning (2) Master Production Schedule
Ad. (1) Material Requirement Planning
Material requirement planning defined as a technique that determines the timing for ordering and receiving dependent unit, such as integral part or suassemblies of the main product
Table 1. MRP Form Wee
ks
Gross re
Sch edul
On Han
Net requ
Planne d
quirm ent
e rece ipt
d ire men t
order receipt
1 30
2 30
3 30
4 30
5 30
6 30
7 30
8 30
9 240 0 210 210
10
Source: Romney: 2009
Ad. (2) Master Production Schedule
The Master Production Schedule is specifies requirement for all product in each time period.
Usually the most common period is one week. In other word, the production of main product is based on a specific production plan is called/name The Master Production Schedule
Table 2. Master Production Schedule Product number: 120 Description: DVD Player
Lead ti-
me: 1
week
Quantity on hand
Schedule Producti on
Forcasted sales
Net Avai lable
Week 1 500 150 300 350
2 350 300 300 350
3 350 250 300 300
4 300 300 250 350
5 350 250 300 300
6 300 400 250 450
7 450 250 400 300
8 300 300 250 350
Source: Romney: 2009
5. Micro, Small and Medium Enterprises in Indonesia
So far, the MSME sector in Indonesia has shown the resilience of its business, especially when the country was hit by the economic crisis such as in period 1997-1998. At that time, SMEs have become the main support economic sector, and has been able to absorb labor in very much.
(BPS: 2000 / 2001)
In its development, there are weaknesses identified SMEs product is difficult to reach by the community, because generally sold in the area
of origin producing the product. When the marketing of these products can be expanded, and brought closer to the customer, the sales volume that can be done this sector will increase. Thus, SME sector revenues will increase as well.
Increased income derived by SMEs can be used to develop a better business. Since until now MSME sector still seems to need improvements in various aspects, in order not to be vulnerable sectors influenced by crisis, MSME can be improved in its competitiveness and can actually be a pillar of national economy.
6.Analysis
In this Electronic Data Interchange implementation, SME database has been linked with a database of retailers solely to the relevant information only (limited information). Thus, SMEs can access the document, such as inventory subsidiary ledger, from various retailers. MSMEs can see whether the number of products marketed in particular retailers’ inventory has reached a minimum balance. Without waiting for orders from stores, SMEs can send goods to retailers of the usual order, and create a set of shipping orders online. As for the retailers themselves, they can access information, such as from the master production schedule for the MSME database, and view the production schedule information and the amount of goods that are ready to be sold through stores. This will help retailers deal with rush oder.
The existence of the quick and easy necessary exchange of information enables smooth increase sales, avoid delays in processing orders and delay in delivery of goods, and avoid stock-outs.
Increased smoothness sales transactions between SMEs with all retailers will generate more sales to the customer smoothness. All customers are interested in buying these products, go to the store to live / nearest supermarket to buy it, are no longer need to go to the product-producing regions. Both cases will ultimately increase sales volume income for SMEs and retailers.
Besides of that, since paperless transactions are processed, there will be savings of expenses such as costs of paper usage, cost of the use of telephone / fax / photocopy of ordering cost, carrying cost, and opportunity costs, costs of production delays, and others. With rising incomes SMEs and retailers, and other related costs that can be minimized, greater profits can be obtained eventually. Because SMEs increased
profits, the wealth of the MSME sector also increased, and in its time the craftsmen can live more empoweredly, and can develop better products and a wider market through e-commerce (Daft and Macintosh: 1984).
The evidence of this explanation, we can take an example in Jogya Super Market in Bandung city – Indonesia. Jogya Super Market is medium enterprise which has been using EDI. The EDI connected with about 5.000 micro enterprises in West Java as a supplier of its merchandise inventory. The advantage of this/using EDI is very clear in better time management. The time for purchasing which is took 2 fulldays in a week is no longer needed. Besides of that, about 5.000 micro enterprises are really gratefull for the more valueable selling activites, and also for a better revenues to make a better wealth of people in micro sector
Things that need further thought is, the cost required to conduct EDI device. To overcome this, it can be pursued such as large companies provide assistance through 'corporate social responsibility' to help them empower SMEs. Governments can facilitate this through subsidies, of course after selecting SMEs that can produce superior
products local.
In addition, because the use of information technology requires a particular skill, then the employees will need to get an education and training. This is where the role of universities and educational institutions contribute to the development employee, in order to be ready to be employed (as operator), for example through community services.
7.Conclusion
The increased production generated by the craftsmen of MSME is not accompanied by a commensurate increase in sales. This is due to limited marketing and sales are conducted only in areas producing these products, or through the exhibitions.
SME products sales can be extended through retailers / shops in various areas. To facilitate this, the device can be use EDI. This will benefit the parties to a transaction, the cost savings, simplification and facilitation of distribution, avoid stock-outs, control the rush-order, expand marketing, and ultimately increase revenue MSMEs.
Aid subsidies for the implementation of this device are expected to be provided by large employers or the government. Meanwhile, employees learning, either through education or training, may be provided by higher education or related departments
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