Chicken run Essay

Executive summary 1998, Excel Poultry & spirit Sdn Bhd (EPM) was a SME located in Kluang, Johor, run business of white-livered farming and supplying chicken throughout Malaysia. This subsidiary of PCK holding since 2005 was managed by Encik Selamat, a Certified Public Accountant (CPA). It became one of top 5 chicken suppliers deep down mid-tier producers in the country due to increasing requisite in year 2000 from superstores and fast-food chains, broad(prenominal) chicken white plague by Malaysian, and expansion of chicken labor. However, in 2008, cost of poultry labor increased.EPM operating cash was low and severe, that it had puzzled Encik Selamat (p. 4). Other enigmas were also identified. Decision Maker Credit Controller Ms Choy is the decision maker as she has the responsibility to make the adept decision regarding unethical conduct of Encik Selamat, she thunder mug convince Board of Directors about En. Selamat. If she failed to convince BOD to take go through, sh e tail assembly then reveal the introduce to the auditor, besides mentioning to the auditor the lose of segregation of duty in the business unconscious process.She can execute and supervise implementation and performance of employees under her responsibility and convince her friend, Puan Azura to do the same. What should Ms. Choy do? Analysis 1) SWOT outline S STRENGTHS W WEAKNESSES * One of top 5 chicken suppliers * Continuing profitability and growth * costly promotional strategy * Qualified accountant (Encik Kasim) * Reliable Credit Controller (Ms Choy) * Encik Selamats reputation in community * En.Selamats lack of expertise in poultry and meat industry * 2008s functional crisis * miss of localize of business operation * Cash flow issue * Conflict of engagement * contingent computer error/ fraud/fictitious trans treat * En. Selamats liaison O OPPORTUNITIES T THREATS * Malaysians highest consumption grade * Popular quick-service restaurants * East Coast Eco nomics piece (ECER) * Emerging of giant superstores * Institutional retailing * mathematical product cost had risen about 56. 5% * Drop in demand * Credit limit of frigorific capital The compevery has hygienic position in the industry as it is one of top 5 chicken suppliers.This means that EPM has a big portion of the market apportion in the industry. EPM also is slopped for its sustained profit and growth. EPM had been able to maintain its operations and started making profit since the buoyant demand of chicken consumption. Besides, with initial capital of RM3. 6 million and starting with 20 employees, now, EPM had more than 200 employees. Occupied with level-headed promotional strategy, EPMs management team seized every opportunity in the industry. Moreover, EPM has capable key employees, which cardinal of them are a qualified accountant, Encik Kasim and a reliable Credit Controller, Ms Choy.These employees contri onlye significantly towards the operation of EPM especiall y in the finance sector. In addition, Encik Selamats reputation in community is a strong influence of EPM towards the society where EPM was based. He was a humanity figure that will be contested in the local city council. En. Selamats lack of expertise in poultry and meat industry contributed a negative element in EPM as En. Selamat need to gain skills and expertise in the industry. Even though he was especially worried about the current unfavorable condition of EPM, his experience in this industry may non be sufficient.Besides, 2008s operational crisis of EPM placed En. Selamat away from a smooth charge track as recorded before 2008. EPM was lack of focus of business operation as it was at the infant stage and yet to mature in a proper method of management. Next, within EPM, there was cash flow issue and the corporation had to resort to short term borrowing which subjected to high interest earnings obligations. There was departure of interest between Encik Selamats personal deal with Encik Azman, fountain college equal which was one of the executive of Cold Gold and the companys interest. Cold Gold was one of EPMs major customers.This relationship may impair En. Selamats judgment. In EPM, a few possible error/ fraud/fictitious transactions were detected, especially the irregularities in debtors account. The symptoms lead to a conclusion that it was caused by the former employee of EPM, En. Munir. Another factor that can be considered as EPMs weakness point is En. Selamats connection with parent company of EPM, PCK Holding, where En. Selamat might be able to secure his position in EPM despite the problem he created without facing any punishment. The industry is in quite a potential market where Malaysians highest consumption rates of poultry and meat product.Malaysia was having one of the highest per capita consumption rates in the world for chicken (32. 5 kg) and eggs (298 units) and there were no dietary prohibitions (during these years) and reli gious restrictions against chicken consumption. In addition to household and handed-down delicacies demand, the surge of popular quick-service restaurants from outside Malaysia and home-grown fast food chains intensified the market. Besides being the accepted poultry exporter, the industry was supported by the government through the East Coast Economics Region (ECER) as the poultry sector was part of the plan.Emerging of giant superstores and institutional retailing also compound the bright future of the industry. Despite the favorable situations in the market, EPM faced threat of chicken feed which resulting the production cost to rise about 56. 