Strategic Information Systems for Business and Enterprise

This report discusses strategic information systems in business and enterprise, focusing on the expenditure cycle and conversion cycle. It analyzes the physical internal control weaknesses and risks in these cycles and suggests changes to reduce risks.

Strategic Information
Systems for Business and
Enterprise

Table of Contents
INTRODUCTION...............................................................................................................3
MAIN BODY.......................................................................................................................3
System Flow of Expenditure Cycle................................................................................3
System Flow of Conversion Cycle.................................................................................5
Analysis of physical internal control weaknesses in the expenditure cycle...................6
Analysis of the risks which are exist in the conversion cycle along with changes
needed to reduce risks...................................................................................................7
CONCLUSION.................................................................................................................10
REFERENCES................................................................................................................11

INTRODUCTION
Strategic information system in business is developed to gain competitive
advantage by the business. Strategic information system in organisations also
contributes in effective coordination and communication within organisation. This report
will discuss about strategic information system at Paradise Industries. Business
activities of the company are manufacturing of high precision machine tools and it is
based in Adelaide. This report will discuss about expenditure cycle which is concerned
with acquisition of inventory and information system in expenditure cycle at the
industries. Limitations of expenditure cycle have also been discussed in this report.
Conversion cycle and its information system will also be discussed in the report. In
relation with system of information at Paradise Industries they have centralised
computer system and its terminals are distributed in all departments of the Paradise
Industries.
MAIN BODY
System Flow of Expenditure Cycle
Expenditure Cycle is concerned with acquisition of material and inventory in the
organisation. This cycle mainly involves three stages which are ordering inventory and
material, receiving inventory and payment for the inventory. This is based on material
requirement which is calculated on the basis of production forecast of the Paradise
Industries (Moser and et.al., 2019). This is one of the most important phase and
involves important function of Paradise because Paradise Industries is a manufacturing
industry hence effectiveness of the material requisition can affect the effectiveness of
the complete manufacturing process.
Expenditure cycle in Paradise Industries starts from time when inventory falls
recorder point. This is an automated process and when inventory falls on reorder point
automatically generates purchase requisition and one copy gets printed on the terminal
of purchase department. This is followed by selection of supplier by purchasing clerk

and preparation of purchase order. One copy of the purchase order is sent to suppliers
and another copy of the purchase order is sent to receiving department. Receiving
department is sent the copy so when they receive the material they can monitor
inventory being supplied and inventory being ordered. Then purchasing clerk adds
record to purchase order file and update program in data processing.
Receiving clerk reconciles purchasing order and packing slip when receives
inventory from supplier. Receiving clerk then prepares a hard copy of the items which
has been received along with their quality and quantity. This copy is given to receiving
department and warehouse. The records are also added to digital receiving report
through terminal. This automatically closes purchasing order and warehouse clerk
updates inventory on receiving the order through terminal. Accounts payable clerk on
arrival of suppliers’ invoice adds record to suppliers invoice file. This automatically adds
liability on the accounts payable ledger on the basis of financial information from the
invoice and this updates all affected ledger (Kong, Dong and Zhang, 2019).
All the accounts payable which are automatically scanned by system for items
which are due to be paid and cheques are automatically printed for them (Fiebiger,
2018). Cheque is sent to supplier and one of its copies is sent to cash disbursement
department and records of this are added to cash register file and this removes the
liability from accounts payable ledger.
Figure 1System Flow of Expenditure Cycle

