Accounting information system AIS

FlexibleX Pty Ltd manufactures and sells active wear clothing (e.g. for people engaging in

yoga and pilates). Sales of the active wear clothing are made to retail sports stores. The

business process used by Flexible X Pty Ltd to supply retail stores is described below:

Retail sports store managers order online through an online secure website when

inventory levels in their store are getting low. When the online order is placed, the system

of FlexibleX sends the order through to an allocated business relationship officer (i.e.

each retail sports store has an allocated business relationship officer). The business

relationship manager checks that the goods ordered by the retail store are available and

notifies the store when the goods will be arriving at the store. The retail sports stores are

long-standing and regular customers but typically order at the last minute when their

inventory levels are very low.

The goods are packed, manually recorded on the goods release form (two copies are

prepared) and sent to the shipping department for dispatch. A courier collects the goods

and a goods release form every morning and afternoon and delivers these to the retail

store. Once delivery details are confirmed, an invoice is prepared by accounts receivable

based on the details in the customer order and the goods release form.

Electronic invoices are sent out at the end of each week. Retail stores currently have

standard payment terms of 2/15, n/35. Payment can only be made by cheque, which is

sent to the customer service representative who forwards it on to the accounts receivable

office.

FlexibleX has recently noticed that it is having inventory management problems due to the

irregular nature of orders. This has impacted on its own ability to meet customer demands. It

is also concerned that incorrect quantities of goods may be packed and shipped, and not

detected until the goods reach the retail stores. This introduces extra costs of handling returns

and allowances. Additionally, FlexibleX has noticed that its accounts receivable turnover has

dropped from 11.7 times per year to 9.5 times per year over the last 12 months.

An independent consultant has suggested that by re-engineering business processes, these

problems could be addressed.

Required

a. Identify and describe inefficiencies that are present in the current system.

b. Suggest ways that the business process inefficiencies could be corrected through business

process re-engineering