Balancing the Books

Picture: Harting

The HARTING Technology Group, manufacturers of connectors and electromagnetic components, used the German Accounting Law Modernization Act (BilMoG) as an opportunity for implementing SAP’s new general ledger. Above all, the global enterprise wanted to raise its internal reporting practices to a new level. Now even its smallest corporate unit can take stock of its performance.

HARTING went live with the new general ledger on Easter day in 2012, the air charged with nervous anticipation. The Group supplies the electronics industry the world over with connectors and connection technology. Together with the IT service provider Lynx Consulting, it spent a good year preparing itself to enter this new age of reporting. With subsidiaries in 30 countries, the company had in previous years built up a sophisticated accounting and reporting system comprising 50 company codes. It was unwilling to abandon the characteristics – and least of all, the data quality – of this system. As a result, the new general ledger and reporting solution had to meet much higher demands at HARTING than is normally the case.

The company’s most important goal was to be able to present a complete balance sheet and a complete profit and loss statement (P/L) for each of its corporate units. This was not possible with the old version of the general ledger. HARTING’s galvanics division, for example, supplies the company’s different production lines internally and needs an exact cost-benefit statement. But the old general ledger was unable to satisfy this requirement. “In the past, we could compile only rough estimates and record approximate values for certain parts of the organization. Reporting for individual business units was impossible, because there was always some data missing. It was an unsatisfactory situation for all of us,” explains Jürgen Olesch, the SAP specialist at HARTING.

Being able to control the business better across all business units and international subsidiaries in the future depended on a better statistical basis and improved analysis of the numbers. Profit center accounting, an essential part of HARTING’s controlling and management for many years, was to be retained at all costs and fine-tuned.

Country-specific requirements complicate matters

Given the global reach of the company, its goal proved to be quite challenging: HARTING needed to comply with great number of special, country-specific accounting regulations. The Brazilian and Russian governments, for example, both stipulate that the fiscal year must be the calendar year. However, the fiscal year of the parent company, which operates under German commercial law and applies group rights globally, begins on October 1. The final impetus for the project came from outside the company: The BilMoG states that companies must in future prepare separate balance sheets for commercial and tax purposes, so in effect, HARTING was more or less forced to depict a parallel accounting.

It chose Lynx Consulting, an SAP partner, to guide it through the project. According to Claus Hilger, head of IT at HARTING, “A major factor in our decision was the geographical closeness coupled with the good reputation that Lynx has earned in other HARTING business units.” But it was the overall package – free of additional charges and travel expenses – that appealed to HARTING’s financial officers.

On the next page: The road to successful implementation

Consistent data source

Soon after project launch, the team very quickly identified a core issue at the heart of the implementation. SAP’s standard migration procedures, which are deployed successfully in many other companies, could not be used in this case due to the unique operational setup of the family-run business. So the project team had to come up with a tailored solution. “We did not want any externals to notice that we had changed the software backbone of our department,” said Olesch.

From a technical viewpoint, this meant retaining data quality and database one hundred percent. HARTING, Lynx, and SAP therefore decided to chart a course that had never been taken before: They would fuse the three SAP modules used in HARTING’s accounting system into a single data source and then migrate it to the new general ledger. This undertaking ended up consuming a lot more internal resources than planned. “It was tough work but the effort certainly paid off,” notes Olesh. During the migration, for example, he was able to expedite the cleaning of master data and movement data.

He was also able to create a ledger for the International Financial Reporting Standards (IFRS), at the same time and in addition to the three predefined ledgers. “This parallel filling used up more system resources during migration, but was less burdensome than setting up ledgers retroactively,” explains Olesch.

Because the new general ledger allows the use of different parallel ledgers, HARTING can now comply with German law requiring separate balance sheets for tax purposes and commercial purposes in traditional ledgers, and create local balance sheets for each country in a third ledger. The problem of having various fiscal years is now also a thing of the past: Group rights and local laws can now be harmonized.

Set of rules to split documents 

The road to successful implementation was rocky, though. One of the main tasks, for example, was to split documents. To facilitate financial reporting that is accurate to the last cent for the smallest operating unit, the team had to define and use rules for splitting documents. Olesch explains: “To create a financial overview of each business unit, you need to split the documents in a way that depicts an end-to-end process – for example, from the creation of a financial claim through to its payment. In IT terms, this means that all characteristics of a process, from its start to finish, are inherited.”

You can tell when talking to Olesch that he has invested a lot of time and nerves in switching the company over from the old to the new general ledger. But in the end, he says, it is the end result that counts – in every sense of the word: “Today, even our galvanics division can generate a complete balance sheet.” What’s more, the many special solutions the company had to create for each country in the past are now history. Local ledgers enable HARTING to adapt its accounting procedures to the laws of each individual country – and at the same time, make it easier for the Group to compare numbers from those countries.

About HARTING Technology Group

The HARTING Technology Group is a family-owned business headquartered in Espelkamp, Germany. It is skilled in the fields of electrical, electronic and optical connection, transmission and networking, as well as in manufacturing, mechatronics and software creation. The Group uses these skills to develop customized solutions and products such as connectors for energy and data transmission applications including, for example, mechanical engineering, rail technology, wind energy plants, factory automation and the telecommunications sector. HARTING also produces electromagnetic components for the automobile industry and is a specialist in industrial applications such as enclosures and housings, the cabling and assembly of individual or complete systems, and automated vending systems.