Case Expenditure cycle INTEGRATIVE CASE Alpha Omega Electronics Although the new enterprise resource pleasing (ERP) zatem st Alpha Omega Electronics (ADC) has enabled the company to slash is cost od with purchasing and accounts payable, Linda Spurgeon, AO president is cominced that additional improvements are seeded. She is particularly concern about recently raised by Laloy Williams, nice president of manufacturing for ADE Lady i poet becauses production mans were delayed at the Wichita plant because component has to records indicated as being in stoce actually were not on hand. The wealne delay the Dayton piant because suppliers either did not deliver com time to delivered btandard products Linda askond Elisabe Veno, the contemnendt AO i president of in formation systems, for some recommandations on how AOS ERP system could help zolve these problema. Specificity.checked ab Ans to address the following 1 What must be done to ensure that ACE's inventory records are current and accurate to avoid unexpected components shortages like those experienced at the Wichita plant? 2 How could the problems at the Dayton plant be avoided in the future? What can be done to ensure timely delivery of quality componente? 3. Is it possible to reduce ADE's investment in materials inventories? 4. How could the information system provide better information to guide planning and production? 5. How could IT be used to further reengineer expenditure cycle activities? As this case reveale, deficiencies in the information system used to support expenditure cycle activities can create significant financial probleme for an organisation Current and ac- curate information about inventories, suppliers, and the status of outstanding purchase or ders is crucial for managing the expenditure cycle effectively. As you read this chapter, think about how to solve AOE's problems with its expenditure cycle activities. Summary and Case Conclusion The basic business activities performed in the expenditure cycle include ordering materials, supplies, and services, receiving materials, supplies, and services, approving supplier invoices for payment; and paying for goods and services. The efficiency and effectiveness of these activities can significantly affect a company's overall performance. For example, deficiencies in requesting and ordering necessary inven- tory and supplies can create production bottlenecks and result in lost sales due to stockouts of popular items. Problems in the procedures related to receiving and storing inventory can result in a company's paying for items it never received, accepting delivery and incurring stor- age costs for unordered items, and experiencing a theft of inventory. Problems in approving supplier invoices for payment can result in overpaying suppliers or failing to take available discounts for prompt payment. Weaknesses in the cash disbursement process can result in the misappropriation of cash. it can help improve the efficiency and effectiveness with which expenditure cycle ac- tivities are performed. In particular, EDI, bar-coding, RFID, and EFT can significantly reduce the time and costs associated with ordering, receiving, and paying for goods. Proper control procedures, especially segregation of duties, are needed to mitigate various threats such as er: rors in performing expenditure cycle activities and the theft of inventory or cash. At the next executive meeting, Ann Brandt and Elizabeth Venko presented to Linda Spur- geon their recommendations for improving AOE's expenditure cycle business activities. Ann indicates that LeRoy Williams's plan to conduct more frequent physical counts of key raw materials components will increase the accuracy of the database and reduce the likelihood of future stockouts at the Wichita plant. She also designed a query to produce a daily supplier performance report that will highlight any negative trends before they become the types of problems that disrupted production at the Dayton plant. Ann also indicated that it would be possible to link ACE's inventory and production planning systems with major suppliers to bel- ter manage AOE's inventory levels. Elizabeth Venko stated that she was working to increase the number of suppliers who either bar-code or RFID tag their shipments. This would improve both the efficiency and ac curacy of the receiving process and also the accuracy of ACE's inventory records, thereby providing possible additional reductions in inventory carrying costs. In addition, Elizabeth wants to encourage more suppliers to either send invoices via EDI or agree to ERS, which should improve the efficiency and accuracy of processing invoices and reduce the costs asso ciated with handling and storing paper invoices. Concurrently, Elizabeth plans to increase EFT as much as possible to further streamline the cash disbursements process and reduce the costs associated with processing payments by check. As the meeting draws to a close, LeRoy Williams asks if Elizabeth and Ann can meet with him to explore additional ways to improve how ACE's new system tracks manufacturing activities Summary and Case Conclusion The basic business activities performed in the expenditure cycle include ordering materials, supplies, and services, receiving materials, supplies, and services, approving supplier invoices for payment; and paying for goods and services. The efficiency and effectiveness of these activities can significantly affect a company's overall performance. For example, deficiencies in requesting and ordering necessary inven- tory and supplies can create production bottlenecks and result in lost sales due to stockouts of popular items. Problems in the procedures related to receiving and storing inventory can result in a company's paying for items it never received, accepting delivery and incurring stor- age costs for unordered items, and experiencing a theft of inventory. Problems in approving supplier invoices for payment can result in overpaying suppliers or failing to take available discounts for prompt payment. Weaknesses in the cash disbursement process can result in the misappropriation of cash. it can help improve the efficiency and effectiveness with which expenditure cycle ac- tivities are performed. In particular, EDI, bar-coding, RFID and EFT can significantly reduce the time and costs associated with ordering, receiving, and paying for goods. Proper control procedures, especially segregation of duties, are needed to mitigate various threats such as er- rors in performing expenditure cycle activities and the theft of inventory or cash. At the next executive meeting, Ann Brandt and Elizabeth Venko presented to Linda Spur- geon their recommendations for improving ACE's expenditure cycle business activities. Ann indicates that LeRoy Williams's plan to conduct more frequent physical counts of key raw materials components will increase the accuracy of the database and reduce the likelihood of future stockouts at the Wichita plant. She also designed a query to produce a daily supplier performance report that will highlight any negative trends before they become the types of problems that disrupted production at the Dayton plant. Ann also indicated that it would be possible to link ACE's inventory and production planning systems with major suppliers to bet- ter manage ACE's inventory levels. Elizabeth Venko stated that she was working to increase the number of suppliers who either bar-code or RFID tag their shipments. This would improve both the efficiency and ac- curacy of the receiving process and also the accuracy of ACE's inventory records, thereby providing possible additional reductions in inventory carrying costs. In addition, Elizabeth wants to encourage more suppliers to either send invoices via EDI or agree to ERS, which should improve the efficiency and accuracy of processing invoices and reduce the costs asso ciated with handling and storing paper invoices. Concurrently, Elizabeth plans to increase EFT as much as possible to further streamline the cash disbursements process and reduce the costs associated with processing payments by check. As the meeting draws to a close, LeRoy Williams asks if Elizabeth and Ann can meet with him to explore additional ways to improve how ACE's new system tracks manufacturing activities