PCI Sdn Bhd Introduction - founded in 1957 - vision - core business : manufacturing and distribution of a wide range of power

cables - cable and wire industry was basically domestic market-oriented and mainly for power distribution - two-tier organization structure : GM, Chief Officer - year 2006: (9.2m), year 2007: 32.6m, increased 41m - issues in increase in cost: current purchasing system and high inventory holding cost S.W.O.T Strength 1. continuous improvement, quality work culture, expertise and technology 2. revenue and profit growth (121m, 41m); saving in administrative expenses (6m) 3. Accumulated losses reduced by 33m 4. material for sheath will be selected for resistance to water, oil, sunlit, underground conditions, chemical vapours, impact or high temperature 5. cables have special requirements for ionising radiation resistance for nuclear industry application 6. manufactures various types of pilot cables according to TNB standard specification 7. capable to manufacture SUS type and Slotted type of OPGW 8. memorandum of understanding with PLP Australia, supply all types of accessories of OPGW 9. large capacities: 3600km of Power Cables and overhead aluminium conductors, 10000 metric tonne of Aluminium Rods and 1400 km of OPGW conductors. 10. two-tier structure create proper checks and balances to simplify governance Weakness 1. Increases in costs of goods sold (85m) and inventories (18m) disproportionate with growth of sales 2. Current purchasing system contributed to redundant purchasing and high inventory holding costs 3. Siti Aminah (CFO) has no experience in system and technology 4. Internal control weaknesses: a) The purchasing clerk, Cik Anne should not have received the invoice and DO. b) There is no copy of PO being sent to vendor, Receiving Department and AP. c) The Materials Resource Planning, Cik Lim should not update AP. The liability should be recorded by another clerk from Finance Department. d) The Finance Clerk, Encik Faris should not prepare cheque. Payments to suppliers can only be authorized by AP. Voucher should be prepared by the one who updated account payable. This is to ensure the payment of bills is authorized by account payables not the finance clerk, who writes the checks. Opportunities 1. E-procurement system: present e-procurement technology would help purchasing departments order, track and manage supply purchases over the Internet 2. Strategic sourcing: reduced the total cost of purchases through a structured approach that leveraged the combined purchasing power and practices of all business units in the company.

3. Comprehensive review of supply chain process: forming cross-functional teams to determine business needs and creating supply wish list that can be pursued in unison with the suppliers Threats 1. More than 135 competitors in Malaysia, major local cable manufacturers: Leader Cable, Tenaga Cable, Power Cable and Supercomal. 2. Elektrisola: most advanced fine enamelled copper wire manufacturing plant in the world; foreign-owned and export-oriented. 3. Have to establish and maintain profitable supplier relationship while pressuring supplier keep their price low 4. Price of raw materials increase > suppliers pass on any increased cost in the form of higher prices to the purchaser (PCI) 5. Have to ensure supply quality Problem 1: Internal Control 1. Current purchasing system contributed to redundant purchasing and high inventory holding costs and caused increases in costs of goods sold and inventories disproportionate with growth of sales - Internal Control Weaknesses of purchasing system a. The purchasing clerk, Cik Anne should not have received the invoice and DO. b. There is no copy of PO being sent to vendor, Receiving Department and AP. c. The Materials Resource Planning, Cik Lim should not update AP. The liability should be recorded by another clerk from Finance Department. d. The Finance Clerk, Encik Faris should not prepare cheque. Payments to suppliers can only be authorized by AP. Voucher should be prepared by the one who updated account payable. This is to ensure the payment of bills is authorized by account payables not the finance clerk, who writes the checks. Implications (effects of the problem) a. There will be a manipulation of accounts and misuse of cash. b. Without a copy of PO, vendor, Receiving Department and AP cannot review and make comparison. c. There will be a manipulation of accounts and misuse of cash. d. Misuse of cash and unauthorized payment could be made to vendor. What-if analysis (what happen if nothing being done to rectify the issues) a. If Cik Anne prepare the PO, she can order raw material without authorization. This is because she is the one who ordering raw materials and check the invoice. b. The quantities received may not be the same as the quantities ordered because there is no document for them to make verification. c. If Cik Lim updates the AP, she can manipulate the materials resources figure because she is the one who approve the MRMS. d. If Encik Faris prepares the voucher and cheque, unauthorized cheque could be made to vendor.

