O'Brien Corporation is a 10-year old industrial equipment manufacturer that has experienced 25% annual sales growth over the last 3 years. Their marketing, shipping, billing and receiving systems have some weaknesses including new inexperienced shipping clerks causing 6 day shipping delays instead of 2 days, 15% of credit sales being late or uncollected due to lack of credit checks, and monthly rather than continuous inventory updates. Recommendations are needed to address these weaknesses and improve their revenue cycle systems.
O'Brien Corporation is a 10-year old industrial equipment manufacturer that has experienced 25% annual sales growth over the last 3 years. Their marketing, shipping, billing and receiving systems have some weaknesses including new inexperienced shipping clerks causing 6 day shipping delays instead of 2 days, 15% of credit sales being late or uncollected due to lack of credit checks, and monthly rather than continuous inventory updates. Recommendations are needed to address these weaknesses and improve their revenue cycle systems.
O'Brien Corporation is a 10-year old industrial equipment manufacturer that has experienced 25% annual sales growth over the last 3 years. Their marketing, shipping, billing and receiving systems have some weaknesses including new inexperienced shipping clerks causing 6 day shipping delays instead of 2 days, 15% of credit sales being late or uncollected due to lack of credit checks, and monthly rather than continuous inventory updates. Recommendations are needed to address these weaknesses and improve their revenue cycle systems.
CASE 6: Revenue Cycle copy of the invoice serves as a billing copy,
and shipping inserts it into a special envelope
on the package in order to save postage. The O'Brien Corporation is a medium-sized, carrier of the customer's choice is then privately owned industrial instrument contacted to pick up the goods. In the past, manufacturer supplying precision equipment goods were shipped within two working days manufacturers in the Midwest. The corporation of the receipt of the customer's order; however, is 10 years old and operates a centralized shippin g dates now average six working days accounting and information system. The after receipt of the order. One reason is that administrative offices are located in a there are two new shipping clerks who are still downtown St. Louis building; the production, undergoing training. Because the two shipping, and receiving departments are housed shipping clerks have fallen behind, the two in a downtown St. Louis building; the produc- clerks- in the receiving department, who are tion, shipping, and receiving departments are experienced, have been assisting the shipping housed in a renovated warehouses few blocks clerks. away. The shipping and receiving areas share one end of the warehouse. The receiving department is adjacent to the shipping dock, and merchandise is received O'Brien Corporation has grown rapidly. daily by many different carriers. The clerks Sales have increased by 25 percent each year share the computer terminal with the shipping for the last three years, and the firm is now department. The date, vendor, and number of shipping approximately $80,000 of its items received are entered on receipt in order to products each week, lames Fox, O'Brien's keep the perpetual inventory records current. controller, purchased and installed a computer last year to process the payroll and inventory. Hard copy of the changes in inventory Fox plans to integrate the accounting (additions and shipments) is printed once a information system fully within the next five month. The receiving supervisor makes sure the years. additions are reasonable and forwards the printout to the shipping supervisor, who is The marketing department consists of four responsible for checking the reasonableness of salespersons. On obtaining an order, usually the deductions from inventory (shipments). The over the telephone, a salesperson manually inventory printout is stored in the shipping prepares a prenumbered, two-part sales order. department by date. A complete inventory list One copy of the order is filed by date, and the is printed only once a year, when the physical second copy is sent to the shipping department. inventory is taken. The diagram on the next All sales are on credit, F.O.B. destination. page represents the document flows employed Because of the recent increase in sales, the four by O'Brien Corporation. salespersons have not had time to check credit histories. As a result, 15 percent of credit sales are either late collections or uncollectible. Required The shipping department receives the sales O'Brien Corporation's marketing, shipping, orders and packages the goods from the billing, and receiving information systems warehouse, noting any items that are out of have some weaknesses. For each weakness in stock. The terminal in the shipping the systems department is used to update the perpetual a. Identify the weakness and describe the inventory records of each item as it is removed potential problem(s) it caused. from the shelf. The packages are placed near the loading dock door in alphabetical order by b. Recommend controls or changes in the customer name. The sales order is signed by a systems to correct each weakness. shipping clerk when the order is filled and c. Prepare a level-zero data-flow diagram of ready to send. The sales order is forwarded to the marketing, shipping, and b illi n g the billing department, where a two-part sales procedure. Treat the receiving department invoice is prepared. The sales invoice is as external. prepared only on receipt of the sales order from the shipping department so that the customer (CMA adapted) is billed just for the items that were sent, not for back orders. B i ll in g sends the customer's copy of the invoice back to shipping. The customer's