5%. Federation of Livestock Farmers Associations of Malaysia (FLFAM) made a call for higher chicken prices in order to protect producers earning in the face of feed cost hike. However, when the sellers did increase the retail price, some producers complained that they seen a drop in demand. Another threat was the credit limit of Cold Gol d Sdn Bhd which had exceeded its level.This has significant effect to the company as Cold Gold is one of EPMs major customers calculate with the other issues faced by EPM. Increment in production cost Drop in demand Low cash flow High interest expense INABILITY TO PREDICT ENVIRONMENTAL salmagundi & FORCAST CONSEQUENCES LACK OF COORDINATION IN CONTROL AND REPORTING Credit limit control Debtor confirmation Misstatement Lack of segregation of duty LACK OF COMMITMENT FROM SENIOR MANAGEMENT Lack of expertise Lack of focus Conflict of interest Unethical demeanor Reluctance in taking action LOW effect 2) Fishbone diagramAccording to Peter Drucker, management is doing things right leadership is doing the right things. Thus, the major issue in this case is unorganized management which leads to bad performance of the company. EPM faced problem as it fails to get inscription from senior management. As a leader, Encik Selamat was lacking of expertise in poultry industry, actively involved in social and community work instead of focusing more on business operation like, had conflict of interest (agency problem) eon handling credit limit issue, and had under table deal with the client.Director himself had shown lack of leadership skill and ethical awareness as he kept silent regarding the unethical behavior of Encik Selamat and had more concern on reputation than ethical conduct. Besides, management of EPM is lacking of coordination in control and reporting. This can be seen from the severity of insufficient cash flow which was noticed only when significant borrowings had been made, high expenses, and overtaking incurred. Lack of segregation of duty also had given wide opportunity for misstatement by employees.Finally, EPM fails to predict environmental change regarding cost of production that leads to low profit making as EMP did not make any preparation or back-up plan to overcome such problems. 3) fiscal Evidence on the operation of EPM Financial Ratio Ratio Formu la 2006 2007 2008 Interpretation GP ratio (%) (GP/Sales)*100 5. 4845 1. 6542 1. 0814 Due to increment in COGS, EPM is profiting only 1 cent for every dollar of product sold in 2008 Inventory disturbance ratio COGS/Inventory 16. 6774 36. 0667 28. 4962 EPM is turning over its inventory on average, 3 times per month in 2007 while this reduces to twice per month in 2008. AR turnover ratio Net sales/AR 4. 3071 3. 3957 2. 8808 EPM takes around 3 months to forgather its debt in 2006, while it takes more than 4 months in 2008. Days to collect AR 365/AR turnover ratio 84. 7441 107. 49 126. 702 Description of case exhibit (Account abstract) %Increase 06to07 In 2007, cost increased while revenue did not increase much, and operating loss was recorded as retail price was only increased in August 2008. Thus, increment of revenue from in 2008 by 36. 16% corresponds with increment in cost in that year. Expenses took 30% of operating profit in 2006 while it took almost twice the operating profit in 2008.This might be due to interest payment made for short-term borrowing. Increment in trade receivable may not be the authorized amount as there were cases of misstatement. Stock in 2008 was higher due to lower demand. 07to08 Rev 0. 57 36. 16 COGS 4. 64 36. 95 Oper profit -69. 67 -10. 99 Exp 37. 50 45. 45 Net -108. 64 -315. 79 Trade rec 27. 56 60. 49 Stock -51. 61 73. 33 Trade cr 62. 16 50. 00 Alternatives available to the protagonist Option 1 Ms. Choy can choose not to disclose the issues that she managed to investigate within EPM.This will benefit in saving the reputation of the company in public as soundly as the General Manager, Encik Selamat to secure his reputation in the coming city council election. Besides, Ms. Choy can justify her action of not bringing the matter up as Encik Selamat is an important staff of EPM and she had done her part by approaching one of the directors who was reluctant to take action against Encik Selamat. The drawbacks of this choice are ethic al aspect and farsighted term impact towards the company as a whole. Choosing not to disclose the facts is an unethical behavior on Ms Choys part.As for the long term, the public will find out the reality of the company as time goes because the auditors are likely to question the irregularities and Ms Choy will be interrogated. In the end, the company, En Selamat and Ms Choy need to face the huge impact of being nontransparent to the stakeholders. Option 2 Ms Choy has the right to disclose her findings straight to the external auditors as she has no direct authority to take any action towards the misappropriate purification in the company as well as the director which she had approached was hesitated to do so.By this, Ms Choys responsibility to report to public is passed to auditors and the problem is most likely will be solved. However, this aggressive decision will affect EPM severely in terms of drop in share price and reputation. Besides, the share price of the parent company will be affected too and the drop trend will continue for a long time. Furthermore, the reputation of Encik Selamat will be highlighted by the public and media, subsequent of the auditors disclosure. Option 3 Ms Choy can opt to disclose the matter internally to the advance of directors.Besides, she had found evidences to support her claims about the low performance of EPM. The benefit that EPM will gain from her disclosure is to ratify the problem before the auditors visit the following month. If the auditor is not satisfied with EPMs condition, justification of check can be made and EPM will not be punished with qualified financial reports, which is not favorable. This decision may result in impairment of EPMs and PCKs reputation and share prices but the impact will be lower than the second option above. Recommendation and action planestablish on analysis above, it is recommended for Ms Choy to choose Option 3 which is to disclose the matter internally to the room of directors. Suggested steps to follow are 1. Bring the matter with sufficient evidences and justifications together with possible solution to mature of directors 2. Check whether EPM has a written guideline relating to these issues and take proper actions against these issues (e. g. salary cut, not giving subsidy etc. ) 3. If no written guideline is established, in case to avoid similar situation in the future, Ms.Choy should suggest for EPM to a. Set up and appoint an independent committees of directors to monitor the performance and compensation of staffs b. Establish policies for straighten out ethical conducts, job scopes and management of EPM especially to solve ethical and agency problems c. Establish a whistle-blowing policies to go on staffs to report any irregularities d. Communicate and implement guidelines and policies across levels of management, and absorb them as the EPMs corporate culture to be shared within the organization.