Chapter 8
Chapter 8
Revenue and
Cash Collection Cycles
Study Objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
An introduction to revenue processes
Sales processes and the related risks and controls
Sales return processes and the related risks and controls
Cash collection processes and the related risks and controls
An overview of IT systems of revenue and cash collection that
enhance the efficiency of revenue processes
E-business systems and the related risks and controls
Electronic data interchange (EDI) systems and the related
risks and controls
Point of sale (POS) systems and the related risks and controls
Ethical issues related to revenue processes
Corporate governance in revenue processes
Real World - Staples®
Staples® - Office supply company, retail and corporate sales
◆ Corporate sales highly dependent on customer
satisfaction
◆ Management seeks to maximize customer satisfaction
◆ Sales process design
✓ Ordering
✓ Delivery
✓ Efficient billing and collection
✓ Easy return
◆ Process must be flexible
✓ Walk-in sales
✓ Telephone sales
✓ Web sales
◆ Measure success in multiple ways
◆ Order entry accuracy
◆ Order rate vs. fill rate
◆ Percent of items correctly picked or miss picked
◆ Percent of orders delivered next day
◆ Products delivered undamaged
Introduction to Revenue Processes
Companies sell products and/or services.
Examples:
Retailers:
✓ Record the sale,
✓ collect cash,
✓ update inventory status
all at the time of the sale.
Manufacturers:
✓ Sell product to other companies.
✓ Deliver goods and bill customer at a later date.
✓ Collect payment.
SO 1 An introduction to revenue processes
Introduction to Revenue Processes
Systems and processes must be in place to capture,
record, summarize, and report sales transactions.
Processes include:
◆ Polices and procedures employees follow in
completing the sale.
◆ Capturing customer data and sales quantities.
◆ Routing sales documents to the right departments.
The Accounting System uses this flow of sales
documents to various departments to record, summarize,
and report the results of the sales transactions.
SO 1 An introduction to revenue processes
Introduction to Revenue Processes
Transactions
Large Volume of Daily Sales,
Return, and Cash Inflow
Transactions
Resulting Report
Processes
Revenue and Return
Processes, Systems &
Controls
Large Volume of Daily
Purchase, Return, and Cash
Outflow Transactions
Large Volume of periodic
Payroll Transactions
Expenditures and Return
Processes, Systems &
Controls
Intermittent Fixed Asset
Purchase Transactions
General Ledger
Processes, Systems
& Controls
(T-Accounts)
Large Volume of Daily Raw
Material, Work-in-Process
Transactions
Conversion Processes,
Systems & Controls
Intermittent Investment,
Borrowing, and Capital
Transactions
Administrative Processes
Systems & Controls
External Reports such as
balance Sheet, Income
Statement, Cash Flow
Statement
Internal Reports such as
Sales, Inventory Status, Cash
Flow, Aged Receivables, etc.
Exhibit 8-1
Revenue Processes within
the Overall System
SO 1 An introduction to revenue processes
Introduction to Revenue Processes
Business processes common in company-to-company sales
transactions are:
1.
2.
3.
4.
5.
6.
Collect order data from customer
Deliver goods
Record receivable and bill customer
Handle product returns
Collect the cash
Update records, such as
◆
◆
◆
◆
◆
accounts receivable,
cash,
inventory,
revenue, and
cost of goods sold.
SO 1 An introduction to revenue processes
Sales Processes
Terminology
◆ Purchase Order
◆ Packing Slip
◆ Sales Order
◆ Bill of Lading.
