ACC 6070 Module 1 Written Assignment: The Strategic Role of the AIS Example

Three Systems, One Business: The Strategic Role of the AIS at a Food Distributor Weighing ERP

Student Name

Master of Science in Accounting, Thomas Edison State University

ACC-6070: Accounting and Information Systems Design and Implementation

Mentor Name

Month Day, Year

Three Systems, One Business: The Strategic Role of the AIS at a Food Distributor Weighing ERP

Introduction

An AIS gathers and stores transaction data and turns it into information people use to make decisions. Romney and Steinbart (2018) list six components: the people who use the system, its procedures, the data, the software, the IT infrastructure and the controls and security measures that protect it. The system creates value when it improves the quality or reduces the cost of products, improves efficiency, sharpens decisions or supports knowledge sharing, and its design should follow the firm's strategy rather than drive it.

The Company

Garden State Provisions delivers produce, dairy and frozen goods to 600 restaurants and schools. Its strategy is reliability: next-morning delivery with low spoilage. Orders arrive by phone, email and a web portal into an order package; the warehouse runs its own inventory software; and accounting re-keys invoices into a separate general ledger each evening. Inventory counts disagree across systems by 3 to 5 percent each month, and spoilage reached 2.8 percent of sales last year.

Part A: The Value Chain and the AIS

Every weakness traces back to the same design problem: data is captured more than once, in different places, and never joined. Of the six components, the data and software components are fragmented, and internal controls suffer as a result, because no system can match an order, a shipment and an invoice automatically.

Part B: The Value of Information

Information is worth acquiring when its benefits exceed its costs. Lot and expiration data at receiving, joined with sales history, would let buyers order to demand and let the warehouse ship oldest stock first. If spoilage fell from 2.8 to 1.8 percent on $64 million of sales, the saving would be $640,000 a year. Capturing the data would take handheld scanners and printed lot labels, about $90,000 up front and $40,000 a year after that. The benefit is large, but it depends on the information having the characteristics that make it useful: relevant to ordering decisions, reliable, complete, timely enough to act on the same day, understandable to buyers and verifiable against counts. Data that arrives the next morning, as it does now, fails the timeliness test however accurate it is.

Part C: Appraising an ERP System

An ERP system would replace the three packages with one database shared by sales, purchasing, warehousing and accounting. Its main benefits for Garden State are a single record for each transaction, real-time inventory and credit status, automatic three-way matching of purchase orders, receiving reports and invoices, and standardized processes. Evidence on whether ERP pays off is mixed but generally favorable over time. Hitt et al. (2002) found that firms investing in ERP showed higher productivity and market valuations, with a temporary dip after implementation, and Hunton et al. (2003) found that adopters' financial performance held steady while comparable nonadopters' declined.

The risks are real. ERP projects are expensive, often run over budget and force firms to adopt the package's processes or pay for customization. For a mid-sized distributor, a cloud ERP with a food industry module would reduce up-front cost, but Garden State must clean and convert its inventory and customer data first and plan the cutover outside its busiest season.

Controls change too. In the current setup, accounting catches many errors when it re-keys invoices; in an ERP system that manual step disappears, so controls must move into the system itself, through access rights, approval workflows and configuration of matching tolerances. Auditors will test those settings rather than paper trails.

Recommendation

Garden State should adopt a cloud ERP in phases, starting with inventory and purchasing, where spoilage savings are largest, then order entry and accounting. Lot capture at receiving should start now, since it pays for itself under either system.

Data cleanup should begin before the system is chosen, since duplicate customers and items would carry straight into the new database.

References

Hitt, L. M., Wu, D. J., & Zhou, X. (2002). Investment in enterprise resource planning: Business impact and productivity measures. Journal of Management Information Systems, 19(1), 71-98. https://doi.org/10.1080/07421222.2002.11045716

Hunton, J. E., Lippincott, B., & Reck, J. L. (2003). Enterprise resource planning systems: Comparing firm performance of adopters and nonadopters. International Journal of Accounting Information Systems, 4(3), 165-184. https://doi.org/10.1016/S1467-0895(03)00008-3

Romney, M. B., & Steinbart, P. J. (2018). Accounting information systems (14th ed.). Pearson.