Recommendations a. DO should be sent to Receiving Department, then Receiving Department will issue SRN and send it to Purchasing Department and AP Department; invoice should be sent to Account Payable Department where the clerk in Account Payable Department is responsible to reconcile the information. b. Three copies of PO should send to vendor, Receiving Department and AP. This is to make sure there is independent verification. c. A clerk from Finance Department should be responsible to update AP. This is to make sure there wont be any misappropriation of cash or manipulation of accounts. d. The cheque and voucher should be prepared by two different clerks from AP. This is because the payment to supplier should be authorized by AP. e. PCI Sdn Bhd is recommended to implement a new computerized purchasing system. When inventories are reduced by sales to customers or usage in production, the system determines if the affected items have fallen to their reorder points. The computer program will then identifies inventory requirements and prepares traditional PR. This is able to reduce unnecessary orders that lead to high inventory holding costs. Problem 2: Highly competitive industry a) More than 135 companies were competing with PCI Sdn Bhd in producing electrical components in Malaysia. Major local cable manufactures in Malaysia are including Leader Cable, Tenaga Cable, Power Cable and Supercomal. b) Besides that, Elektrisola owns an enamelled copper manufacturing plant in Bentong, which is the most advanced in the world. By this, PCI Sdn Bhd lies in such high competitive environment to compete with its competitors. Implication a) Many competitors > Lower down their price (Price War) > Low quality of products Due to the high competition in the industry, PCI Sdn Bhd might have to lower their price in order to compete with others and eventually lead to a price war in the industry. This may lead to low quality of products being produced as company started to look for cheaper raw materials with the hope of cutting down their production cost and products can be selling at a cheaper price. Thus, the quality of product is being compromised. b) Elektrisola (most advanced) > Difficult to expand the foreign market Due to Elektrisola is the world's largest manufacturer of fine enamelled copper wire, it might be difficult for PCI Sdn Bhd to expand their foreign market of producing fine enamelled copper wire. People tend to believe in the well-known global company. What-If Analysis a) No customer satisfaction and lose target market Living in such highly competitive industry, PCI Sdn Bhd is mandatory to come out a better and useful strategy to tackle all the competitors in order to survive and earns better profits. If PCI Sdn Bhd failed to come out a better strategy to overcome the issue, PCI Sdn Bhd will lose its target market to the competitors. As price war continues and low quality of products being produced, customers satisfaction might reduce and all the manufacturers may earn a lower profit. Thus, they may fall into a lose-lose situation.

b) Lose the foreign market Unable to invest in the foreign market. Even PCI Sdn Bhd able to expand to the foreign market, there might be high risk occur. Thus, there might be a huge losses incur in PCI Sdn Bhd.

Recommendation a) Differentiation strategy PCI Sdn Bhd should have a well planned strategy in order compete with their competitors, such as differentiation strategy. By using the differentiation strategy, PCI Sdn Bhd will be able to produce products which are different from its competitors in terms of feature, design and quality. Competitive advantage over others manufacturer might be achieved by implementing the differentiation strategy. It will help to attract and retain customers, increase revenue and profitability. b) Research and development PCI Sdn Bhd should invest in research and development. Understand the competitors are important in order to expand their market, especially those world class manufacturers, such as Elektrisola. The company have to know what and how should they compete with others. Risk of investment into the foreign market might be reduced if there is appropriate research and development being done by the company. Problems 3: Supply chain issue a. Have to establish and maintain profitable supplier relationship while pressuring supplier keep their price low b. Price of raw materials increase > suppliers pass on any increased cost in the form of higher prices to the purchaser (PCI) c. Have to ensure supply quality Implications (effects of the problem) a. Incurring high costs in maintaining good relationship with supplier b. Need to pass on the increased costs to customers c. High costs in maintaining high quality What-if analysis (what happen if nothing being done to rectify the issues) a. Unable to obtain raw materials at the best price and quality. May be end up paying more than the going market rate if the supplier is not working with them and not operating in a competitive environment. Inventories can gradually creep up, particularly the slow moving and obsolescent items are not regularly reviewed. If supplier does not regularly communicate with the people at the coalface, in situations where goods are ordered from a number of locations by a large number of people it can be very difficult to ensure that they are in compliance with procedures. b. Customer need to pay higher price, might switch to competitors product c. Quality issue may reduce customer satisfaction, affect customer loyalty Recommendations a. Long term agreement, EDI, supply chain management b. Save costs in production process/ administration

c. Quality control procedures Problems 4: Siti Aminah (CFO) has no experience in system and technology Implications (effects of the problem) She may have difficulty in identifying the weaknesses in the current system. She doesnt have the ability to develop a new system to deal with the weaknesses in the current system. What-if analysis (what happen if nothing being done to rectify the issues) Siti would unable to solve the current issues and the increasing costs of goods sold and inventories will result in continuing losses. Recommendations Siti could recruit counsultants who are the expert in the field of system and technology. Together with the consultants, Siti and explain the current issues to them and develop a new purchasing system to solve the problem.