◆ Price List
◆ Shipping Log
◆ Credit Limit
◆ Sales Invoice (Bill)
◆ Pick List
◆ Sales Journal
SO 2 Sales processes and the related risks and controls
Sales Processes
Exhibit 8-2
Sales Process Map
SO 2 Sales processes and the related risks and controls
Controls and Risks in Sales Processes
Common procedures associated with the
sales process:
◆ Authorization of transactions
◆ Segregation of duties
◆ Adequate records and documents
◆ Security of assets and documents
◆ Independent checks and reconciliation
◆ Cost-benefit considerations
SO 2 Sales processes and the related risks and controls
Controls and Risks in Sales Processes
Authorization
◆ Approval of sales order prior to shipment
◆ Establish sales prices
◆ Establish payment terms
◆ Establish Credit limits
◆ Approval of shipment for proper customer
Minimizes risk of
◆ invalid customers
◆ over-extended customers
◆ unapproved pricing
◆ incorrect amounts
◆ fictitious/wrong customers
SO 2 Sales processes and the related risks and controls
Controls and Risks in Sales Processes
Segregation of Duties:
◆ Separation of responsibility for authorization of new customers from
custody of inventory
◆ Separation of custody of inventory from accounts receivable record
keeping
◆ Separation of of duties related to:
✓ Order entry
✓ Credit approval
✓ Shipping
✓ Billing
✓ Information systems
✓ General Accounting
Minimizes risk of:
◆ Fictitious customers
◆ Invalid sales/omitted transactions
◆ Invalid transactions
◆ Incorrect amounts/accounts
SO 2 Sales processes and the related risks and controls
Controls and Risks in Sales Processes
Adequate Records and Documents:
◆ Preparation of packing lists and shipping records on prenumbered
forms
◆ Preparation of shipping log and packing list only when products have
actually been shipped
◆ Initiation of billing function and updating the sales journal, inventory
records, and customer accounts receivable records only when
products have actually been shipped
◆ Preparation of customer account statements
◆ Matching key information on related documents prior to shipment
✓ Customers
✓ Dates
✓ Inventory quantities/descriptions
✓ Prices
✓ Account codes
SO 2 Sales processes and the related risks and controls
Controls and Risks in Sales Processes
Minimizes risk of:
◆ Omitted transactions
◆ Invalid transactions
◆ Timing issues
◆ Wrong customers
◆ Incorrect amounts
◆ Incorrect accounts
◆ Duplicate transactions
SO 2 Sales processes and the related risks and controls
Controls and Risks in Sales Processes
Security
◆ Physical controls in inventory and shipping areas
◆ IT Controls over computer records
◆ Physical controls in records storage areas
Minimizes risk of:
◆ Invalid sales
◆ Omitted transactions
◆ Incorrect amounts/accounts
◆ Timing issues
◆ Accumulations issues
◆ Duplicate transactions
SO 2 Sales processes and the related risks and controls
Controls and Risks in Sales Processes
Independent Checks and Reconciliations:
◆ Comparison of shipping records with sales journal and invoices
◆ Verification of recorded descriptions, dates, quantities,
authorized prices, and mathematical accuracy
◆ Mathematical verification of sales journal and comparison to
accounts receivable, and general ledger posting
◆ Review of accounts receivable records and comparison with
sales invoices
Minimizes risk of:
◆ Omitted transactions
◆ Incorrect amounts
◆ Wrong/invalid customers
◆ Timing issues
◆ Problems with accumulation transactions
SO 2 Sales processes and the related risks and controls
Controls and Risks in Sales Processes
Cost Benefit Considerations:
◆ Frequent changes to prices or customers
◆ Pricing structure is complex or based on estimates
◆ Large volume of transactions carried out
◆ Company depends on single or very few customers
◆ Shipments made by consignees or otherwise not
controlled by the company
◆ Product mix is difficult to differentiate
◆ Shipping and/or record keeping are performed at
multiple locations
SO 2 Sales processes and the related risks and controls
Controls and Risks in Sales Processes
Characteristics indicating risk with respect to sales
processes:
◆ Frequent changes made to sales prices or
customers
◆ Pricing structure is complex or based on estimates
◆ Large volume of transactions
◆ One or few key customers
◆ Shipments not controlled directly by the company
◆ Product mix is difficult to differentiate
◆ Shipping and/or recordkeeping at multiple locations
SO 2 Sales processes and the related risks and controls
Sales Return Processes
Company must have procedures for receiving
returned goods, crediting customer’s
account, and placing items back in inventory.
