During 2005, Encik Selamat, a Certified Public Accountant (CPA), was transferred from another subsidiary of PCK Holding, which dealt in the business of transportation to poultry and meat business, Excel Poultry and Meat Sdn Bhd (EPM). En Selamat was initially reluctant to accept the position as he lack of expertise in poultry and meat industry. However, later, he accepts and undertakes the position of General Manager in EPM as a new challenge to him. For the first three (3) years, he managed to handle the company smoothly. However, during the closing year end of 2008, the company has faced with tremendous operational crises.
Thus, this report will identify and give recommendations on the issues arise in the company. There are two main issues or problems is being identified in this company, which are, increase in price of chicken feed and credit control and managerial problems. For the first issue, regarding the rise of chicken feed price, it is recommended for EPM to plant fast growing trees such as maize tree, trichanthera gigantea tree (fodder tree), or mulberry tree. These three trees have been proved by many researches and farmers all over the Asian countries as the alternative or substitute of commercial chicken feed.
By consuming half or thirty percent (30%) of the substitute chicken feeds, this may reduce the existing cost of production. Moreover, it is cheap, fast and easy to plant these trees. In addition, the plant can be used for another purpose of business and may generate income. For example, one maize tree can produce 4 corns in a year and EPM can sell them and make money out of it. Same goes to trichanthera gigantea tree, the leaves and plants not only can be feed to chicken but many other animals such as, cows, goats, ducks, pigs, horses and many more. Thus, EPM can sell their leaves to other farmers and this can help them increase their income.
Mulberry tree proves to have more uses. By fully utilize the tree, EPM can generates income in short term as well as in long term. The leaf can be made as tea powder, and can raise silk worm thus they can make silk cloth. The fruit itself can be made as foods or drinks such as wine, pies, tart, jelly jams and juice. Also, the bark or wood can be use to produce paper and furniture. Another way to reduce cost is by placing the breeder chickens in a free range farm. When the chickens are freely place in an open farm and freely eat whatever on the field such as worms, trees, and grass, the commercial chicken feeds will be lessen.
Thus, this will give cost reduction for EPM. The commercial chicken feed is necessary for the chicken to consume as it contains all nutrition needed by all chicken. Thus, EPM may still bear the high price of commercial chicken feed. The price of chicken feed is uncontrollable by EPM, but not the sales of EPM. Therefore, there are many ways of increasing the income of the company. EPM can sell chicken eggs, chicken manure, as well as chicken feather to boost their income. Other than that, EPM may collaborate with East Coast Economic Region (ECER) and open branch in Mersing, Johor.
The collaboration with ECER program will help to bring the company‘s name throughout nationwide. It is in line with the goal of ECER to increase the poultry output by 35% between years of 2005 to 2010. ECER program may also helps EPM to transform into major international and local tourism destination and exporter of resources and manufactured chicken poultry. The second issue in the company is on the credit control and managerial problem. Based on the case of financial reports of EPM, the costs of sales incur increasing closely and nearly to the revenue earned each year and the trade receivables amount also increase each year.
The account receivable turnover ratio for the year 2006, 2007 and 2008 are 4. 307, 3. 396 and 2. 88 respectively. It shows the decrease in efficiency of a business in collecting its credit sales. Also, the trade receivable percentage of increase for the year 2007 and 2008 are 27. 56% and 60. 49% respectively. This shows that the account receivable increase drastically during the year. Therefore, this proves that ECM is having a weak credit control. It has being identified that the marketing department continued to supply chicken to Gold Cold Sdn Bhd (GCSB) even though GCSB has exceeded its credit limit.
Thus, it is suggested for EPM to offer GCSB for cash discount to encourage early debt payment or cash sales. For example, offer 20% discount if they make payment within 1 week. Other alternative is that EPM should limit the supply to GCSB until they make payment of debts. Besides that, instead of Encik Selamat, the credit collection department staff should directly communicate to GCSB regarding the payment and supply of chicken. Not only that, EPM should send monthly credit sales statement to GCSB and remind GCSB about their debts through phone calls for instance.
Instead of highly dependent on the sales from GCSB, the company may approach for more supplying tenders and contracts. For example, they can approach Ayamas Food Corporation Sdn Bhd, Ayam A1 Corporation Sdn Bhd, and all giant superstores. Also, they can carry out open tender instead of close tender to promote broader markets. Other than weak credit control, the company also has weak credit management. In this case, Puan Azura only concerned on sending reminders to debtors when she thought that auditors will be checking on that matters. Also, the records produced by Puan Azura are not similar with the figure from the confirmation letter by Mr.
Siva. Therefore, the recommendation for EPM to solve the problem is, Puan Azura should be asked to send the monthly debtor statement regardless whether the auditor will be checking on her works or not. Other than that, the duties of employees should be segregated. For example, person whom collects the cash (Encik Munir) differs with the one whom updates the reports (Puan Azura) and the transaction should be verified by other personnel (Ms Choy). Furthermore, all the different personnel from different department must be communicated to each other to avoid error. Besides, managerial problems also arise in the company.
From the case, we noticed that there is no supervision of Encik Kassim works by Encik Selamat. This problem can be solved by having more supervision over their staffs’ works by Encik Selamat as well as by board of directors. This can reduce the opportunity of fraud and misappropriate of company’s assets by their staffs. Other managerial problem is that, Encik Selamat was having personal meeting wih Encik Azman, the executive director of GCSB regarding their business and debt collection. The personal meeting should be avoided as it can lead to personal interest threats. Therefore, EPM must establish proper procedures for debt collection.
Furthermore, EPM must as well establish and communicate a code of ethics which includes guidelines to be followed by debtors and employees with regards to debt collection. Even though there are many wrongdoings done by Encik Selamat, directors are reluctant to take any action against Encik Selamat. Therefore, it is highly recommended that PCK holding, the parent company, to change the directors. New directors may give new aspirations and directions for the company to continue to survive and succeed in the poultry industry. By solving all these problems, EPM may boost their performance for the next year onwards.