Microsoft Dynamics

Hotfix rollup 2 (971536) is available for Microsoft Dynamics AX 2009 Service Pack 1

2010-01-21T16:52:00.001-08:00

INTRODUCTION

This article describes a hotfix rollup that corrects several problems in Microsoft Dynamics AX 2009 Service Pack 1 (SP1). This hotfix rollup contains all previously released hotfixes and country specific updates for Microsoft Dynamics AX 2009 SP1 (AX 2009 RU2). It also contains several additional country-specific updates for different regions. The build number of this hotfix rollup is 5.0.1500.809.

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MORE INFORMATION

This hotfix rollup includes the following country-specific updates for Microsoft Dynamics AX 2009 SP1.

Saudi Arabia

The Zakat Report feature

The Zakat Report feature enables you to print Zakat reports that are required by the Department of Zakat and Income Tax. This update makes it easier for you to perform the following processes for Zakat reports:

•Enter additional data that is required for general company information, assets, and depreciation.

•Set a vendor to a subcontractor-type vendor.

•Update the Zakat information for a vendor.

•Create the chart of accounts to specify how the Zakat item is recorded on the voucher transaction, and how the account is used in a Zakat report.

•Generate a Zakat report at the end of the financial year.

•Change a Zakat transaction.

•Regenerate a Zakat report for submission to the authorities before closing the fiscal year.

Inventory Closing in AX2009

2009-12-26T14:20:00.001-08:00

Steps that are performed by the Inventory Close routine
When you run the Close routine, Microsoft Dynamics AX performs the following steps:
1. Check whether any Recalculations were run after the date that you choose for your Close. Microsoft Dynamics AX will cancel any of those later Recalculations before the Close can start.
2. Put all the items that are to be processed into a queue. These items are stored in the InventCostList table.
Note While a Close or Recalculation is processing, you can click Calculation/Calculation List from the Close & adjustment form to view the data in the InventCostList table. This shows which items are still to be processed by the Close or Recalculation process.
3. Process each item from that queue sequentially. Microsoft Dynamics AX performs the following for each item:
a. Settle individual receipts and issues against one another for the item according to the Inventory Model Group such as FIFO, Weighted Average. • Make any required cost adjustments to the issue that was settled based on the cost of the receipt(s) against which the issue was settled.
• Update the inventory transactions to show the settlement and cost adjustment data.
• Write the settlement data into the Inventory Settlement table. The data will include records that show explicitly which Receipt(s) were settled to each Issue in addition to any cost adjustment that is made to the Issue that is settled.
b. As soon as all possible transactions are processed for that item, Microsoft Dynamics AX looks for any transactions that are fully settled, and then update those transactions to "Closed." For more information, see the "What fields show that an inventory transaction is closed" section.
4. As soon as all the items are processed, the settlement records that were created are read and sorted by General Ledger Account. Then, Microsoft Dynamics AX summarizes all the cost adjustments that were made, and a General Ledger Journal is created and posted.
5. If you select the Run recalculation after closing check box in the Close dialog box, a Recalculation will be run for all items up to today's date.
Steps that are performed by the Inventory Recalculation routine
The Inventory Recalculation routine does a similar job to the Inventory Close routine. However, there are a few differences. When you run the Recalculation routine, Microsoft Dynamics AX performs the following steps:1. Check whether any Recalculations were run after the date that you choose to run your Recalculation up to. Microsoft Dynamics AX will cancel any of those later Recalculations found before your Recalculation routine can start.
Notes
• In the Select dialog box, you can select item(s) for which you want to run the Recalculation, unlike the Close routine that always processes all items.
• While a Recalculation or Close is processing, you can click Calculation/Calculation List from the Close & adjustment form to view the data in the InventCostList table. This shows which items are still to be processed by that Close or Recalculation.
2. Put all the items that are to be processed into a queue, and then store the queue in the InventCostList table.
3. Process each item from that queue sequentially. Microsoft Dynamics AX performs the following for each item: • Make a "virtual" settlement between individual receipts and issues for the item according to the Inventory Model Group such as FIFO, Weighted Average. This is a "virtual" settlement because it is occurs in the Recalculation’s calculations. However, the detailed settlement data that shows the explicit matching of each issue to the various receipts is not stored in the InventSettlement table. The only data that is stored is the cost adjustment that is made to the issue.• Make any required cost adjustments to the issue that was settled based on the cost of the receipt(s) against which the issue was settled.
• Write a single settlement record for any cost adjustment that is made for that Issue into the Inventory Settlement table.
4. As soon as all the items are processed, the cost adjustment settlement records that were created are read, sorted by General Ledger Account, and summarized and posted in a General Ledger Journal.
What fields show that an inventory transaction is closed
To show that an inventory transaction is "closed", Microsoft Dynamics AX performs the following:1. When the Inventory Close routine has fully settled the Quantity and Financial Cost of a specific inventory transaction, Microsoft Dynamics AX updates the individual inventory transaction to show that the transaction is "closed."
2. For a transaction to be closed, it must meet the following criteria:• The "Quantity" must match the "Quantity Settled."
• The sum of "Cost Amount Posted" plus "Cost Amount Adjustment" must match the "Cost Amount Settled."
3. When those conditions are met, then the Close program will do the following:• Set the field "Value Open" from "Yes" to "No."
• Store the date of the close in the field "Date Closed."
This means that the individual inventory transaction is "closed."

Microsoft Dynamics Sure Step 2010 now available!

2009-12-20T11:34:00.001-08:00

We are pleased to announce the availability of Sure Step 2010 to our Microsoft Dynamics partner community today! In the spirit of providing continual enhancements in collaboration capabilities, increased partner productivity and improved customer satisfaction, this major upgrade includes the following features that align with Microsoft Dynamics product strategies and roadmap:

· Industry and Cross-Product Content - Positioning and deploying Microsoft Dynamics solutions in a given Industry or its related segments. Industry Pilots for AX Process Manufacturing and CRM Public Sector including the launch of an Industry Playbook for solution selling. Also available will be guidance on xRM platform due-diligence and deployment.

Agile Project Type – The addition of this project type which will be especially suitable for implementations where the Microsoft Dynamics solution is positioned as a platform rather than as a commercial-off-the-shelf (COTS) system.
Organizational Change Management Discipline – New guidance on managing organizational change, to address this common challenge in any ERP or CRM deployment.
ISV Guidance – New content that applies to ISV solution positioning and deployment and engagement with the VARs and SIs during sales and implementation. Also, introducing Certified for Microsoft Dynamics alignment recommendations.

· Enhancements to the Diagnostic Phase including a link between Sure Step and Unleash Your Potential, an Industry Playbook to assist the Sales Roles focused on selling Microsoft Dynamics solutions catered to a specific industry/vertical, a consolidated set of Decision Accelerator Offerings, estimation tools and an enhanced ROI calculator.

· Enhancements to the Optimization Offerings including further alignment and integration to Support and Services from Microsoft and additional proactive and post go-live offerings.

· Enhanced SharePoint integration provides improved collaboration and project tracking capabilities for Sales, Implementation and Optimization engagements.

· This, in addition, to new, updated templates to support the latest Microsoft Dynamics releases!