Terminology:
◆ Receiving log
◆ Receiving report
◆ Credit memorandum
SO 3 Sales return processes and the related risks and controls
Sales Return Processes
Exhibit 8-8
Sales Returns Process Map
SO 3 Sales return processes and the related risks and controls
Risks and Controls in the Sales
Return Processes
Specific controls over the sales returns
process:
◆ Authorization of transactions
◆ Segregation of duties
◆ Adequate records and documents
◆ Security of assets and documents
◆ Independent checks and reconciliation
◆ Cost-benefit considerations
SO 3 Sales return processes and the related risks and controls
Risks and Controls in the Sales Return Processes
Circumstances which may indicate high level of risk.
◆ Quantities of returns are difficult to determine
◆ High volume of credit memo activity
◆ Product prices change frequently, or pricing
structure is otherwise complex
◆ Returns are received at various locations, or
issuance of credit memos may occur at different
locations
◆ One or few key customers
◆ Returns not controlled directly by the company
SO 3 Sales return processes and the related risks and controls
Cash Collection Processes
Company-to-company sales are
typically made on account, and a time
span is given for the customer to pay.
Terminology:
◆ Remittance advice
◆ Cash receipts journal
SO 4 Cash collection processes and the related risks and controls
Cash Collection Processes
Exhibit 8-12
Cash Receipts Process Map
SO 4 Cash collection processes and the related risks and controls
Risks and Controls in the
Cash Collection Processes
Specific controls over the cash receipts
process:
◆ Authorization of transactions
◆ Segregation of duties
◆ Adequate records and documents
◆ Security of assets and documents
◆ Independent checks and reconciliation
◆ Cost-benefit considerations
SO 4 Cash collection processes and the related risks and controls
Risks and Controls in the Cash Collection
Processes
Circumstances that may indicate risks to
cash collections.
◆ High volume of cash collections
◆ Decentralized cash collections
◆ Lack of consistency in the volume or
source of collections
◆ Presence of cash collections
denominated in foreign currencies
SO 4 Cash collection processes and the related risks and controls
Risks and Controls in the Cash Collection
Processes
Larger IT systems generally have:
◆
Fewer manual processes
◆
More computerized processes
SO 5 An overview of IT systems of revenue and cash collection
that enhance the efficiency of revenue processes
Risks and Controls in the Cash Collection
Processes
Customer
Order
Invoice
Packing List
Bill of Lading
Sales Reports
Accounts
Receivable
Reports
Edit data
Check Credit
Check Inventory
Customer &
Inventory Records
Process sale &
Print Documents
Sales & Customer
Records
Bill Customer &
Print Reports
Accounts
Receivables &
Inventory Records
Inventory
Report
Customer
Statements
Exhibit 8-17 is a
system flowchart of a
generic version of
revenue system with
some paper
documents.
SO 5 An overview of IT systems of revenue and cash collection
that enhance the efficiency of revenue processes
Risks and Controls in the Cash Collection
Processes
Sophisticated, highly integrated IT systems
capture, record, and process revenue and cash
collection events.
Such systems include:
◆ E-commerce systems.
◆ Electronic Data Interchange (EDI) systems.
◆ Point of Sale (POS) systems.
SO 5 An overview of IT systems of revenue and cash collection
that enhance the efficiency of revenue processes
Risks and Controls in the Cash Collection
Processes
Sophisticated IT systems usually lead to:
◆ First, underlying processes are
reengineered (BPR) so as to be
conducted more efficiently.
◆ Second, IT systems improve the
efficiency of the related information.
