Billy Kazantzis explains why manufacturers need a pack mentality to fight evolving ERP and taxation dangers
In the animal kingdom, lions are particularly renowned for their insidious hunting tactics, working as a team to circle in on their prey from either side rather than tackling head-on. In doing so, even the biggest of animals panic as they try to outrun an attacker, surrounded.
Now, manufacturing professionals are also approaching a perilous predicament. However, it’s not a pack of hungry lions drawing increasingly closer; instead, a natural progression in both their ERP and more particular finance functions that are coming to a head. Without the right strategy, manufacturers risk clambering onto different fronts and quickly becoming overwhelmed.
The bones of manufacturing
To address this, it’s important to dig into the details of precisely what’s coming down the pipeline. First, it’s worth examining how various companies in the manufacturing space are assembled. Often, they’re built on a legacy of acquisitions and partnerships. There’s no doubt that this is a feasible business strategy, but one that comes with multiple disparate systems plus different methods of working and processes, all of which must be consolidated into the organisation to operate seamlessly.
Nonetheless, manufacturing makes up almost 20 per cent of the UK economy. In an industry known for its innovation, this conflation of new business areas represents a fresh problem to dissect and fix. Problems arise when these systems are explored at a deeper level. The workarounds are usually complicated and highly diverse, amalgamated in countless ways from company to company. As a result, issues can arise from two separate areas.
To start, the details of systems are only apparent to those that designed the fundamental API links and workarounds themselves. Also, they often require lots of maintenance in order to continue functioning, particularly when new components are added.
In addition, sometimes the systems yield data that’s very tricky to share across different areas of the organisation; in certain cases, data is completely siloed. Previously, this might have worked for many manufacturers but, now faced with circling lions (so to speak), businesses built this way need to be increasingly worried.
The first lion: tax
In the UK, 1st April saw the advent of Making Tax Digital (MTD), indicating a point where all companies with revenues of £85,000 or more (excluding the delay for speciality or ‘complex’ cases) had to sign up to HMRC’s new digital system for filing VAT tax returns.
To start, ensuring that any MTD-compliant software can reach all of the crucial information to fully capture orders and revenue is tremendously more complicated across disparate systems. At the very least, in-house API solutions will have to be recalibrated once again in order to adhere to the requirements of MTD, taking up valuable time and resources. Unfortunately for larger contributors, the simplified version of MTD may not be sufficient; a complex VAT group filing submission will ensnare resources for longer time periods.
Turning towards the future, however, there are many more necessary tax changes coming down the pipeline; MTD implementation could only be the beginning. In 2003, countries in Latin America pioneered a more proactive, digitised reclamation in a bid to plug the huge VAT gaps that they were enduring. To combat this, countries such as Brazil established mandatory pre-clearance electronic invoicing and real-time reporting.
Recently, similar mandates have been put in across Europe with the likes of Italy, Spain, and Hungary all implementing their own versions of electronic invoicing and real-time transactional reporting. HMRC will be watching these developments closely – something that manufacturing businesses will need to confront in terms of financial information being made available across their systems in a way that’s easily accessible for HMRC. Moreover, manufacturers have global supply chains, which also need to be considered.
The second lion: SAP legacy deadlines
In the manufacturing space, big players also often use SAP software as the foundation for their ERP systems – the beating drum of their business. Here, again, the hybrid systems that have been built by manufacturers are facing their impending doom.
This specific threat comes in the form of SAP’s deadline for supporting legacy systems: 31 December 2025. Once that time comes, as SAP systems will no longer support legacy systems, any updates such as security patches and new features will stop for older systems that have not evolved. For any current business, this is disastrous, as nobody can afford to lose out on game-changing features to competitors. What’s more, as the cyber security attack surfaces continue to increase, it’s of the utmost importance for organisations to ensure that they are equipped with the most up-to-date software and maximise their system security.
Worst-case scenario? The systems that have been cobbled together in this fractured approach from the past may no longer work – ruinous for manufacturers, their customers, and the broader supply chain they find themselves harbouring. No doubt that this entails one of the biggest barriers that manufacturers have had to overcome for numerous years.
Proactive pack mentality
In order to realise future-facing digital tax systems and the fundamental move to S/4HANA for those using an SAP ERP, proactivity is a must. It might be a long time before these changes come into effect, but the ERP is the anchor of any manufacturing business; as such, any change must be incorporated diligently.
The focus of modern manufacturing must be the cloud – which doesn’t mean disparate systems, but instead a fresh way of working that facilitates the freeflow of data across the organisation. Businesses who adopt this approach can ensure that they evolve into SAP’s newest systems in an organised manner devoid of loss. Still, more than merely maintaining operations internally, they can also ensure that the required API connections are in place for external systems, which include more developed tax regimes.
Six years seems like a long time but, for major digital transformation projects, manufacturers need to begin planning their strategy. No longer can they risk simply shutting down for a few months in order to make the transition. Consequently, proactivity is key, in tandem with enlisting experts in the ERP and financial spheres. Only in this way can British businesses enjoy peace of mind, safeguarding them as they successfully face the next stage of digital businesses. By uniting with a front-foot approach to these two issues on the horizon, manufacturers will ensure that they’re nobody’s lunch.
Billy Kazantzis is Director, Strategy & Operations for VAT at Sovos, a leading global provider of software that safeguards businesses from the burden and risk of modern tax. As governments and businesses go digital, businesses face increased risks, costs and complexity. The Sovos Intelligent Compliance Cloud is the first complete solution for modern tax, giving businesses a global solution for tax determination, e-invoicing compliance and tax reporting.