Continue investing in Sure Step and get to know and love Sure Step 2010! Visit Sure Step on PartnerSource for updated training and readiness resources to help you get started and continue your adoption of Sure Step

Demand Planner Discontinuation Notice for Microsoft Dynamics AX, Microsoft Dynamics GP and Microsoft Dynamics NAV

2009-12-10T09:21:00.001-08:00

The Demand Planner module available for Microsoft Dynamics AX, Microsoft Dynamics GP and Microsoft Dynamics NAV will no longer be offered by Microsoft and all associated SKUs will be removed from the respective Microsoft Dynamics price lists effective April 1, 2010.

This December 1, 2009 announcement provides partners with the 120-days notice required pursuant to the Solution Provider Agreement (SPA).

If your customers are concerned about Microsoft’s discontinuation of Demand Planner for Microsoft Dynamics AX, Microsoft Dynamics GP or Microsoft Dynamics NAV and are considering no longer using their existing implementation of Demand Planner offered by Microsoft, we encourage you to assist them by working with independent software vendors who may provide similar forecast management capabilities for Microsoft Dynamics applications.

5 recent SAP Failures

2009-11-26T04:57:00.001-08:00

SIEMENS Teamcenter Express Integration to Microsoft Dynamics AX

2009-11-25T00:23:00.001-08:00

OneStop Reporting Tool for MS Dynamics AX

2009-11-25T00:16:00.001-08:00

At Long Last, Microsoft Unveils Its Verticals Strategy for Dynamics AX

2009-11-22T05:32:00.001-08:00

For several years, Microsoft has been promising Dynamics users and partners vertical solutions--special functionality geared toward particular industries.

Now, it is delivering on the promise, beginning with Dynamics AX customers.

Microsoft announced today four acquisitions of intellectual property designed to provide industry solutions across the verticals of pharmaceuticals, food, retail, manufacturing, and professional services:

A process manufacturing solution acquired from Fullscope Inc., which provides tight integration of business processes across discrete manufacturing and process manufacturing
A professional service solution acquired from Computer Generated Solutions Inc., which delivers a single system to manage projects and resources, execute financial transactions and customer billing, and match resources with client assignments
Retail solutions from LS Retail EHF and To-Increase Denmark A/S, a wholly owned subsidiary of Columbus IT Partner A/S, that enable Microsoft to provide an end-to-end retail solution including store management with point-of-sale, merchandising and ERP capabilities

In an interview, Crispin Read, Microsoft’s general manager for ERP, said “about 70% of our customers are in these five industries.” He noted that not included in the verticals being addressed now are financial services and health care. “We feel we have a better chance with focus than by being all over the waterfront.”

Process manufacturing and professional services solutions for Microsoft Dynamics AX are available immediately on the Microsoft Dynamics price list, and the retail solution will be available at a later date. The next industry vertical likely to be addressed will be the public sector, according to Read, though he declined to provide a timetable.

He noted that customers will benefit financially from the acquisitions. “This will lower the costs for customers by reducing the amount of customization they need to do.”

Crispin said that Microsoft’s market research showed that companies in the upper mid market, which mostly include those with operations in multiple countries, “all want vertical solutions.”

According to Crispin, Microsoft will focus in its vertical approach on “common functional requirements [that] exist across industries and can be packaged.” Partners will be able to focus on other more specialized functionality to serve companies that need additional customization, and will reduce their time to market and lower their investments.

Kees Hertogh, director of product management for Dynamics AX, identified customer benefits as including a “predictable roadmap” and “more rapid innovation.”

“We speed up our packaged best practices. Customers can really focus on competitive differentiators to compete more effectively.”

The vertical capabilities being acquired are from Fullscope Inc, To-Increase Computer Generate Solutions Inc, and LS Retail EHF

Microsoft Dynamics AX Posting Profile Inventory Transactions in Modules (Sub Ledgers)

2009-11-02T09:55:00.001-08:00

Sales order

The ledger accounts listed on the Sales order tab pertain only to the item group selected on the Overview tab. Use Packing slip accounts used only if Microsoft Dynamics AX is set to post to the ledger when goods are delivered to a customer. Once the invoice is generated, Microsoft Dynamics AX reverses the Packing slip postings.. You use Commission accounts used only if commissions are set up.

Path: Inventory > Setup > Item groups
Column/Field	Description	Examples/Hints
Sales Order tab
Packing slip	If you select Post physical inventory in the Inventory model group and Post packing slip in ledger in the AR parameter, then the cost of inventory is debited to general ledger when goods are delivered.	Ledger transaction when a SO packing slip is updated: Debit: Packing slip Credit: Packing slip offset
Packing slip offset	If you select Post physical inventory in the Inventory model group and Post packing slip in ledger in the AR parameter, then the cost of inventory is credited to general ledger when goods are delivered.	Ledger transaction when a SO packing slip is updated: Debit: Packing slip Credit: Packing slip offset
Issue	Cost of inventory is credited to general ledger when goods are invoiced. The packing slip postings are reversed.	Ledger transaction when a SO invoice is updated: Debit: Packing slip offset Credit: Packing slip Debit: Cost of Goods Sold Credit: Inventory
Consumption	Cost of inventory is debited to general ledger when goods are invoiced. The packing slip postings are reversed.	Ledger transaction when a SO invoice is updated: Debit: Packing slip offset Credit: Packing slip Debit: Cost of Goods Sold Credit: Inventory
Revenue	Sales amount is credited to general ledger when goods are invoiced. The packing slip postings are reversed.	Ledger transaction when a SO invoice is updated: Debit: Packing slip revenue Credit: Packing slip rev offset Debit: A/R Summary Credit: Revenue
Discount	If a discount ledger account is specified, the discount amount is debited and the A/R summary account is debited with (Sales – Discount). If an account is not specified then both the revenue and A/R summary account post as (Sales – discount). Posting occurs when goods are invoiced. Note: This does not include cash discounts. Cash discounts are not recognized until the payment is processed.	Debit: AR Summary (Sales-Disc) Debit: Discount Credit: Revenue
Commission	Commission amount is debited to general ledger when goods are invoiced.	Ledger transaction when a SO invoice is updated: Debit: Commission expense Credit: Commission liability
Commission offset	Commission amount is credited to general ledger when goods are invoiced.	Ledger transaction when a SO invoice is updated: Debit: Commission expense Credit: Commission accrual

Purchase order

The accounts listed on the Purchase order tab pertain only to the item group selected on the Overview tab. Use Packing slip accounts only if Microsoft Dynamics AX is set to post to the ledger when goods are delivered. Microsoft Dynamics AX reverses the Packing slip postings when the invoice is received. Use Standard cost accounts only if inventory is valued at standard cost.