SO 5 An overview of IT systems of revenue and cash collection
that enhance the efficiency of revenue processes
E-Business Systems and the Related Risks and Controls
Two popular types of Internet sales:
◆ Business to Business (B2B)
◆ Business to Consumer (B2C)
SO 6 E-business systems and the related risks and controls
E-Business Systems and the Related Risks and Controls
Advantages of e-commerce include:
◆ Reduced cost
◆ Shorter sales cycles
◆ Increased accuracy and reliability
of sales data
◆ Increased potential market for
products and services
SO 6 E-business systems and the related risks and controls
Real World
Many large corporations sell to other companies. Staples® is
an example of a company selling to other companies via
websites. Regarding sales of office supplies to other large
corporations, management at Staples realizes that it must
support orders in the manner the customer prefers. Jay
Baitler, the senior vice president of the Staples Contract
Division, said, “Offering Internet-based transactions is now
critical.”2 Internet-based sales accounted for 70 percent of
the revenue in the contract division.
SO 6 E-business systems and the related risks and controls
E-Business Systems and the Related Risks and Controls
Risks related to Internet Sales include:
Security and Confidentiality
◆
Unauthorized access
◆
Hackers or other network break-ins
◆
Repudiation of sales transactions
Processing Integrity
◆
Invalid data entered by customers
◆
Incomplete audit trail
◆
Errors when integrating data into back end systems
SO 6 E-business systems and the related risks and controls
E-Business Systems and the Related Risks and Controls
Risks related to Internet Sales include:
Availability
◆
Hardware and software system failures that
block customers from access to the website
◆
Virus and worm attacks
◆
Denial-of-service attacks by hackers
Controls should be in place to reduce the security,
availability, processing integrity, and
confidentiality risks.
SO 6 E-business systems and the related risks and controls
Electronic Data Interchange (EDI)
Systems and the Risks and Controls
Electronic data interchange is the inter-company,
computer-to-computer transfer of business
documents in a standard business format.
ANSI X.12 standards divide EDI data
transmissions into three parts:
◆ Header and trailer data
◆ Labeling interchanges
◆ Data segments
SO 7 Electronic data interchange (EDI) systems and the
related risks and controls
Electronic Data Interchange (EDI) Systems
Exhibit 8-18
EDI Using a Third-Party
Network
Electronic Data Interchange (EDI)
Systems and the Risks and Controls
Advantages to an EDI system within the
revenue and cash collection processes:
◆ Reduction or elimination of data keying
◆ Elimination of keying errors
◆ Elimination of costs related to keying
errors
◆ Elimination of time needed to key in orders
◆ Elimination of mail delays
SO 7 Electronic data interchange (EDI) systems and the
related risks and controls
Electronic Data Interchange (EDI)
Systems and the Risks and Controls
Advantages to an EDI system within the
revenue and cash collection processes:
◆ Elimination of postage costs
◆ Reduction in inventory levels
◆ Competitive advantage through better
customer service
◆ Preservation of business with existing
customers who have adopted EDI
SO 7 Electronic data interchange (EDI) systems
and the related risks and controls
Real World
Northern Telecom (Nortel) adopted Internet
EDI in 1990s
◆ Global customer base
◆ Online ordering
✓Low cost to customers
✓No need to fax info to Nortel
✓Reduced transmission/data entry
errors
SO 7 Electronic data interchange (EDI) systems
and the related risks and controls
Electronic Data Interchange (EDI)
Systems and the Risks and Controls
Risks in an EDI system include:
Security and Confidentiality
◆
Unauthorized access
◆
Trading partners gaining access to
unauthorized data
◆
Hackers or other network break-ins
◆
Repudiation of sales transactions
SO 7 Electronic data interchange (EDI) systems and the
related risks and controls
Electronic Data Interchange (EDI)
Systems and the Risks and Controls
Risks in an EDI system include:
Processing Integrity
◆ Invalid data entered by trading partners
◆ Incomplete audit trail
◆ Errors when integrating data into back end
systems
Availability
◆ Hardware and software system failures that block
customers from access to the EDI system.