System Flow of Conversion Cycle
Conversion cycle is a process which converts the inventory into final goods.
Conversion cycle in Paradise Industries is based on quarterly forecast of sales. This
quarterly forecast of sales goes to production planning and control clerk. Digital
production schedule from terminal is updated from the terminal by production planning
clerk and this includes batches of production to be produced in next quarter.
Supervisor of the work centre gets digital documents and prints hard copy of the
work orders, move tickets and material requisition (Sugathadasa, 2018). Move tickets
and material requisition are distributed to work centres by the supervisor. Staff members
submit two copies of material requisition to warehouse for material and in case material
is required beyond the standard quantity as designed by production planning and
control clerk they supervisor issues additional material requisition. Move tickets are
send to cost accounting once production gets completed in each production phase in
each work centre by staff members. This is done so that completion of production phase
can be marked in cost accounting. Labour time spend on each batch is also recorded
and sent to cost accounting, this is done so that cost accounting can calculate correct
cost of the production on the basis of completer information. Work centre supervisor
closes the open work order file after completion of production.
Clerk at the warehouse files one copy of material requisition and updates
material inventory. The clerk at the warehouse sends one copy of the material
requisition to cost accounting. This is done so that cost accounting can involve cost of
material required in production of the batch. Lastly digital general voucher is prepared
by the clerk and is posted to general ledger control accounts.
This digital ledger is accessed by cost accounting clerk and work-in-process
account is prepared for production batch (Lagesh, Srikanth and Acharya, 2018). In this
clerk also receives move tickets, job tickets and material requisition in the process of
production and these are used for posting in work-in-process ledger. After this digital
general voucher is prepared by cost accounting clerk to reflect status of work-in-process
and transfer the record to finished goods inventory.

This leads to end of conversion cycle when all the production work gets
completed in every phase of production and it becomes finished goods inventory.
Analysis of physical internal control weaknesses in the expenditure cycle
In the context of expenditure cycle it can be said that accountant and all involved
person in this cycle like suppliers, account payable, receiver face several problems in
managing or controlling them. Some primary and basic risks which are associated with
expenditure cycle are: unauthorized inventory purchased, when sometimes receiver
collect wrong quantity of products, wrong items or even damaged items. All these
problems sometimes create problems in accounting as accountant makes transactions
of purchases and cash disbursements in an inaccurate manner which can create
problems in cash disbursements (Karim, Nawawi and Salin, 2018). It is also stated that
in an expenditure cycle, companies like paradise industries involve all those person who
are not required and do not play specific and important role. Their unnecessary
involvement in this process and access to accounting records as well as confidential
reports can become the reason of leakage of that informations and lack of transparency.
They can make this process of expenditure cycle complicated which can create lack of
understanding and clarity. It can be said that Paradise industries can make an effective
use of clear, short and simple expenditure process or cycle which can be understood by
all involved members and making it successful. The big process of this cycle which is
being discussed above is complicated and difficult in understanding. In the context of
information flow which is one of the important flow needs to have by all companies, is
mainly based on distribution of all departments of paradise industries so, it can be said
that by keeping it centralized it can be made simpler.
The whole process of expenditure cycle of paradise industries consists of main 4
departments which are: accounts payable, cash disbursement department, purchasing
as well as receiving department. Each department plays an important role such as
ordering for products which is one of the main step of completing this cycle, receiving of
products, storing all those products at warehouse and paying for all those received

items. It is quite good but the main problem which is being identified that all
departments carries out their separate accounting records and match them with others
which is time consuming process and can delay in other functions. So, it can be said
that for solving this problem and time saving, Paradise industries can complete
accounting process in single attempt and at single department by making its system
centralized (Zhou, Chen and Cheng, 2016). It can help it out in carrying out other
processes and functions in a timely and an in an effective manner.
Failure in approving vendor lists, not checking vendor lists and only keep it with
themselves and after finding problems in quantity, and quality and other factors can
create several problems. By keeping all processes and accounting at centralized
system all departments of paradise industries will be able to check and match their
products along with informations, supplies, receiving of products and all other things
from the central system. So, overall it can be said that one of the main problems is
repetition of each functions at all departments which consume time, efforts and delay in
completing other functions. Eliminating all those people who are not required in this
process and whose involvement is creating problems can be done by paradise
industries. Making accurate recording, checking it twice, thrice, inform purchasing
department about damaged products, changing products and any other types of errors
in by receiving department at that time can also support this industry in solving all
problems related to expenditure cycle (RACHID and LAHMOUCHI, 2018).
Analysis of the risks which are exist in the conversion cycle along with changes needed
to reduce risks
In the context of conversion cycle it can be said that it is mainly depend and
connected with production and sales department. Many companies start production
process by forecasting sales as per the previous year. On the basis of forecasting of
sales expected, all these informations is communicated to production department and
production department starts manufacturing of process but sometimes or often it leads
changes in sales expectations and the actual sales or purchasing demand. It is one of
the main problems which can sometimes have negative effects on the performance and