Path: Inventory > Setup > Item groups
Column/Field	Description	Examples/Hints
Purchase order tab
Packing slip	If you select Post physical inventory in the Inventory model group and Post packing slip in ledger in the AP parameter, then the cost of inventory is debited to general ledger when goods are received.	Ledger transaction when a PO packing slip is updated: Debit: Goods received Credit: Purchases clearing
Packing slip offset	If you select Post physical inventory in the Inventory model group and Post packing slip ledger in the AP parameter, then the cost of inventory is credited to general ledger when goods are received.	Ledger transaction when a PO packing slip is updated: Debit: Goods received Credit: Purchases clearing
Receipt	If you select Post financial inventory in the Inventory model group, then the cost of inventory is debited to general ledger when goods are invoiced. The packing slip postings are reversed.	Ledger transaction when a PO for an inventory item is invoiced: Debit: Packing slip offset Credit: Packing slip Debit: Receipt (Inventory) Credit: A/P Summary
Discount	If you specify a discount ledger account , the discount amount is credited and the A/P Summary account is credited with (Purchase amount – Discount). If an account is not specified, both the Debit and Credit accounts post as Purchase amount – discount. Posting occurs when the invoice is updated. Note: This does not include cash discounts. Cash discounts are not recognized until the payment is processed.	Debit: Receipt or consumption Credit: A/P Summary Credit: Discount
Consumption	If you select Post financial inventory in the Inventory model group, then the Variance on item returns is posted to general ledger when the return price varies from the inventory cost price If you do not select Post financial inventory in the Inventory model group, then the purchase price is debited to general ledger when goods are invoiced.	Ledger transaction when a PO invoice is updated for a non-stock or service item: Debit: Purchase expense Credit: A/P Summary
Fixed receipt price profit	Credit cost variance when actual cost is lower than standard cost. Used if model group is set up to use standard cost.	Debit: Inventory – Actual Cost Debit:Std cost price offset-var. Credit: A/P Summary – Actual Credit: Std cost profit -variance
Fixed receipt price loss	Debit Cost variance when actual cost is higher than standard cost. Used if model group is set up to use standard cost.	Debit: Inventory – Actual Cost Debit: Std loss –variance Credit: A/P Summary – Actual Credit: Std cost profit offset-var
Fixed receipt price offset	Use this account to offset the standard cost profit or loss.	Often this account is the same as the inventory account.

Inventory

The accounts listed on the Inventory tab pertain only to the Item group selected on the Overview tab. The Standard cost accounts are used only if inventory is valued at standard cost

Path: Inventory > Setup > Item groups
Column/Field	Description	Examples/Hints
Inventory tab
Receipt	Debit increases to the inventory account.	Inventory journal transaction to record the receipt or increase in inventory: Debit: Receipt (Inventory) Credit: Profit
Issue	Credit decreases to the inventory account.	Inventory journal transaction to record the issue or decrease in inventory: Debit: Loss Credit: Issue (Inventory)
Profit	Credit increases to the inventory account.	Inventory journal transaction to record the receipt or increase in inventory: Debit: Receipt (Inventory) Credit: Profit
Loss	Debit decreases to the inventory account.	Inventory journal transaction to record the issue or decrease in inventory: Debit: Loss Credit: Issue (Inventory)
Fixed receipt price profit	Credit the gained difference in relation to Standard cost. Offset to Inventory Profit or loss. Used if model group is set up to use standard cost.	Inventory journal transaction to record the receipt or increase in inventory: Debit:Receipt (Inventory@Std cost) Credit: Std cost profit (Variance) Credit: Profit (Actual cost)
Fixed receipt price loss	Debit the loss difference in relation to Standard cost. Offset to Inventory Profit or loss. Used if model group is set up to use standard cost.	Inventory journal transaction to record the receipt or increase in inventory: Debit:Receipt (Inventory@Std cost) Debit: Std loss (Variance) Credit: Profit (Actual cost)
Fixed asset issue	Account to be debited if item is issued to a fixed asset.
Rounding variance	Account to be debited/credited due to rounding issues.

Production

The accounts listed on the Production tab pertain only to the Item group selected on the Overview tab. The Picking list and Report as finished accounts are used only if Microsoft Dynamics AX is set to post "work in process" to the ledger. The Picking list accounts are used to record the estimated costs of raw materials during the production process. The Report as finished accounts are used to record the estimated cost of the finished good. Both Picking list and Report as finished account postings are reversed when the final item calculation is performed. The Issue accounts record the actual cost of raw materials used in production. The Receipt accounts record the actual cost of the finished good that is being received into inventory

Path: Inventory > Setup > Item groups
Column/Field	Description	Examples/Hints
Production tab
Picking list	If Post physical inventory in the Inventory model group and Post picking list in ledger in the Production parameters are selected, then the estimated cost of raw material inventory is credited to general ledger during the Picking list update.	The picking list journal is used to record the estimated materials needed for a production order. It can be created manually or automatically by back-flushing. Debit: Picking list offset Credit: Picking list (Inventory)
Report as finished	If the Post report as finished in ledger in the Production parameters is selected, the estimated value of the finished good is debited to general ledger during the Report-as-finished update.	The Report-as-finished journal is used to record quantities completed Debit: Report as finished (Inv) Credit: Report as finished Offset
Picking list offset account	If Post physical inventory in the Inventory model group and Post picking list in ledger in the Production parameters are selected, then the estimated cost of raw material inventory is debited to general ledger during the Picking list update.	The picking list journal in the Production module can be created manually or automatically. See Production setup section for more information. Debit: Picking list offset (WIP) Credit: Picking list
Reported as finished offset account	If the Post report as finished in ledger in the Production parameters is selected, then the estimated value of the finished good is credited to general ledger during the Report-as-finished update.	The Report-as-finished journal is used to record quantities completed. Debit: Report as finished (Inv) Credit: Report as finished Offset
Issue	When a production order is costed, the estimated material costs previously posted are reversed. The actual cost of raw materials is credited in the general ledger.	Debit: Issue offset (WIP) Credit: Issue (Inventory-raw material)
Issue offset account	When a production order is costed, the estimated material costs previously posted are reversed. The actual cost of raw materials is debited in the general ledger.	Debit: Issue offset (WIP) Credit: Issue (Inventory-raw material)
Receipt	When a production order is costed, the report-as-finished estimated finished good costs are reversed. The actual cost of the finished good is debited in the general ledger.	Debit: Receipt (Inventory - FG) Credit: Receipt offset account (WIP)
Receipt offset account	When a production order is costed, the report-as-finished estimated finished good costs are reversed. The actual cost of the finished good is credited in the general ledger.	Debit: Receipt (Inventory - FG) Credit: Receipt offset account (WIP)

To-Increase Oil, Gas, & Mining Machinery for Microsoft Dynamics AX

2009-10-10T08:57:00.001-07:00

Now is the right time to switch

2009-10-09T17:07:00.001-07:00

Are you faced with rising support costs and uncertainty? Companies that we have talked to are reevaluating their JDEdwards World and JDEdwards Enterprise One solution. Should they follow the path that Oracle has formulated for them? Or is there another way that could offer greater business benefits? Take a few minutes to explore the site, and discover why Microsoft Dynamics ERP is the right move for your business.

Microsoft Dynamics Video: Oracle Migration to Dynamics ERP

Why Microsoft Dynamics for manufacturers?

2009-10-09T16:53:00.001-07:00

Success in the manufacturing industry requires producing the right products, in the right quantities, at the right time, with good quality, and at a price the customer is willing to pay. The flexibility to respond to compliance standards and the ever-changing needs of customers, such as providing real-time visibility into global operations, is also imperative for success. Meeting these demands requires the ability to make quick decisions based on accurate data.

Microsoft Dynamics offers adaptable business solutions that work like and with familiar Microsoft software. They automate and improve financial, customer relationship, and supply-chain management.

