8-16.
Hammaker Manufacturing I (AIS for New Manufacturing Firm)
Dick Hammaker has been fascinated with Corvette cars, especially convertibles, since he
was a teenager. Dick grew up in Michigan and worked part-time through his high school
and college years at a car manufacturer, so he knew the business well. Not surprisingly,
when he graduated from college he bought his first car, a used Corvette convertible, and
became a member of the local Corvette Club of America.
As an accounting graduate, Hammaker was hired by one of the large automobile
manufacturers in Michigan and was selected for the ‘‘fast-track’’ management training
program. After five years, Hammaker decided to leave Michigan and start a specialty parts
manufacturing company strictly for Corvettes. Before he even left Michigan, a potential
customer contacted him—the repair shop was replacing the black convertible top on a
1967 Corvette that the owner was going to sell for $76,995!
Hammaker decided to locate his company, Hammaker Manufacturing Co. (HMC), in
Northern Virginia because this is the site of the oldest Corvette Club of America. Dick
knows he will need the appropriate technology to support his company, so he decided
to focus on this aspect of his company prior to starting any production activities. His
first action was to hire a CFO (Denise Charbonet) who could work with Lloyd Rowland
(a software consultant) to determine the inputs and outputs needed for an AIS for the
new company. Of particular concern is the data the AIS will need to collect regarding
inventories. As Dick, Denise, and Lloyd know, inventory management will be a key factor
for the success of HMC because Corvette cars are unique—parts are needed for these cars
since the 1960s!
CHAPTER 8 / Accounting Information Systems and Business Processes: Part II 277
Dick believes that an AIS will give him the data and information needed for good
decision-making, especially to manage inventory investments. HMC’s customers are pri-
marily Corvette specialty repair shops and they typically demand parts only as needed, but
exactly when needed. Inventory can be very costly for HMC if they must stockpile many
specialty parts to be able to quickly meet customer orders.
Hammaker knows from his work experience in Michigan that there are a number
of costs associated with holding inventories (warehousing, obsolescence, and insurance
costs)—money that could be put to better use elsewhere. Dick knows that he will need
to buy raw materials from suppliers and hold raw materials inventories plus make-to-stock
parts, or customers will find other parts suppliers.
Denise and Lloyd meet to discuss the issues. They decide that they need to do two
things. First, they need to determine what AIS software package would be best for the new
company, one that is particularly focused on inventory control, or one with an inventory
control module that would be well-suited for HMC. Second, they need to decide what
data elements they need to capture about each inventory item to optimize inventory
management and control. Denise notes that though some inventory descriptors are easy
to determine, such as item number, description, and cost, others are more difficult.
For instance, inventory on hand and inventory available for sale could be two different
data items because some of the inventory on hand might be committed but not yet
Shipped.
Requirements:
1. Explain how an AIS could help HMC optimize inventory management and control.
HMC might benefit from inventory management software for a variety of reasons. Orders,
inventory, and shipments are all monitored as they pass through the sales system on their way
to other inventory sites. An Accounting Information System might offer HMC with correct
inventory, which would comprise all raw materials utilized in the product's manufacture, all work-
in-process inventories, and all finished items available for sale or usage. Accounting Information
Systems may also assist HMC in making future choices about the company's requirements,
including short and long term objectives, as well as budgets.
2. What data elements should HMC include in the new AIS to describe each inventory
Item?
The system may incorporate a variety of data pieces related to inventory items. Among these
are the vendor, delivery time, safety stock, lead periods, and typical order size. Consider
McDonald's distributors as an illustration of the difficulty of establishing a system to manage
stocks. McDonald's works with nine different distributors and hundreds of different suppliers. In
addition to restaurant supplies, they require frozen foods and other perishable consumables.
They have to predict inventory needs within very narrow time frames.They also have to consider
things like marketing, remember when McDonald's ran out of beanie babies? Delivery
timeframes might be quite constrained. A shop, for example, may require frozen items to be
delivered every Tuesday between noon and 12:30 p.m. just a 12-hour window remains. JD
Edwards software is used by McDonald's distributors. The program had to be updated to allow
for various fields when suppliers utilized EDI vs handwritten orders, as well as additional data
elements required to meet the unique requirements of this company.