SO 7 Electronic data interchange (EDI) systems and the
related risks and controls
Electronic Data Interchange (EDI)
Systems and the Risks and Controls
IT controls can lessen these risks.
Controls are:
◆ Authentication
◆ Encryption
◆ Transaction logging
◆ Control totals
◆ Acknowledgment
SO 7 Electronic data interchange (EDI) systems and the
related risks and controls
Point of Sale (POS) Systems and
the Related Risks and Controls
Point of Sale systems, features that assist
accountants and managers:
◆ Touch screen menus
◆ Bar code scanning
◆ Real-time access to inventory and price data
◆ Credit card authorizations during the sale
◆ Real-time update of cash, sales, and inventory
records
◆ Immediate summaries and analyses
◆ Integration with the company’s general ledger
system
SO 8 Point of sale (POS) systems and the related risks and controls
Point of Sale (POS) Systems and
the Related Risks and Controls
Point of Sale systems can reduce some
processing integrity risks within revenue and
cash collection:
◆
Pricing errors for products sold
◆
Cash overage shortage errors
◆
Errors in inventory changes—less chance of an
incorrect product number
◆
Erroneous or invalid sales voids or deletions
SO 8 Point of sale (POS) systems and the related risks and controls
Ethical Issues Related to Revenue Processes
Intentional revenue inflation is unethical, and
many types of revenue inflation are illegal.
Two ways to inflate revenue:
◆ Channel stuffing
◆ Leaving sales open
http://www.sec.gov/litigation/lit
releases/lr17001.htm
SO 9 Ethical issues related to revenue processes
Real World
MiniScribe Corporation – manufactured hard drives
Q.T. Wiles – CEO
◆ Convicted of fraud in 1994
◆ Falsifying revenue
Shipped bricks and scrapped parts to distributors
Recorded those shipments as sales.
SO 9 Ethical issues related to revenue processes
Real World
Coca-Cola
◆ Channel Stuffing
✓ Paid $137.5 million in 2008
✓ Admitted no wrongdoing
◆ Falsely increased profits
◆ Artificially inflated stock price
McAffe –Software company
◆ Oversold to distributors
✓ Insufficient end-consumer demand
◆ $50 million settlement in 2006
◆ Admitted no wrongdoing
◆
SO 9 Ethical issues related to revenue processes
Real World
HealthSouth Corp.
◆ CEO and 5 officers accused of inflating profits
✓ $1.4 billion
◆ Accountants accused CEO of orchestrating cover
up
◆ CEO found not guilty
✓ Officers all plead guilty and testified against him
http://www.usdoj.gov/
opa/pr/2003/July/03_cr
m_436.htm
SO 9 Ethical issues related to revenue processes
Corporate Governance of
Revenue Processes
Four primary functions of the corporate
governance process:
◆ Management oversight.
◆ Internal controls and compliance.
◆ Financial stewardship.
◆ Ethical conduct.
Establishing proper processes, internal controls, and ethical guidelines leads
to better corporate governance and, therefore, good financial stewardship.
SO 10 Corporate governance of revenue processes
Chapter 8 (Online): Revenue and Cash Collection
Processes and Controls
Continuing Case: Robatelli’s Pizzeria
Reread the Robatelli's Pizzeria case presented at Chapter 1 (Online). Consider
the following issues related to the revenues processes at Robatelli's:
As Elaine Black reflects on her meeting with Jim Saxton and Peter Greyton, she
considers where the company has been and where it is heading, and ponders
the current issues regarding Robatelli's accounting information systems and its
ability to take and record sales. She is concerned about the limitations of the
current accounting information system. Are internal controls strong enough?
Would a new, integrated IT system yield improvements? As she contemplates
the integration of the POS systems at the restaurant locations with the GL
software at the home office, she wonders about the requirements for developing
and implementing such a system, and how to best utilize the system to support
Robatelli's plans for growth. Elaine realizes that her ability to address these
issues will be critical not only to the success of the company, but also to her
career.
