Lascelles Fine Foods Lascelles (LFFL) is a fictitious example of a long-established company operating in the food industry. The company has its administrative headquarters in Ashville and manufactures on an adjacent site. All customer deliveries are from the Ashville-based warehouse. In addition, LFFL purchases finished and semi-finished food products from other manufacturers which it then finishes before resale.
The company has enjoyed steady growth in recent years and is now seeking to capitalise on the current fashion for quality and healthy food products. LFFL’s turnover is R322087136.80 with net profitability of 6.3 per cent of turnover. It is hoping to gain a competitive edge by providing quality food products which meet all present and anticipated quality standards and to this end will be applying for BS5750 accreditation within the next six months. It is hoping to increase turnover by 10 per cent per year after inflation over the next five years and increase net profitability to 9 per cent of turnover over the same period.
LFFL’s main operations are divided into four main areas:
• sales and marketing;
• warehousing and distribution;
• manufacturing; and
All information recording and internal communication is paper based and relies on a range of pre -printed documents which are then used as appropriate.
The sales department
LFFL has a diverse customer base, ranging from small health food shops to major supermarket chains. Orders can be one of two types: standard orders placed in advance for delivery in a specific week or priority orders placed for immediate delivery.
Orders are placed either directly through sales office ‘account handlers’ or through field sales persons (each customer has one sales person). Each customer is allocated an account handler who acts as the main liaison point within LFFL. Besides receiving orders, the account handler is responsible for cash collection, ensuring satisfactory progress of the order and handling day-to-day queries. Customers are also placed into sales categories based on geographic location, volume of business and type of customer (e.g. specialist store v. supermarket chain). The sales director is apt to change his mind about which category a customer is in and which category means what.
Once an order is taken, it is recorded on a pre-printed order form. One copy is retained by the sales department and two copies are sent to warehousing and distribution.
Warehousing and distribution sort all order forms into date order. When an order is due to be delivered, products are picked from the warehouse and loaded into the appropriate vehicle.
When an order is delivered, it is accompanied by a consignment note and an invoice. The customer is required to check the delivery against the invoice and note any errors on the consignment note . The delivery driver returns with a signed copy of the consignment note and if any errors are noted a corrected invoice is sent to the customer.
Warehousing and distribution
LFFL stores finished products, bought-in products and raw materials in the warehouse. The warehouse is divided into three areas:
• the general zone, comprising a high-rise bulk storage area with a floor-level picking area;
• the cool zone, comprising low-level storage at 2 to 4°C;
• the frozen zone, with temperatures held to – 18°C;
In addition to their role in the order processing cycle, other activities are also performed:
• internal warehouse movements from high-rise locations to ground-level areas and vice versa;
• receiving products and raw materials from suppliers and returned products from customers;
• issuing raw materials to manufacturing in response to submitted requisition forms;
• receiving finished products from manufacturing and any unused raw materials.
Information about quantities of finished goods and raw materials in stock is re corded in a card file, which has to be searched manually for the appropriate entry when updating is required.
Manufacturing ranges in complexity from simple repackaging of bulk-purchased materials to complex mixing and cooking activities.
Recipes are recorded on 7 inch by 5 inch cards and include details of the required ingredients as well as the processing which is to take place.
LFFL’s finance department is divided into three areas:
• accounts payable – when LFFL makes purchases, suppliers will invoice it; LFFL uses a manual purchase ledger to manage these accounts;
• financial accounting – management of all monies flowing in and out of the company together with compliance with legal accounting requirements;
• management accounting – internal accounting information necessary to manage the business more effectively.
The accounts receivable area is handled by the account handlers who use a manual sales ledger and make a weekly return to the finance department on the state of their customers’ accounts.
Specific business issues
There are a number of specific issues which relate to the activities of each department. These are detailed below. Sales
• The status of an order cannot easily be determined without pestering the warehouse.
• Many customer complaints occur due to delivery of wrong products, orders delivered too late, incomplete orders and faulty products.
• Warehousing does not deliver the most important orders first – small orders are often given priority over larger orders from major retailers.
• Orders often cannot be delivered on time because manufacturing produces too late and in insufficient quantity.
Warehousing and distribution
• Many items have a limited shelf life – warehousing often fails to rotate the stock properly.
• Actual stock levels are rarely in step with the recorded stock levels – this may be due to pilfering, poor update of stock records or both.
• The sales department often accepts priority orders for products which are not in stock.
• Manufacturing bypasses the normal requisition procedures and simply takes raw materials as required – it also often fails to return unused materials to warehousing.
• The sales returns from the account handlers are often incomplete.
• There are several bad debts which cannot be recovered – this is attributed to poor credit control procedures.
• Management accounting is very difficult due to a general lack of accurate information from other departments.
• Financial accounts are often published late due to lack of accurate information.
• Warehousing is slow to respond to requests for raw materials, thus necessitating correct procedures being bypassed (especially when the sales department is applying pressure).
• Lack of accurate forecasting makes it difficult for production to be planned ahead and adequate supplies of raw materials to be secured.
• There is a rapid turnover of staff, especially in the sales area where the pressure from customers can be intense. In addition, field sales personnel are apt to make promises which cannot be kept and new sales personnel are often thrown in at the deep end with little formal training for their jobs.
• There is a high level of sickness in the warehousing and distribution area, due mainly to inadequate provision of lifting equipment.
• There is a perceived lack of management and technical support which has resulted in a general lowering of morale.
The managing director, Clive Moor, has indicated that he would like to replace the existing paper-based systems with ‘computers of some kind’. With such a move, he is hoping to improve on the communication of information at all levels in the organisation. However, Mr Moor knows little about computer hardware or applications software except that it seems to cost rather a lot.
In order to proceed with the computerisation programme, Mr Moor has asked the following senior managers to produce a plan:
• Paula Barlow – finance director;
• Terry Watson – sales and marketing director;
• Peter Jackson – manufacturing operations director;
• Frances Clarke – warehousing and distribution director.
However, these directors have varying degrees of enthusiasm for the project, together with a desire to minimise the risk of damage or exposure within their own departments. One of the key decisions which must be made will be how LFFL acquires the necessary applications software. One option will be to hire relevant IT staff and build bespoke applications, while another will be to purchase off-the-shelf packages. Yet another option will be for end- users to develop their own applications. This last option may prove awkward, since there is very little IT expertise among the end-users.
SECTION A [30 MARKS]
Answer ALL the questions in this section
Question 1 (15 Marks)
Examine how the study of Business Strategy Analysis and Planning contributes towards LFFL choosing the right method(s) for business systems software acquisition. Conduct a feasibility study on selecting the correct method to acquire business systems software and provide the benefits.
Question 2 (15 Marks)
Analyse the strategy of LFFL choosing an off-the-shelf package in relation to the effects on the organisation. How would you ensure the application meets the requirements? Justify your response.
Answers to Above Case Study Questions
Answer 1: Business strategy analysis and planning would contribute positively towards LFFL in selecting the right method for business system software acquisition. This is mainly because the study of business strategy would allow the management at LFFL to undergo focused thinking, simultaneously understanding business context, better evaluation of business challenges, good ability to understand the internal and external environment faced by business, better ability to articulate the business need, and utilising the best technology solution to address the business requirement. In the given case scenario of LFFL, it is evaluated that….
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