Integrate collaboration and communication

Deliver a single, real-time view of data from multiple facilities and departments
Synchronize communication between engineering, manufacturing, and subcontractors
Optimize planning to minimize inventory while meeting customer requirements
Share information within your systems through the Web

Efficiently manage projects

Provide an accurate overview of project status
Track activities and resources at many levels of detail
Leverage knowledge and content from existing or prior projects

Deliver superior customer service

Gain a comprehensive view of customer information
Eliminate isolated silos of information
Create customer self-service opportunities
Coordinate multichannel communications with customers
Collaborate with customers on new product designs

Estimate and quote accurately

Provide accurate quotations based on a real-time view into operations
Align customer requirements with your capabilities
Record customer requirements accurately

Provide flexible production planning

Use data from the entire supply chain to respond effectively to changes and problems
Access data through familiar desktop tools
Support various manufacturing modes, such as engineer-to-order, make-to-order, make-to-stock, and mixed/hybrid

Microsoft Acquires Process Manufacturing Solution

2009-10-09T07:16:00.001-07:00

Microsoft announced the acquisition of four industry solutions including a process manufacturing solution for Dynamics AX from Fullscope, Inc.
These acquisitions signify our continued commitment to driving innovation for our process manufacturing customers and partners and is consistent with our industry strategy to build a foundation of industry functionality into the Microsoft Dynamics product line.
Most of our process manufacturing Dynamics AX customers are mid-sized companies or subsidiaries/divisions of large, global companies. Having this common industry functionality delivered as part of Dynamics AX helps increase predictability and expedite the rate of innovation for our customers.
Process Industries for Microsoft Dynamics AX adds key capabilities including:
Control of continuous or near-continuous manufacturing processes involving flexible formulas and recipes
Quality management
Integrated tracking of raw materials, by-products and co-products, and finished goods
Multi-dimensional end product and inventory control
Click here for more information on the acquisition and for more information on Process Industries for Microsoft Dynamics AX

AX Decisions 2009

2009-10-09T06:49:00.000-07:00

"AX Decisions 2009 is a virtual trade show and conference forMicrosoft Dynamics AX professionals who are looking for strategies, thought Leadership, and best practices for maximizing the value and effectiveness of their organization's AX platform and initiatives. The event is entirely online and is free to attend.Attendees can navigate the event directly from their desktop and see and hear Dynamics AX experts discuss the latest trends, technologies, and strategies for Dynamics AX

Microsoft Dynamics AX 4.0 and Dynamics AX 2009 are compatible with Microsoft Windows 7 and Microsoft Windows Server 2008 R2

2009-10-02T16:01:00.001-07:00

The Microsoft Dynamics AX Sustained Engineering team is proud to announce the following compatibility between the released versions of Microsoft Dynamics AX and the Release Candidate of Windows 7 and Windows Server 2008 R2:

Microsoft Product

Microsoft Dynamics AX Version

Windows 7

Microsoft Dynamics AX 4.0 SP2 and Microsoft Dynamics AX 2009 RTM and SP1
Supported as a client only, in 32 bits and 64 bits mode.

Windows Server 2008 R2

Microsoft Dynamics AX 4.0 SP2 and Microsoft Dynamics AX 2009 RTM and SP1
Operating System Supported in 64 bits only.

The System Requirements of Microsoft Dynamics AX 4 and Microsoft Dynamics AX 2009 will be updated on Customer Source and Partner Source shortly.

The Environmental Challenge – Managing Costs and Benefits in Microsoft Dynamics AX

2009-09-19T08:43:00.001-07:00

Environmental Management Accounting Implementation Guidance for Microsoft Dynamics AX
Prepared by:Jennifer Pollard
Contributors: Deborah E. Savage, PhD, Environmental Management Accounting Research and Information Center Diana Gomersall, Hitachi Consulting John Hernandez, Hitachi Consulting

Document Scope

The purpose of this guidance is to:

Introduce the reader to the environmental issues and pressures being faced by companies today, as well as the resulting business risks and opportunities
Discuss the role of accounting information, both physical and monetary, in both day-to-day and strategic environmental management
Discuss the challenges presented by many conventional accounting procedures and systems
Suggest concrete solutions and implementation steps for users of Microsoft Dynamics AX^TM 4.0 and subsequent versions.

Background

Environmental issues – along with the related business risks and opportunities – are of increasing concern to many companies around the world. But there is an international consensus that conventional accounting and information management practices simply do not provide adequate visibility to these issues, making it a challenge for companies to recognize and address them. As a result, companies are paying increasing attention to Environmental Management Accounting (EMA) practices that enable companies to:

Plan and implement cost-effective compliance with environmental regulation and voluntary environmental policy
Support the simultaneous reduction of business costs and environmental impacts via more efficient use of energy, water, and materials in internal operations and final products
Support the evaluation and implementation of cost-effective and environmentally sensitive programs for ensuring the company's long-term market and strategic position

In the early 1990s, The US Environmental Protection Agency was the first national agency to set up a formal program to promote the adoption of EMA principles. Since that time, organizations in 30+ countries have begun promoting and implementing EMA for many different types of environment-related management initiatives (UNDESA/DSD – 2002).

Why Do Companies Care About Environmental Issues?

Companies are facing a multitude of environmental issues related to their use of natural resources, generation of pollution and waste, and other potential environmental impacts, as illustrated below.

ENVIRONMENTAL ISSUES CONFRONTING COMPANIES

Stakeholders concerned about these issues are showing increasing interest in the environmental performance of companies. Examples of internal stakeholders include employees that might be affected by hazardous materials within the work environment. External stakeholders include communities affected by the company's use of scarce resources or generation of pollution, environmental activist groups, government regulators, shareholders, investors, customers, suppliers and others.

The types and intensities of stakeholder pressures on companies can vary quite widely from country to country and among different business sectors, depending on a company's involvement in global markets and other factors. It is safe to say, however, that stakeholder pressure is forcing many companies to look for new, creative and cost-efficient ways to manage and minimize environmental impacts. Prominent examples of stakeholder pressure relevant at the international level include:

Supply chain pressures, such as requirements by large companies that their suppliers comply with their specified reporting requirements. They may, for instance, enforce the Environmental Management System (EMS) standard of the International Standardization Organization (ISO 14001 – 1996);
Disclosure pressures from various stakeholders for companies to publicly report their environmental performance in annual financial accounts and reports (ICAEW – 1996, UNCTAD – 1999; EC – 2001a; EU – 2003) or in voluntary corporate environmental performance reports, for example, via the guidelines of the Global Reporting Initiative (GRI – 2002);
Financing pressures via the worldwide growth of socially responsible investment (SRI) funds, investment rating systems such as the Dow Jones Sustainability Index, FTSE4Good, and investment policy disclosure requirements (ICAEW – 2004);
Regulatory control pressures, e.g., the RoHS Directive, a regulation in the European Union (EU) that restricts the use of certain hazardous substances in electrical/electronic equipment sold in the EU (Lea – 2004);
Environmental tax pressures imposed by government, e.g., various environment-related taxes such as carbon taxes, energy use taxes, landfill fees, other emissions fees, etc.;
Cap & Trade pressures, such as the emissions cap and trading aspects of the Kyoto Protocol (Kyoto Protocol – 1997)

In recent years, the environmental issues and pressures discussed above have increased potential business risks/costs significantly. For example, in countries with strong environmental regulatory regimes, the introduction of environmental regulations has led to increasing regulatory compliance costs for companies, including costs for pollution control equipment, pollution monitoring and emission fees, and regulatory paperwork and reporting. Pollution clean-up regulations have resulted in increasing liability costs for site remediation and liability-related insurance costs. Pressure from non-government stakeholders, such as local communities, environmental activist groups and business partners (customers, investors and finance providers) has also added to environment-related costs as organizations need to initiate environmental programs to communicate with and respond to the interests of these groups.