Required:
a. Briefly describe the differences in Robatelli's three orderentry systems (in-store, telephone, and Internet). For each
method, specifically identify the employees needed and
describe the tasks performed by these employees.
b. Draw three process maps of the ordering and sales
processes at Robatelli's. One process map should depict instore sales, one map should depict phone orders, and one
should depict online orders.
c. From the descriptions of Robatelli's various revenue and
collection processes, answer the following questions
regarding internal controls:
(a) Separately identify at least one internal control strength
and/or weakness for each of the three ordering systems
(in-store, telephone, and Internet).
(b) What is the control purpose of the drop-down boxes in
the Internet ordering system?
Chapter 1 (Online): Introduction to AIS
Continuing Case: Robatelli's Pizzeria
Introduction
On the morning of October 31st, Elaine Black, Chief Information Officer at
Robatelli's Pizzeria, was waiting for both Jim Saxton, database administrator, and
Peter Greyton, operations manager, to come to her office for a meeting. While
waiting, Elaine was thinking about the surge of telephone and Internet orders
expected to be received through the company's customer order center within the
next 12 hours. Halloween had always been the most popular day of the year for
people in the greater Pittsburgh area to order pizza from Robatelli's. There were
53 restaurant locations to serve these customers, but only one location to receive
all of the orders and forward them to the right restaurant. Elaine's thoughts were
interrupted as Jim and Peter entered her office. The following conversation took
place:
ELAINE Well, guys, it's here again, our biggest day of the year. Not only is
Halloween a busy day, but we have the upcoming day after
Thanksgiving, the week before Christmas, and Super Bowl Sunday.
Can our current computer system's infrastructure and people keep
pace with the orders we expect?
JIM I think our systems are all running at peak performance. We shouldn't
have any computer concerns for today or those other busy days.
PETER Everyone in the customer order center is focused on making sure
that our customers get their pizzas as ordered. We have plenty of
people scheduled to work tonight, so we're good to go.
ELAINE Terrific. But every time we face one of these peak sales days, I
start wondering about the long-term capacity and effectiveness of
our computer systems. Jim, we need to think long term about our
computer system. I was just reading an article that I'd like you to
take a look at. It's about Anheuser-Busch Companies and their use
of data mining.
JIM I do agree with you, Elaine; we should always be thinking about how
newer IT systems can help us. Could you e-mail me the link to the
article?
ELAINE Sure, and I would like you to think about how we might use the
same approach in our business. Peter, your order center people
are doing a great job, but again there's something I'd like us to think
about in the long run. As you know, we now have to manually enter
all customer order center sales and store sales into our general
ledger (GL). I think we could improve a lot of things if those sales
are automatically fed into our GL software. Why don't you think
about any advantages you see for an automatic interface, and we'll
look at the costs compared to those advantages. How's that sound?
PETER I'll do that. I'll give it some thought and work on a report about an
automatic interface between our GL software and the point of sale
systems in our restaurants as well as the phone and Internet sales.
How soon do you want to meet again to look at these issues?
ELAINE Let's say, in two weeks at the same time.
As Jim and Peter left her office, Elaine continued to think about the features of
the company's accounting information systems and whether or not data extracted
from these systems could facilitate the multiple needs of the company. The focus
had always been on providing accurate financial accounting information from the
various locations; however, the company's aggressive growth strategies meant
increased emphasis on the system's ability to analyze detailed customer
information that could be translated into increased sales opportunities.
Elaine knew the challenges they faced could very well affect the company's
ability to maintain its competitive advantage. She realized that her department
must continually improve the company's information systems to help it achieve
growth strategies. Operating state-of-the-art systems was imperative to position
the company to execute those growth plans. However, she was concerned about
the possibility that restrictions of the current information systems could actually
prevent the company from doing what it wanted to do. Allowing restrictive
systems to prevent them from achieving business strategies was a risk that
Elaine would not tolerate!
