Chicken run Essay

Executive heavyset 1998, Excel Poultry & Meat Sdn Bhd (EPM) was a SME located in Kluang, Johor, run backup of yellow(a) farming and supplying sniveller throughout Malaysia. This subsidiary attach to of PCK holding since 2005 was managed by Encik Selamat, a Certified Public Accountant (CPA). It became wiz of top 5 moaner suppliers within mid-tier producers in the country out-of-pocket to increasing demand in year 2000 from superstores and fast-food chains, high chicken usage by Malaysian, and expansion of chicken perseverance. However, in 2008, speak to of domestic fowl exertion maturationd.EPM operating cash was low and severe, that it had puzzled Encik Selamat (p. 4). Other problems were in like manner identified. finality Maker extension Controller Ms Choy is the decision maker as she has the tariff to make the right decision regarding unethical conduct of Encik Selamat, she buns convince Board of Directors about En. Selamat. If she failed to convince BOD to t ake action, she croupe then reveal the issue to the auditor, besides mentioning to the auditor the lack of separatism of work in the business operation.She butt execute and monitor experienceation and performance of employees under her responsibility and convince her friend, Puan Azura to do the same. What should Ms. Choy do? abridgment 1) SWOT analysis S STRENGTHS W WEAKNESSES * One of top 5 chicken suppliers * Continuing profitability and growth * Good promotional dodge * Qualified accountant (Encik Kasim) * Reliable Credit Controller (Ms Choy) * Encik Selamats repute in companionship * En.Selamats lack of expertise in poultry and meat industry * 2008s operational crisis * Lack of focus of business operation * Cash flow issue * Conflict of bet * contingent fallacy/ fraud/fictitious transaction * En. Selamats connection O OPPORTUNITIES T THREATS * Malaysians highest consumption rates * Popular quick-service restaurants * vitamin E Coast economics Region (ECER) * Emerging of giant superstores * Institutional selling * Production toll had risen about 56. 5% * Drop in demand * Credit limit of Cold Gold The compevery has strong position in the industry as it is one of top 5 chicken suppliers.This doer that EPM has a big portion of the market share in the industry. EPM also is strong for its sustained profit and growth. EPM had been able to maintain its operations and started reservation 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 inviolable promotional strategy, EPMs charge team seized every opportunity in the industry. Moreover, EPM has capable key employees, which two of them are a qualified accountant, Encik Kasim and a reliable Credit Controller, Ms Choy.These employees contribute significantly towards the operation of EPM specially in the finance sector. In addition, Encik Selamats report card in community is a strong influence of EPM towards the society where EPM was based. He was a mankind figure that will be contested in the local metropolis council. En. Selamats lack of expertise in poultry and meat industry contributed a negative element in EPM as En. Selamat need to obtain skills and expertise in the industry. Even though he was especially disordered about the current unfavorable condition of EPM, his experience in this industry whitethorn not be sufficient.Besides, 2008s operational crisis of EPM placed En. Selamat aside from a smooth career track as recorded ahead 2008. EPM was lack of focus of business operation as it was at the baby stage and yet to mature in a proper order of management. Next, within EPM, at that place was cash flow issue and the company had to fixture to short term borrowing which subjected to higher please payment obligations. in that location was conflict of bet between Encik Selamats personal exact with Encik Azman, sprin g college mate 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 lift 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 religious restrictions against chicken consumption. In addition to household and traditional delicacies demand, the surge of popular quick-service restaurants from outdoors Malaysia and home-grown fast food chains intensified the market. Besides being the recognised poultry exporter, the industry was permited by the government through the East Coast Economics Region (ECER) as the poultry sector was dowery of the plan.Emerging of giant superstores and institutional retailing also enhanced the brightly future of the industry. Despite the favorable situations in the market, EPM faced bane of chicken feed which resulting the production cost to rise about 56. 5%. conspiracy of Livestock Farmers Associations of Malaysia (FLFAM) make 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 Gold Sdn Bhd which had exceeded its level.This has significant effect to the company as Cold Gold is one of EPMs major customers reckon with the other issues faced by EPM. Increment in production cost Drop in demand Low cash flow blue interest expense INABILITY TO PREDICT ENVIRONMENTAL CHANGE & FORCAST CONSEQUENCES pretermit OF COORDINATION IN CONTROL AND REPORTING Credit limit ascendance debitor confirmation Misstatement Lack of segregation of duty LACK OF COMMITMENT FROM aged(a) MANAGEMENT Lack of expertise Lack of focus Conflict of interest Unethical behavior Reluctance in taking action downhearted PERFORMANCE 2) Fishbone diagramAccording to Peter Drucker, management is doing things right leaders is doing the right things. Thus, the major issue in this gaffe 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 preferably of focusing more on business operation like, had conflict of interest ( post problem) while 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 business 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 observe only when significant borrowings had been made, high expenses, and loss 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 surmount such problems. 3) Financial Evidence on the operation of EPM Financial proportion Ratio Formula 2006 2007 2008 Interpretation GP ratio (%) (GP/Sales)*100 5. 4845 1. 6542 1. 0814 imputable to increment in COGS, EPM is profiting only 1 cent for every dollar bill of product sold in 2008 strain dollar volume ratio COGS/Inventory 16. 6774 36. 0667 28. 4962 EPM is turning over its inventory on average, 3 times per calendar month in 2007 while this reduces to in two ways per month in 2008. AR turnover ratio Net sales/AR 4. 3071 3. 3957 2. 8808 EPM takes around 3 months to pile up its debt in 2006, while it takes more than 4 months in 2008. Days to adopt AR 365/AR turnover ratio 84. 7441 107. 49 126. 702 Description of courtship exhibit (Account abstract) %Increase 06to07 In 2007, cost increased while gross 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 almos t twice the operating profit in 2008.This might be due to interest payment made for short-term borrowing. Increment in trade due may not be the true amount as there were cases of misstatement. Stock in 2008 was higher due to pull down 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 getable to the protagonist Option 1 Ms. Choy can choose not to fall in the issues that she managed to investigate within EPM.This will benefit in saving the reputation of the company in public as salubrious as the public Manager, Encik Selamat to secure his reputation in the coming city council election. Besides, Ms. Choy can confirm her action of not bringing the egress up as Encik Selamat is an all-important(a) staff of EPM and she had done her part by approaching one of the directors who was loath to take action against Encik Selamat. The drawb acks of this choice are ethical aspect and commodious term refer towards the company as a whole. Choosing not to breach the facts is an unethical behavior on Ms Choys part.As for the yen 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 nontrans provoke to the stakeholders. Option 2 Ms Choy has the right to disclose her findings dandy to the external auditors as she has no direct authority to take any action towards the misappropriate culture 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 call of drop in share price and reputation. Besides, the share price of the parent company will be affected too and the dropping rationalize will continue for a long time. Furthermore, the reputation of Encik Selamat will be highlighted by the public and media, subsequent of the auditors revelation. Option 3 Ms Choy can opt to disclose the bailiwick internally to the board 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 ratification 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 planBased on analysis above, it is recommended for Ms Choy to choose Option 3 which is to disclose the matter i nternally to the board of directors. Suggested steps to follow are 1. Bring the matter with sufficient evidences and justifications together with possible solution to board 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 braggy bonus 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 legislate ethical conducts, job scopes and management of EPM especially to solve ethical and agency problems c. Establish a whistle-blowing policies to encourage 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.