sales. Estimation of sales and starting manufacturing or conversion cycles involves
many departments of paradise industries and any type of changes in production and
sales can affect performance of all involved departments. These departments are:
human resource management, cost estimation department, cost accounting, material
requisition and production department. Any changes in estimation and production affect
performance of all departments which can create problems in the future (Ramadhani,
Hartanto and Nugroho, 2018). So, it can be said that involvement of all departments in
just one cycle can make this process complicated, time consuming which can hamper
functions of each separate department. There are several other risks which are
associated with conversion cycle of paradise industries include:
It is stated that there are chances if theft as well as damages of raw materials
which can create problems in conversion cycle to the great extent. It is also analysed
that paradise industries appoint a production clerk in order to having records of work
orders in production schedule and there is requirement of having supervisor who can
supervise and cross check all these records and transactions but if it does not appoint
supervisor to check work records then it can create several problems like changes in
cash disbursements and others. Quality is one of the important factors which is being
considered by customers and on which basis company can increase their customers,
sales and revenues as well but failure in managing quantity and quality in this
conversion cycle can create many problems. Because it is stated that quality and
quantity aspects are not involved in the whole process of conversion. Industries do not
focus on these factors. So, in this context, it can be said that implementing some tools
in manufacturing of products like TQM, Six sigma, company can maintain quality of
products and can solve this main problem associated with conversion cycle
(Tiruvengadam, 2018).
Other main problem is complicated, time consuming of this cycle because of
involving all members of company such as warehouse staff, production staff and other
can make this process complicated and any changes can sometimes become the
reason of conflicts. Miscommunication can also become reason of errors in conversion
cycle of paradise industries. For solving these problems, it is important for paradise

industries to appoint a supervisor who perform main functions of conversion cycle and
making the process easier and effective as well. Supervisor should be allowed to take
help of production clerk if required and improving process. It can help them out to
accomplish goals and making conversion cycle process easier.
In addition, it is analysed that conversion cycle process is connected with
inventory of company and any changes in it can directly affect inventory. One of the
reasons of it is production department start working on the estimation of sales and
demand by people and shortage in raw materials and input can directly affect the
process of conversion cycle and production process as well. In this case, staff members
of production department put pressure on other departments to buy raw materials and
inputs and this pressure can create problems in getting poor quality of products or delay
in the submission of the final product. Just like shortage of inventory which creates
problem of poor quality, excess of inventory as per the wrong estimation can also create
problems. It can increase cost of warehousing, storage of inventory, damages of extra
or excessive inventory which can increase operational cost and lower profit margin of
the company. So, in this type of cases, it can be suggested to company that it should
employ a special employee who can forecast in an effective manner. It can also be
said that company should buy extra those raw materials that can last for log run and
cannot be damaged. This can solve problems of shortage of inventory or raw materials
and can support production department to complete conversion cycle and process in an
effective manner. On the other hand, in the case of excessive of inventory, it can be
said that company should make contract with selling companies or suppliers that if they
find excessive of raw materials then they can resell it to sales department, companies or
suppliers. This contract and improved relation can help them out in reselling excessive
inventory to suppliers and becoming cost effective (Paton and Buergelt, 2019).
Reliability as well as validity of informations in conversion cycle can be other
main problems. Wrong or incorrect recording of informations of estimated sales and
requirement of raw materials and other elements can direct affect cost of the company.
It can also affect requisition of inventory and overall cost of that inventory. SO, overall it
can be said that changes in sales estimation can lead either excessive or shortage of

products which both affects either quality of products or cost of the company. It can also
be suggested to paradise industries that by making changes in conversion approach,
employing supervisor, specialist sales forecasting, making relation with sales
companies, suppliers can help them out in solving all problems of conversion cycle.
CONCLUSION
On the basis of above discussion it can be concluded that expenditure cycle and
conversion cycle may be different but important part of the complete production cycle.
This is because production involves acquisition of inventory and then conversion of
inventory to finished goods. In these cycles at Paradise Industries there are several
issues and first is that this is very expanded and this possess the possibility of affecting
quality of the cycle while acquisition of material. In the cycle of conversion there are
several parties involved and has limitation like conversion based of sales forecast and
not involving quality checks.

REFERENCES
Books and Journal
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case study of lubricant manufacturing company. Journal of Financial Crime.
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asymmetric phase shifts in China’s manufacturing industrial production
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Impact of Market Conditions and Capital Expenditure on Firm
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