Background
Robatelli's Pizzeria is a great American success story. Started by Dino Robatelli
in the 1960s, the business impetus was a family pizza recipe. Introduced to the
public at a church festival in Pittsburgh's Little Italy, Robatelli's pizzas are now a
recognized tradition in the Greater Pittsburgh area. A full menu and local
expansion have led to its growing popularity over the years and have helped it
achieve nearly 50 percent of the area market share. Annual sales now exceed
$100 million. Following is a timeline of milestones in the company's history:
1962
Dino and Gloria Robatelli contributed $500 and the family pizza recipe
to a partnership that opened the first Robatelli's Pizzeria.
1965
The Robatellis bought out their business partners.
1967
The first Robatelli's franchise opened.
1971–
77
Dozens of new Robatelli's franchises opened throughout the
surrounding region.
1983
Home delivery service began.
1992
A central, one-number calling system for all restaurants was launched.
2003
Internet ordering began. The first “prototype pizzeria” opened.
Today A total of 53 locations are in operation.
The company has been known for its ability to get ahead of national trends. For
instance, in the early 1980s, Robatelli's began offering delivery service; however,
while the competitors were merely delivering pizzas, Robatelli's delivered many
additional items from its extensive menu. The company was also on the cutting
edge when it launched its one-number telephone ordering system whereby a
single telephone number was used to service sales orders for the entire region.
Additional conveniences became available about 10 years later when Robatelli's
introduced online ordering. Recently, it has expanded its menu offerings and
opened prototype restaurants specially designed with new features (such as a
full-service bar and a retail counter) that appeal to various customer groups.
Each of these advancements has propelled Robatelli's growth over the past four
decades.
Dino Robatelli's name is also well known for its tradition of supporting
neighborhood organizations. Robatelli's promotes schools, amateur athletics, and
other community groups. Interestingly, some local student athletes were a
tremendous help to Robatelli's in 1971 when the business was in trouble. A fire
had destroyed much of the building containing Robatelli's original pizzeria and
commissary. The commissary made menu ingredients for all of the Robatelli's
pizzerias, so the entire business was in jeopardy when this facility became
inoperable. Area students and coaches helped with the clean-up and rebuilding
efforts that made it possible for the facility to be reopened in a fraction of the
anticipated time. Dino Robatelli thanked them by establishing a hall of fame that
has become a fixture of Greater Pittsburgh high school athletics.
Robatelli's reputation for great Italian food and innovations in both customer
service and community service have contributed to the company's ability to grow
into the most popular pizzeria in the Greater Pittsburgh region. Robatelli's sales
include an average of 110,000 pizzas per week. It has managed to stay ahead of
the national competitors, which is an unusual feat. In fact, many people in and
around Pittsburgh believe that pizza can only be Robatelli's!
Multiple Systems, Multiple Functions, Multiple Uses of Information
There are three ways to place an order at Robatelli's: in-store, via telephone, or
online. The order processing systems are illustrated in Figure 1.1. Here's how
they work:
Figure 1.1 Robatelli's Order Processing Systems
In-Store Orders
In-store orders are taken by restaurant staff serving patrons dining in one of
Robatelli's restaurants or walking in to place an order. Servers manually
complete an order ticket at the tableside and input the information into the
company's point of sales system through computer terminals located in the food
preparation stations. Walk-in orders are typically entered directly into the system
by staff using the computer terminal located at the counter.
Telephone Orders
Approximately two-thirds of the company's business is processed via the
telephone. Robatelli's phone ordering system is called a one-number system,
referring to the convenience of ordering through a single phone number,
regardless of the restaurant location nearest the customer.
Most phone orders are received by an operator, who enters the order directly into
a computer terminal while speaking with the customer. Customer phone numbers
are used to present the customer with a choice of the nearest pizzeria for
preparation and carry-out or delivery. The software in the system references a
street database to verify that the street address exists. Credit card numbers are
obtained from customers paying by credit card. The customer service
representative verifies the order and credit card number before ending the call.