As environmental pressures and environment-related costs have increased, organizations have also come to develop a clearer understanding of the potential business benefits of improved environmental performance. They have discovered that enhancing the efficiency with which they use energy, water and other raw materials brings not only environmental improvements in the form of reduced natural resource use and reduced waste generation, but also potentially significant monetary savings as the costs of materials purchase and waste treatment decrease accordingly. The more strategic benefits of improved environmental performance have also been recognized, e.g., the ability to design environmentally sensitive products and services for increasingly "green" business and consumer markets, a better ability to respond quickly and cost-effectively to an ever-changing environmental regulatory framework, and better relationships with key stakeholders such as finance providers and communities.

The table below summarized some of the key business risks/costs and opportunities.

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Environment-related Business Risks and Opportunities
Risks/Costs	Opportunities
Increasing resource prices (e.g., energy, water) Increasing costs of waste management, regulatory non-compliance and other liability, pollution taxes, pollution cap & trade allowance prices Increasing costs for communication of environmental performance and goals to stakeholder groups Increasingly stringent environmental regulations in export markets Potential for negative reputation/brand issues Reduced access to financing and insurance Business interruption due to resource constraints, environmental pollution incidents, regulatory status of suppliers, etc.	Reduced material purchase costs via eco-efficiency Reduced costs via reduction of waste generation, ecosystem impacts, etc. Increased goodwill and strategic via constructive collaboration with key stakeholders Enhanced export market access for green products Green consumer market opportunities Access to socially responsible investors Enhanced reliability of operations and therefore customer service and financial return

A great example of how a company can balance the costs of its basic environmental programs with the financial benefits from those programs is given by Baxter International, Inc. Baxter is a US manufacturer of products to treat conditions such as kidney disease, hemophilia, etc. and has approximately 45,000 employees worldwide, with annual sales of about US $10.4 billion. Baxter gives an "Environmental Financial Statement" in its annual sustainability report, where it presents its environmental program costs and benefits for both the reporting year and previous years. The following table summarizes Baxter's 2006 statement for the cumulative timeframe of 2003-2006, during which time the benefits of its environmental programs were actually greater than the costs.

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Baxter Environmental Programs – Costs vs. Benefits 2003-2006

Costs - $88.3 million

Benefits - $90.3 million

Pollution control and waste disposal
Remediation/clean-up
Legal fees & settlements
Auditor & attorney fees
Environmental fees for packaging & electronic goods
Proactive programs
Corporate & other programs (including IT)

Reduced purchase of raw materials
Reduced purchase of packaging materials
Energy conservation
Water conservation
Waste disposal cost reductions
Recycling income

Sustainability.baxter.com/EHS

What Information Does My Company Need to Manage These Risks and Opportunities?

One key to the successful management of environment-related risks and opportunities is information – many different types of information, e.g., accounting, technical, market, and others. There are two basic types of accounting information that play a key role – materials flow information and monetary information. Each is described in more detail below.

Materials Flow Information

From an environmental perspective, tracking the physical amounts of energy, water, materials and wastes within a company is important because the use of materials and the generation of waste drive many of the most significant environmental impacts of companies. In addition, materials purchase costs are key cost drivers in many organizations.

Most organizations purchase energy, water and other materials to support their activities. In a manufacturing setting, some of the purchased material is converted into a final product that is delivered to customers. Most manufacturing operations also produce waste – materials that were intended to go into final product but became waste instead because of product design issues, operating inefficiencies, quality issues, etc. Manufacturing operations also use energy, water and materials that are never intended to go into the final product but are necessary to manufacture the product (e.g., water to rinse out chemical tanks between product batches or fuel use for transport operations). Many of these materials eventually become waste streams that must be managed. The figure below shows a representative flow of materials through a manufacturing facility.

Non-manufacturing operations (e.g., agriculture and livestock, resource extraction sector, service sector, transport, the public sector) can also use a significant amount of energy, water and other materials to help run their operations that can lead to the generation of waste and emissions. Thus, the most obvious example of materials-related environmental impacts is the generation of waste and emissions, which can affect the health of both humans and natural ecosystems, including plants and animals.

The second broad area of materials-related environmental impact is the potential impact of the physical products, including by-products and packaging. These final products have environmental impacts when they leave the company, for example, when a product ends up in a landfill at the end of its useful life. In many manufacturing plants, most of the materials used become part of a final product rather than part of waste or emissions; thus, the potential environmental impact of those products is high, and the potential environmental benefit of product improvements is correspondingly high.

Tracking and reducing the amount of energy, water and materials used by a company can also have environmental benefits upstream, because the extraction of almost all raw materials has environmental impacts. For example, activities such as forestry and the extraction of materials such as coal, oil, natural gas, oil, as well as gold and other minerals, can have extreme impacts on the local environment surrounding the site of extraction. These impacts include not only the pollution and waste generated during extraction operations, but also the erosion or outright removal of topsoil and vegetation, sedimentation of nearby water bodies and the disruption of wildlife feeding, reproduction and migration habitat, as well as impacts on local human populations that depend on the affected ecosystem for food and clean water.
In addition, the depletion of non-renewable or slowly-renewable natural resources is a cause for concern in itself.

Thus, to effectively manage and reduce the potential environmental impacts of its materials use, a company needs to have accurate data on the types, amounts, flows, and fates of all energy, water and materials used to support its activities. A company should try to track all physical inputs and outputs and ensure that no significant amounts of energy, water or other materials are unaccounted for. This balancing of the physical inputs and outputs is called a "materials balance," sometimes also referred to as "input-output balance," a "mass balance" or an "eco-balance" (UNEP & UNIDO – 1991; Pojasek – 1997a; Pojasek – 1997).

Materials balances can take place at many different levels. The information can be collected for the entire organization as a whole, or for particular sites, input materials, waste streams, process or equipment lines, product or service lines, etc. – depending on the intended use of the information. The level of precision of a materials balance can vary, depending on the specific purposes of the information collection and the availability and quality of the data.

For a complete and integrated picture of materials use, the details of materials flows must be traced through all the different materials management steps within an organization, such as materials procurement, delivery, inventory, internal distribution, use and product shipping, as well as waste collection, recycling, treatment and disposal, all with all the materials balance numbers attached. This type of accounting is referred to as "materials flow accounting."

Monetary Information

Many different types of costs can be considered relevant to environmental management. One of the most obvious types is expenditures for environmental protection, which include costs incurred to either prevent or control waste and emissions that can damage environmental or human health.

Waste and Emission control deals with controlling and treating all forms of waste and emissions once they have been generated – solid waste, hazardous waste, wastewater and air emissions. Waste and emission control activities include: equipment maintenance; internal waste handling; waste and emission treatment; off-site recycling; waste disposal; remediation of contaminated sites and other pollution clean-up; and any environmental regulatory compliance costs related to generated waste or emissions. It is in the best interest of an organization to try and minimize these costs while still maintaining a high level of environmental performance.

Preventive and proactive environmental management that reduces the amount of waste generated, rather than just treating the waste once it is generated, can often reduce not only the purchase costs of materials lost as wastes, but also subsequent waste control and treatment costs. Thus, assessment of these costs allows managers to better assess the potential monetary value of preventive environmental management. Preventive environmental management activities could include proactive eco-system management, on-site recycling, cleaner production, green purchasing, supply chain environmental management and extended producer responsibility.

