Chicken breast run article
Executive overview: 1998, Excel Poultry & Meat Sdn Bhd (EPM) was a SME located in Kluang, Johor, working business of chicken farming and offering chicken through Malaysia. This kind of subsidiary of PCK holding since 2005 was been able by Encik Selamat, a Certified Public Scrivener (CPA). It probably is one of top 5 chicken suppliers within mid-tier producers in the area due to elevating demand in year 2000 from superstores and fast-food chains, substantial chicken usage by Malaysian, and enlargement of rooster industry. However , in 2008, cost of fowl production increased.
EPM operating money was low and serious, that it “had puzzled Encik Selamat (p. 4). Other problems were identified. Decision Maker: Credit Controller Ms Choy is definitely the decision machine as this wounderful woman has the responsibility to help make the right decision regarding dishonest conduct of Encik Selamat, she can convince Panel of Company directors about Sobre. Selamat. If she did not convince BOD to take action, the girl can then uncover the issue for the auditor, besides mentioning towards the auditor the possible lack of segregation of duty in the business operation.
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The lady can execute and keep an eye on implementation and performance of staff under her responsibility and convince her friend, Puan Azura to do the same. What should Ms. Choy perform? Analysis: 1) SWOT evaluation S ” STRENGTHS | W ” WEAKNESSES | * One of top 5 chicken breast suppliers * Continuing profitability and growth * Very good promotional strategy * Competent accountant (Encik Kasim) 2. Reliable Credit rating Controller (Ms Choy) 5. Encik Selamat’s reputation in community| 2. En.
Selamat’s lack of expertise in chicken and meat industry 5. 2008’s functional crisis * Lack of focus of business operation * Earnings issue 5. Conflict of interest * Possible error/ fraud/fictitious deal * Sobre. Selamat’s interconnection | To ” OPPORTUNITIES | Big t ” RISKS | 2. Malaysians’ maximum consumption costs * Well-known quick-service eating places * East Coast Economics Region (ECER) * Growing of giant superstores * Institutional retailing| * Production cost experienced risen regarding 56. five per cent * Drop in demand 2. Credit limit of Cold Gold| The company features strong placement in the industry as it is one of top five chicken suppliers.
This means that EPM has a big portion of the market share on the market. EPM also is strong due to its sustained profit and expansion. EPM was able to maintain steadily its operations and started making profit since the buoyant demand of chicken usage. Besides, with initial capital of RM3. 6 mil and beginning with 20 employees, now, EPM had a lot more than 200 workers. Occupied with good promotional strategy, EPM’s management staff seized every single opportunity on the market. Moreover, EPM has able key staff, which two are a qualified curator, Encik Kasim and a trusted Credit Controller, Ms Choy.
These personnel contribute significantly towards the operation of EPM especially in the financial sector. In addition , Encik Selamat’s reputation in community is known as a strong affect of EPM towards the contemporary society where EPM was based. He was a public figure that will be contested in the local city authorities. En. Selamat’s lack of expertise in chicken and meat industry contributed a negative aspect in EPM because En. Selamat need to gain skills and expertise in the market. Even though having been especially concerned with the current bad condition of EPM, his knowledge in this market may not be adequate.
Besides, 2008’s operational problems of EPM placed En. Selamat from a smooth job track because recorded prior to 2008. EPM was not enough focus of organization operation as it was at the infant stage but to mature in a right method of supervision. Next, inside EPM, there is cash flow concern and the business had to resort to short term asking for which put through higher curiosity payment obligations. There was conflict with client positions] between Encik Selamat’s personal deal with Encik Azman, past college lover which was one of the executive of Cold Gold and the business interest. Cold Gold was one of EPM’s major consumers.
This marriage may damage En. Selamat’s judgment. In EPM, a few possible error/ fraud/fictitious transactions were recognized, especially the unevenness in debtors’ account. The symptoms lead to a summary that it was caused by the former employee of EPM, En. Munir. Another factor that can be considered as EPM’s weakness point can be En. Selamat’s connection with parent company of EPM, PCK Holding, in which En. Selamat might be able to safeguarded his situation in EPM despite the issue he created without facing any consequence. The market is in quite a potential marketplace where Malaysians’ highest usage rates of poultry and meat product.
Malaysia was having one of the highest per capita intake rates in the world ” for chicken (32. 5 kg) and ova (298 units) ” and there were no dietary prohibitions (during these years) and religious limitations against chicken consumption. Furthermore to home and traditional delicacies require, the rise of popular quick-service eating places from outside the house Malaysia and home-grown fast food chains intensified the market. Besides being the recognized fowl exporter, the industry was supported by the us government through the East Coast Economics Region (ECER) as the poultry sector was portion of the plan.
Appearing of huge superstores and institutional retailing also enhanced the dazzling future of the industry. In spite of the favorable situations in the market, EPM faced risk of rooster feed which resulting the availability cost to increase about 56. 5%. Federation of Livestock Farmers’ Organizations of Malaysia (FLFAM) manufactured a require higher chicken prices to be able to protect producers’ earning in the face of feed cost hike. However , when the sellers did boost the retail cost, some producers complained that they seen a drop sought after. Another risk was the borrowing limit of Cool Gold Sdn Bhd which had exceeded its level.