Upon confirmation of an order, the order is sent directly to the restaurant, where
it is processed through the company's transaction processing system and printed
at the appropriate food preparation station(s). Credit card numbers are included
in the transmission, and all credit card transactions are processed at the
restaurants at the time the order is received.
There are several advantages of handling phone orders through a customer
order center rather than at individual restaurant locations. Above all, the
reduction in background noise improves the accuracy of the order-taking
process. In addition, the customer's wait time is greatly reduced. Before
Robatelli's implemented its one-number system, customers' wait time at peak
could be up to 15 minutes. The order center's average wait time goal is now one
minute or less.
Internet Orders
To place an online order, a customer must be registered. Registration is a simple
process that can occur anytime during business hours. Customers are asked to
provide identifying information that will be retained in the system. Repeat
customers will not have to go through the registration process again.
Web-based ordering is tied to the company's one-number system. When a
customer enters an order online, customer information is pulled from the onenumber system. Identifying data such as phone number and address do not have
to be entered. Menu offerings are presented on the screen in various drop-down
boxes so that any combination of items can be ordered with many different
choices of toppings or accompaniments. A customer must answer a series of
questions regarding the order, similar to the questions that would be asked if the
customer had been speaking with a telephone operator.
Online orders also require confirmation of the menu items and restaurant location
before the call is ended. Credit card information may be entered online, and the
transaction will be processed at the restaurant filling the order (as is done for
telephone orders). Two firewalls protect the security of customer information
submitted online.
Customer Service
Up to 135 customer service representatives may be on hand at the customer
order center to process orders coming in to the business at peak times. In
addition, Robatelli's employs approximately 10 home-based agents to handle
incoming orders. Home-based agents may perform any of the customer service
functions from a computer terminal located within their homes.
All operators are required to undergo a one-week training program before they
begin serving customers. After the training program, operators are subject to one
week of supervised on-the-job training, followed by ongoing performance
evaluations. Supervisors at the customer order center perform order scanning,
whereby orders are randomly reviewed for reasonableness. Order scanning is
performed more frequently for orders taken by new operators. Supervisors also
follow up on errors and customer complaints, and may listen in on calls to review
the operator's performance.
If customers are in need of customer service, they may call or e-mail the
company. Supervisors handle these types of calls and e-mail messages, and will
respond either via telephone or reply e-mail. Restaurant managers can also print
customer complaints at their respective locations.
Accounting Functions
Robatelli's ordering systems and transaction processing systems are the source
of all sales information sent to the accounting department. Restaurant managers
prepare daily sales summaries and submit them to the company's administrative
offices on the following day. These summaries are transmitted electronically via
the intranet and are received in the accounting department. Accounting staff
prepare general ledger entries based upon these sales summaries and key the
information into the company's accounting software. The transaction processing
system provides sales by restaurant for call-in and Internet orders, which are
reconciled to the restaurant summaries on a daily basis. Once the accounting
system is updated and the daily reconciliations are performed, the data are
stored in an on-site server.
Although a lot of accounting information comes from many different locations, the
capacity of the system is nearly 25 times its current load.
Information Technology
The information technology staff at Robatelli's is continuously engaged in system
maintenance activities. Because the business changes so frequently, systems
maintenance is an ongoing process. Every time a new coupon is offered, a price
is changed, or a new menu item becomes available, the related information must
be integrated into the transaction processing system.
Each menu addition has its own level of complexity, and many of the items
include options to customize to individual tastes in a plethora of combinations.
This poses a challenge in ordering; however, the menu presentation continues to
be improved to eliminate chances of an incomplete or incorrect order. The
options are available online and to customer service representatives via dropdown boxes on their computer screens. Most screens require an entry, even if it
is “none,” in order to ensure that no part of the order is forgotten.
Required:
a. After reading the Robatelli's case information, list and briefly
describe (two to three sentences) each business process
included in the case description.
b. Think about, list, and briefly describe other business
processes that probably occur at Robatelli's.
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