It can also be useful to track the costs of more general environmental management activities such as: environmental planning and systems (e.g., environmental management systems, environmental information systems); environmental measurement (e.g., monitoring, performance auditing, performance evaluation); environmental communication (e.g., performance reporting, community group meetings, government lobbying) and any other relevant activities (e.g., financial support of environmental projects in the community, etc.).

Accurate and detailed information on the purchase costs of materials, water, and energy are also particularly important for the purposes of environmental management. If the environmental impacts of materials use are to be managed in a cost-effective fashion, then materials purchase costs are a key component of the analysis. The physical accounting side of EMA provides the information on the amounts and flows of materials and wastes needed to assess these costs.

More specifically, when making business decisions about the management of waste streams, the purchase cost of all raw materials that eventually become waste or emissions, rather than product, should be considered. These "lost" purchase costs are often higher than the more familiar waste management costs (Schaltegger, Müller,
& Hinrichsen – 1996; Fichter, Loew, Redmann, & Strobel – 1999; UNDESA/DSD – 2001).
Although many organizations relate these costs to efficiency or quality, these cost data are also environment-related because they help an organization to make cost-effective decisions about its waste and emissions.

When making business decisions about the potential for reducing the environmental impacts of products, the purchase cost of all raw materials that are converted to product is relevant. Of course, companies do consider materials purchase costs in their internal management decision making, but do not necessarily view them as environment-related.

The following table summarizes the types of costs particularly relevant to environmental management:

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MONETARY INFORMATION NEEDED FOR ENVIRONNMENTAL MANAGEMENT

Waste and Emission Control Costs

Includes costs for: handling, treatment and disposal of waste and emissions; remediation and compensation costs related to environmental damage; and any control-related regulatory compliance costs.

Prevention and Other Environmental Management Costs

Includes the costs of preventive environmental management activities such as cleaner production projects. Also includes costs for other environmental management activities such as environmental planning and systems, environmental measurement, environmental communication and any other relevant activities.

Materials Costs of Non-Product Outputs

Includes the purchase (and sometimes processing) costs of energy, water and other materials that become Non-Product Output (i.e., Waste and Emissions).

Materials Costs of Product Outputs

Includes the purchase costs of natural resources such as water and other materials that are converted into products, by-products and packaging.

Most of the cost categories above have sub-categories more representative of traditional accounting, e.g., equipment depreciation, raw and auxiliary materials, operating materials, personnel, etc.

Can My Current Accounting System Provide the Needed Information?

A number of limitations of conventional management accounting/information systems and practices have been identified that can make it difficult to collect and evaluate environment-related data effectively. These limitations can lead to missing, inaccurate or misinterpreted information being used for management decisions. As a result, managers may misunderstand the negative financial consequences of poor environmental performance and the potential benefits of improved environmental performance. Some of the culprits are limitations of general management accounting as practiced in some organizations. Other limitations are more specific to environment-related accounting practices.

Unfortunately, some of the materials accounting information required for good environmental management is not easily available to accounting personnel, as it is not systematically recorded in a way that reflects the real-world flow of materials within the organization, or recorded at the needed level of detail. Personnel in other areas, such as production, environmental, or other operations, often have more detailed estimates and measurements of physical flows of materials, but often this information is not cross-checked with that of the accounting department. Thus, accountants need to work more closely with personnel from other departments to accurately do the materials accounting side of EMA.

In addition, the costs of waste management and prevention activities are often relegated to overhead accounts, and are not accurately allocated back to the operations and products that generated the costs in the first place. Similarly, estimates of the purchase value of raw materials that end up as waste (rather than product) are typically not easily "visible" in the accounting records, which make it more difficult to assess the true cost of generating different waste streams.

The following table summarizes some of these typical accounting challenges, as related to input materials and output materials in a company.

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Accounting Challenges
Input Materials	Output Materials
Materials purchase/inventory information may not be entered in enough detail Tracking of materials in the accounting system does not reflect the real-world flow of materials within the company Water/energy use may not be tracked in enough detail Recipes (BOMS) may not reflect the actual use of materials in manufacturing	Some output materials (e.g., waste & pollution) not tracked as well as input materials Some waste-related costs "hidden" in the accounting records, e.g., in overhead accounts Some waste-related costs not allocated accurately to operations/products responsible The true, total cost of waste not estimated or reported correctly

A more specific example is given in the following figure, which illustrates the comparison of an automotive parts company's BOM for a rear panel to real-world measurement of materials use and waste generation on the shop floor. The accounting records showed that 2% of the plastic raw materials were being lost as waste, but actual measurements during manufacturing showed that 52% of the plastic raw materials were being lost as waste! The high rate of raw material waste was built into the design specifications for the part being manufactured, and thus never appeared on the books.

Recipe vs. Real-World Data

Auto Parts Manufacturer

Adapted from: Rooney, Charles. "Economics of Pollution Prevention

How Waste Reduction Pays." Pollution Prevention Review. Summer 1993

Another example follows. When a US manufacturing firm was asked to estimate the cost of hazardous waste ink, the answer given was US $50 per drum – the cost of disposal. A more complete analysis illustrated that the true cost of hazardous waste ink was $1300/drum, once all the relevant cost items were identified and quantified.

Estimation of the "Cost of Waste" at a Manufacturing Firm

How Have Other Companies Dealt with the Information?

Despite the challenges, many firms around the world have made both short-term and long-term improvements to their information management processes and systems to enable better and more cost-effective environmental management. Two brief examples follow.

Summary

EMA is particularly valuable for internal management initiatives with a specific environmental focus, such as cleaner production, supply chain management, "green" product or service design, environmentally preferable purchasing and environmental management systems. In addition, EMA-type information is increasingly being used for external reporting purposes as well. Thus, EMA is not merely one environmental management tool among many. Rather, EMA is a broad set of principles and approaches that provides the data essential to the success of many other environmental management activities, such as environmental management systems, pollution prevention, cleaner production, life cycle assessment, supply chain environmental management, lean and green, etc. And, since the range of decisions affected by environmental issues is increasing, EMA can inform all types of management activities.

The specific uses and benefits of EMA are numerous, but can be organized into three broad categories, as illustrated below. The emphasis on Eco-efficiency and Strategic Position in two of the categories parallels the overall evolution of management accounting to include not only information provision, management planning, and control but also a focus on effective resource use and value creation.

Uses and Benefits of Environmental Management Accounting (EMA)

Adapted from Guide to Corporate Environmental Cost Management (German Environment Ministry – 2003).

System Setup and Configuration Recommendations for Microsoft Dynamics AX

Microsoft Dynamics AX is an extremely powerful and adaptable business management solution that enables you and your people to make informed business decisions with confidence. As the previous part of this paper outlines, it is becoming increasingly important to factor environmental impacts into your decision making process. To support this need we must have a business system which accounts for business transactions which are related to or impact the environment. Microsoft Dynamics AX is well designed to meet this need. The flexible nature in which you can set up data, the availability of powerful features such as dimensions and the ease in which you can modify the application all lend itself towards a system that can be setup to help you in your environmental endeavors.

Recommendation Overview

The suggestions in this document outline possible solution options that you can select from to get you started on the path to Environmental Management Accounting. The end result is to facilitate discussions and increase understanding of transactions which impact the environment. Once these factors are understood and analyzed it is then possible to move forward with decisions and actions that minimize costs while maximizing benefits.