This has significant effect to the company as Cold Precious metal is one among EPM’s significant customers multiplied with the other issues faced by EPM. Increment in production cost Drop in demand Low income High interest expense INCAPABILITY TO FORECAST ENVIRONMENTAL ALTER & FORCAST CONSEQUENCES: NOT ENOUGH COORDINATION IN CONTROL AND CONFIRMING: Credit limit control Debtor confirmation Misstatement Not enough segregation of duty DEFICIENCY OF COMMITMENT VIA SENIOR MANAGEMENT: Lack of knowledge Lack of concentrate Conflict of interest Unethical behavior Reluctance in choosing action LOW PERFORMANCE 2) Fishbone diagram
According to Peter Drucker, “management does things right; leadership is doing the right things. Thus, difficulties issue in the case is unorganized management which leads to bad overall performance of the organization. EPM encountered problem as it fails to get commitment via senior management. As a head, Encik Selamat was deficient of expertise in poultry market, actively associated with social and community function instead of concentrating more upon business procedure like, experienced conflict of interest (agency problem) although handling borrowing limit issue, and had under stand deal with your customer.
Director himself had displayed lack of management skill and ethical understanding as he kept silent about the unethical patterns of Encik Selamat and had more matter on standing than moral conduct. Besides, management of EPM is definitely lacking of coordination in control and confirming. This can be found from the intensity of inadequate cash flow which has been noticed only if significant borrowings had been manufactured, high expenses, and damage incurred. Insufficient segregation of duty as well had provided wide opportunity for misstatement by simply employees.
Finally, EPM does not predict environmental change concerning cost of production that leads to low income making because EMP did not make virtually any preparation or back-up want to overcome such problems. 3) Financial Proof on the procedure of EPM: Financial Proportion Ratio| Formula| 2006| 2007| 2008| Interpretation| GP proportion (%)| (GP/Sales)*100| 5. 4845| 1 . 6542| 1 . 0814| Due to increment in COGS, EPM is usually profiting only 1 cent for each dollar of product sold in 2008| Inventory turnover ratio| COGS/Inventory| of sixteen. 6774| 36. 0667| twenty-eight. 4962| EPM is turning over its inventory on average, 3 times each month in 2007 while this reduces to twice each month in 08.
| AREAL turnover ratio| Net sales/AR| 4. 3071| 3. 3957| 2 . 8808| EPM will take around three months to collect it is debt 5 years ago, while it takes more than some months in 2008. | Days to collect AR| 365/AR turnover ratio| 84. 7441| 107. 49| 126. 702| | Information of circumstance exhibit (Account abstract): %Increase| 06to07| In 2007, expense increased when revenue did not increase much, and working loss was written as retail price was only increased in August 2008. Thus, increase of earnings from in 2008 by simply 36. 16% corresponds with increment in cost in that year. Expenses took 30% of operating profit in 2006 while it got almost twice the operating profit in 2008.
This could be because of interest repayment made for short-term borrowing. Increase in trade receivable will not be the true amount as there was cases of misstatement. Share in 2008 was bigger due to reduced demand. 07to08| Rev| 0. 57| thirty eight. 16| COGS| 4. 64| 36. 95| Oper profit| -69. 67| -10. 99| Exp| 37. 50| forty-five. 45| Net| -108. 64| -315. 79| Trade rec| 27. 56| 60. 49| Stock| -51. 61| 73. 33| Trade cr| 62. 16| 60. 00| Alternatives available to the protagonist: Option 1: Ms. Choy can choose not to divulge the issues that she was able to investigate within EPM.
This will likely benefit in saving the reputation of the corporation in public plus the General Director, Encik Selamat to secure his reputation inside the coming city council selection. Besides, Ms. Choy can justify her action of not using the matter as Encik Selamat is an important personnel of EPM and the girl had done her component by getting close one of the owners who was hesitant to take action against Encik Selamat. The disadvantages of this decision are honest aspect and long term effects towards the company as a whole. Deciding on not to reveal the facts is usually an unethical patterns on Ms Choy’s component.
As for the future, the public will find out the actuality of the company as time goes because the auditors probably question the irregularities and Ms Choy will be interrogated. In the end, the business, En Selamat and Ms Choy ought to face the huge impact to be nontransparent towards the stakeholders. Alternative 2: Ms Choy has the right to divulge her conclusions straight to the external auditors as she gets no direct authority to consider any action towards the misappropriate culture inside the company plus the director which in turn she got approached was hesitated to do this.
By this, Ms Choy’s responsibility to report to public is usually passed to auditors plus the problem is probably will be fixed. However , this kind of aggressive decision will influence EPM greatly in terms of drop in discuss price and reputation. Besides, the share price with the parent company will be damaged too as well as the dropping tendency will continue for a long time. Furthermore, the reputation of Encik Selamat will be highlighted by the open public and press, subsequent in the auditors’ disclosure. Option several: Ms Choy can prefer to disclose the situation internally towards the board of directors.
Besides, she experienced found evidences to support her claims about the low functionality of EPM. The benefit that EPM will certainly gain via her disclosure is to validate the problem prior to the auditors’ go to the following month. If the auditor is unsatisfied with EPM’s condition, reason of ratification can be produced and EPM will not be penalized with competent financial reports, which is not favorable. This decision may result in impairment of EPM’s and PCK’s standing and share rates but the influence will be lower than the second option above. Suggestion and plan of action:
Based on examination above, it is recommended for Ms Choy to select Option several which is to disclose the matter inside to the panel of owners. Suggested procedure for follow will be: 1 . Accept the matter with sufficient evidences and aides together with likely solution to board of administrators 2 . Verify whether EPM has a written guideline relating to these issues and take right actions against these issues (e. g. wage cut, not really giving benefit etc . ) 3. If no created guideline is established, in case to stop similar circumstance in the future, Ms.
Choy will need to suggest pertaining to EPM to; a. Build and find an independent committees of owners to screen the performance and reimbursement of staffs b. Build policies for clear honest conducts, job scopes and management of EPM especially to solve ethical and agency problems c. Establish a whistle-blowing policies to encourage staffs to statement any problems d. Connect and implement guidelines and policies around levels of administration, and absorb them since the EPM’s corporate traditions to be shared within the business.