David's Used Cars is a used car dealership owned and operated by David Steele. Steele has about 200 cars in stock and sells or buys an average of 10 cars per day. Steele buys cars that are trade-ins from new car dealers, repossessions from banks, and cars sold at auctions by municipal towing yards and insurance companies. Steele currently employs two full-time salespeople as well as five full-time mechanics who repair and prepare the cars for resale. Steele rarely accepts a car in trade as part of the payment for a car he is selling. Steele uses the following procedures relative to the purchase and sale of used cars.
Steele creates a folder for every car that he purchases. He accumulates information on a car in the folder. The folders are maintained in a filing cabinet alphabetically by car make and model. Each car and corresponding folder is assigned a five-digit sequence number for accurate identification on the lot and in advertisements.
Each folder contains a preprinted master sheet. Initially, Steele enters the make, model, and year of the car, the purchase date, the name and address of the owner, the price paid, the odometer reading, the car lot parking space number, and the check number used to pay for the car. Steele and one of the mechanics then prepare a second form, a checklist of 25 descriptive criteria used to evaluate the car's condition. Each criterion is evaluated as poor, fair, good, or excellent. Steele then enters onto the master sheet the selling price he would want for the car if no repairs were made. He also makes out a price sticker and attaches it to the windshield of the car.
If a repair is made, the mechanic fills out a repair description that contains a detail of the repairs, the cost, and the estimated retail value of the repairs based on a price list of industry averages for various standard repairs. Steele files this in the appropriate folder and enters the cost and retail values onto the master sheet. If the repair affects any of the evaluation criteria, he makes the appropriate adjustment to the affected criteria and to the price sticker on the car. When a car is sold, Steele enters the date, selling price, salesperson, and customer name and address onto the master sheet.
Steele approves all sales. All sales are for cash or cashier's check. Steele has a checking account used solely for car sales and purchase transactions. He uses another account for all other expenses. He transfers money to the second account from the sales and purchase account. After a car is sold, Steele places the corresponding folder in a drawer in his desk. Every Friday, he calculates the salespeople's commissions based on the selling price recorded in the folder. He pays commissions for sales from the previous Friday to Thursday of the current week. He then files the folders by sequence number in the closed car file.
Steele's system is not without problems. Sometimes Steele forgets to change the prices on the car stickers to reflect repairs that have been made. This error frequently is not discovered until an agreement to sell a car to a customer has been reached. He occasionally files the current Friday's folders for cars sold this week in the closed car file, along with the folders for cars on which the sales commissions already have been paid. As a result, the salespeople do not receive their proper commission for the cars they sold in the most recent week. He also has found that some cars are on display on the lot for a long time before they are sold. However, Steele has not had the time to look at this problem closely enough to identify all such cars and to get them sold.
In spite of occasional help from his daughter, Steele still spends a lot of time on paperwork. This frustrates him because the information is still frequently inaccurate and processing the paperwork takes time away from managing the business and selling more cars. He believes that the inefficient use of his time is costing him money
Steele has had no formal business education and has never used a computer. The thought of having to learn about computers scares him. However, he has read about how well computers can simplify manual clerical operations. He has also read that once a computer system has information stored in it, information can be used to generate all kinds of reports that would be useful for analyzing a business and improving cash flow. Steele has hired you to help determine what functions could be automated and how the information would have to be organized to perform those functions.
a. Identify two significant operational deficiencies and two significant information system control deficiencies. Next to each deficiency, suggest a potential solution. Present your answer in the following form:
Deficiency Proposed Solution
Operational:
1.
2.
Information system control:
3.
4.
Operational deficiencies would comprise process effectiveness, efficiency of resource use, and security of resources. Here, the process covers the acquisition, repair, and sale of used cars, as well as the payment of commissions. The resources are the inventory of cars, cash and checks, and the inventory file folders. Information system control deficiencies would undermine the goals of information validity, completeness, or accuracy of the records (e.g. folders) accompanying the operational process.
b. Suggest some possible effects that the installation of a computerized information system might have on (1) the organizational structure of David's Used Cars (job functions, realignment of duties, reporting responsibilities, etc.), and (2) the behavior of salespeople, mechanics, customers, or Steele himself.