The suggestions are as follows:

Modify the chart of accounts
Setup dimensions to track environment-related information in financial transactions
- The purchase costs of regulated raw materials
- Vendor costs for management/disposal of regulated wastes
Track packaging materials and costs in the bills of materials
Track water, fuel and electricity usage in the bill of materials
Track waste outputs in the bill of materials
Test bill of materials accuracy
Set up cost groups in the bill of materials
Track waste management disposal and costs via the project accounting module
Improve allocation of environment-related costs

Modify the Chart of Accounts

Many companies have obtained increased clarity on environment-related issues and cost by modifying their chart of accounts to prevent environment-related information from being too aggregated or "hidden" in the system. Simple example of improvements might include:

Separate accounts for raw materials and packaging materials, rather than a single "cost of goods" account including both
Separate accounts for water, electricity, and fuel, rather than a single "utilities" account.
Separate accounts for costs related to management of different types of waste, e.g., air emissions, wastewater, hazardous waste, and non-hazardous solid waste
Separate accounts for costs related to specific sources of waste, e.g., production waste, obsolete stock, spills

Set up Dimensions to Track Environment-related Information in Financial Transactions

Dimensions are a powerful set of features that allow the addition of an unlimited amount of segments to an existing to a system without impacting the chart of accounts. Dimensions are integrated throughout the entire system and users are able to select values on almost any transaction. Availability includes but is not limited to the general journal, the accounts payable journals including purchase orders, the accounts receivable journal including sales orders, the project accounting module, the inventory and service management modules and associated journals.

The selection of these dimensions can be made on transactions such purchase orders, vendor invoices or project transactions. For example, the user could add or expose a dimension to track specific environmental regulations that are applicable to various input and waste transactions, or line items within those transactions. More specific examples follow:

RoHs is a European Union (EU) regulation that restricts the presence of certain hazardous substances in electrical and electronic equipment sold in the EU. A company that purchases materials regulated under RoHS could create a "RoHS" dimension to track the identities, amounts, and purchase costs of of those materials.
The Resource Conservation and Recovery Act (RCRA) is a US federal regulation that requires companies to track the quantities and dispositions of certain types of hazardous waste "from cradle to grave". A company that produces hazardous waste regulated under RCRA would create a "RCRA" dimension to track the identities, amounts, and treatment or disposal costs of RCRA wastes that are handled for the company by an external waste vendor.

The selection of a dimension value on a transaction or a series of transactions also later allows those transactions to be analyzed on various reports and inquiries. Almost any existing report in the system can be run by dimension value. Examples of these reports include but are not limited to:

Financial Statements
General Ledger Transactions
Inventory on hand reports
Project transaction inquiries

Selection criteria can be filtered to exclude or include any one or set of dimension values. Additionally, balances on the chart of accounts can be viewed by dimension and custom financial reports such as the income statement (profit and loss statement) can be run with a breakout by dimension.

Track Packaging Materials and Costs in the Bill of Materials (BOM)

It is suggested that you consider tracking packaging materials and costs in the bill of materials for production items. The manufacture and use of packaging or packing supplies can have direct and or indirect impacts on the environment just as any other tangible product or by-product. So, it is important to track packaging materials and costs in order to minimize environmental impacts and related costs.

To track usage and costs you will first want to add them to your item master and include them in any applicable bill of materials. When adding them to the item master you may want to set up the appropriate units of measures and add an estimated cost price. At this point you will also want to set up estimated quantities of usage in the bill of materials. These will aid in correctly costing the production item and also serve useful for later comparison of actual usage versus budgeted or estimated usage. It may be convenient to set these up as service type items.

When completing the production order actual usage quantities should be entered and posted with the production order.

Here you can see a bill of materials which includes packaging costs.

Track Water, Fuel and Electricity Usage in the Bill of Materials

It is suggested that you consider tracking the use of water, fuel, and electricity in the bill of materials for production items, as the use of water and energy has significant impacts on the environment. In addition, energy costs are on the rise and are becoming a more important cost driver for many companies.

To track usage you will first want to add water, fuel and electricity as service items to your item master and include them in any applicable bill of materials. As these typically are service items that you will not be purchasing as stock, it is suggested that you enter them with zero cost price. The purpose is to begin tracking quantities of these materials so that you can understand which items and operations are responsible for using these natural resources. The cost of these materials can be calculated manually and used as a discussion point between the accounting and production teams to understand the true contributions of these costs to the costs of finished goods.

Here you can see a bill of materials that includes water and electricity.

Track Waste Outputs in the Bill of Materials

It is suggested that you consider tracking waste outputs in the bill of materials for production items. Waste outputs such as air emissions, wastewater, hazardous waste, and non-hazardous solid waste can have direct impacts on the environment and on company costs.

To track waste generation you will first want to add the waste types to your item master as service items and include them in any applicable bill of materials. When adding them to the item master you may want to set up the appropriate units of measures. At this point you will also want to set up estimated quantities of waste generation in the bill of materials. These can be represented in a bill of materials as negative quantities.

Waste generation and management can be quite costly, but these costs can not currently be tracked easily on the BOM, so it is suggested that you enter the waste quantities on the BOM with zero cost. The purpose is to begin tracking quantities of these materials so that you can understand which items and operations are responsible for generating various wastes. An option for tracking waste management costs via the AX project accounting module is discussed later in this document. Please note - if you are using the AX process manufacturing solution there are further options available to incorporate the cost of these waste streams. This paper will not address those.

If you have also set up your bill of materials with operation data, analysis can yield which items or operations are creating the most waste. Manual calculations can be done to estimate the generation of waste per unit product. With this information, waste prevention activities can be initiated to reduce environmental impact and possibly save money for the company at the same time. It is a matter of using this information to maximize gains and reduce costs.

Here you can see a bill of materials which includes various waste outputs.

If you are tracking various waste streams on the your BOMs, you will be able to see a quantity on-hand increasing over time as the posting of these production orders creates inventory levels of waste materials. The on-hand quantities of air emissions are not relevant, as most air emissions exit a facility fairly quickly, even if they are cleaned in some fashion first. Similarly, much wastewater exits a facility fairly quickly, via the sewer system, although some wastewater may remain on site temporarily if there is an on-site wastewater treatment system. However, the on-hand quantities of hazardous waste or non-hazardous solid waste may be useful data, as these types of waste are typically stored on-site for a time before being shipped off-site for treatment or disposal. An option for tracking and updating the inventory data for hazardous waste and non-hazardous solid waste via the AX project accounting module is discussed later in this document.

Test Bill of Materials Accuracy

The BOM contains quantity estimates of items on your bill of materials. Many companies will back-flush or pre-flush the consumption of materials on production orders. This results in the consumption of bill of material items at the estimated quantities. Unfortunately, numerous examples exist of companies that compared the estimated quantities on BOMs to real-world consumption of materials, and discovered a significant mismatch – the result being inefficient use of materials, unnecessary generation of waste, and increased costs.

It is suggested that you periodically test the accuracy of the estimated quantities by periodically recording actual consumption quantities on bill of material items, perhaps on an item group by item group basis. If you have set up your bill of materials to include operations, then in addition to performing this analysis by item, or item group, you will be able to measure actual variance to estimates by operation.

Here you can see the creation of a production journal and the entry of actual quantities using a pick list proposed from the bill of materials.

There are alternatives to entering this information if you do not want users on the floor to enter this information via production order pick lists. You might have them enter the actual consumption information on paper and have back office personnel enter into the system. You might also have an enterprise portal developed with a streamlined data entry flow so that users can more quickly enter consumption information from the production floor.

After the entry of the actual consumption information you will want to run a report to measure estimated consumption versus actual consumption. The report is located at Production>Reports>Analysis Cost Estimates and Costings. Here you can see an example of this report.

Set up Cost Groups in the Bill of Materials

It is suggested that you consider setting up cost groups that are associated to items in the bill of materials, to allow assessment of results by cost group. It is only through the use of cost groups that you can view costs graphically. Using this graphical breakdown you will be able to perhaps see visually see that packaging costs or energy resources are the most significant cost factor. This may prompt a waste prevention activity or action to relieve or reduce this type of cost.

Here you can see the cost group value the resulting graphic.

Track Waste Management Activities and Costs via the Project Accounting Module

In order to track a more complete picture of waste management activities and costs, it is suggested that you consider leveraging the power of the project accounting module.

Earlier you saw how posting a waste management vendor invoice with the proper waste output dimension values attached can help track those vendor costs in the general ledger. However, there are many other types of costs involved in managing waste, including company labor to handle and store the waste on-site, recycle or pre-treat the waste on site, and even depreciation on assets used to manage waste, e.g., an in-house wastewater treatment system. The use of the project accounting module can help you track, breakdown, and analyze these costs.

Here you can see four projects set up to track different types of management costs, including both onsite and offsite costs.

Labor time is posted to waste disposal projects through an hour journal. In addition to many other details, journals can capture details about the time worked including date, time, employee, hours worked, category of work and cost rates.

Here is a transaction summary of hours posted to a particular waste management project.

As mentioned previously, if you are utilizing production orders with negative bill of material quantities to track waste materials, even as service items, you will be able to see a quantity on-hand increasing over time as the posting of these production orders creates inventory levels of waste materials. The on-hand data are not relevant for air emissions. On-hand data may be of value for wastewater batches kept on-site temporarily for treatment. The on-hand data are also useful for tracking the amounts of hazardous waste and non-hazardous solid waste temporarily stored on-site.

You can use the project module to account for disposal of that waste material through inventory consumption, via use of an item consumption journal, a sales order or an item requirement. When you post this journal the inventory will be relieved and shown as consumed in the appropriate project. Using this method you will be able to track the estimated waste created from production and the amount of waste you are actually disposing of through the waste management project.

Here you can see wastewater consumed (disposed of) through a project transaction.

Now you have combined waste quantities, waste disposal quantities, and waste management costs in terms of item quantities in the same project. You can analyze waste management costs per unit waste and you can also analyze waste disposal quantities versus inventory levels to see if your bill of material estimates are accurately estimated. If there is a large variance you may want to revise bill of material waste material estimates.

Improve Allocation of Environment-related Costs

As resource prices and waste management costs rise, many companies have begun to improve the allocation of overhead costs such as water and energy purchases and waste management costs to the actual operations and products that generate those costs. It is suggested that you consider reviewing your current cost allocation methods for these types of costs, testing those allocation methods against real-world conditions, and adjusting them as needed. Improvements might include:

Allocating energy costs to specific products and operations for the first time, based on real-world energy use
Allocating the highest hazardous waste management costs to the products/operations responsible for them, but not to products/operations that produce no hazardous waste at all.

Recommendation Summary

The suggestions outlined in this document take advantage of the powerful and flexible nature of Microsoft Dynamics AX to get your organization started in the area of Environmental Management Accounting.

The suggestions give you the ability to:

Modify the chart of accounts
Setup dimensions to track environment-related information in financial transactions
- The purchase costs of regulated raw materials
- Vendor costs for management/disposal of regulated wastes
Track packaging materials and costs in the bills of materials
Track water, fuel and electricity usage in the bill of materials
Track waste outputs in the bill of materials
Test bill of materials accuracy
Set up cost groups in the bill of materials
Track waste management disposal and costs via the project accounting module
Improve allocation of environment-related costs

In whole or part, it is hoped that if implemented these suggestions will lead to informed discussions and an increase in decisions which positively impact the environment and reduce company costs.

Bibliography

EC – 2001a

European Commission (EC). "Commission Recommendation of 30 May 2001
on the recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies." Official Journal of the European Union L 156/33 (13 June 2001)

EC – 2003

European Commission (EC). "Commission Regulation (EC) No 1670/2003 of 1 September 2003 implementing Council Regulation (EC,Euroatom) No 58/97 with regard to the definitions of characteristics for structural business statistics and amending regulation (EC) No 2700/98 concerning the definitions of characteristics for structural business statistics." Official Journal of the European Union L 244/74 (9 September 2003)

Fichter, Loew, Redmann, & Strobel - 1999

Fichter K., T. Loew, C. Redmann and M. Strobel. Flusskostenmanagement, Kostensenkung und Öko-Effizienz durch eine Materialflußorientierung in der Kostenrechnung. Wiesbaden, Germany: Hessisches Ministerium für Wirtschaft, Verkehr, und Landesentwicklung, 1999. (available only in German)

GRI - 2002

Global Reporting Initiative (GRI). Sustainability Reporting Guidelines on Economic, Environmental and Social Performance. Amsterdam, 2002; http://www.globalreporting.org

ICAEW – 1996

Institute of Chartered Accountants in England and Wales (ICAEW) Environment Steering Group. Environmental Issues in Financial Reporting. London 1996.

ICAEW - 2004

Institute of Chartered Accountants in England and Wales (ICAEW). Information for Better Markets, Sustainability: the role of accountants. London 2004

ISO 14001 - 1996

International Standardization Organization (ISO) Environmental Management – Environmental Management Systems – Specification. Geneva, 1996.

Kyoto Protocol - 1997

http://europa.eu.int/comm/environment/climat/kyoto.htm

Lea – 2004

Lea, D. Briefing Paper on the RoHS Directive. Herndon, Virginia: Celestica, Inc., 2004; http://www.nemi.org/projects/fis/RoHS.pdf

Pojasek – 1997a

Pojasek, R. "Practical Pollution Prevention – Understanding a Process with Process Mapping". Pollution Prevention Review, Summer 1997

Pojasek – 1997b

Pojasek, R. "Practical Pollution Prevention – Materials Accounting and P2". Pollution Prevention Review, Autumn 1997 http://www.pojasek-associates.com/Reprints/materials-accounting-and-p2.pdf

Schaltegger, Müller, and Hinrichsen - 1996

Schaltegger, S., K. Müller and H. Hinrichsen. Corporate Environmental Accounting. Chichester, UK: John Wiley & Sons, 1996.

UNCTAD – 1999

United Nations Conference on Trade and Development. Accounting and Financial Reporting for Environmental Costs and Liabilities (UNCTAD/ITE/EDS/4). New York and Geneva: United Nations Publications, 1999.

http://www.unctad.org/Templates/webflyer.asp?docid=205&intItemID=1397&lang=1

UNDESA/DSD – 2002

United Nations Division for Sustainable Development. Environmental Management Accounting: Policies and Linkages. New York and Geneva: United Nations Publications, 2002; http://www.un.org/esa/sustdev/sdissues/technology/estema1.htm

UNEP & UNIDO – 1991

United Nations Environment Programme (UNEP) and United Nations Industrial Development Organization (UNIDO). Audit and Reduction Manual for Industrial Emissions and Waste". UNEP, Paris, 1991.