Repair-Made-Easy (RME) Inc.
The following describes the revenue and expenditure cycles of Repair-Made-Easy (RME) Incorporated. Currently, RME has only one physical store located in the city of Melbourne, Australia.
Revenue Cycle: RME provides spare parts and service for a wide range of computers (including desktops and notebooks). Customers may purchase parts to take home for do-it-yourself repairs, or they may bring their systems in for repair, in which case they pay for both the parts and the labour associated with the type of service required. Some services do not include any new parts, just a labour charge for that service. Individual customers must pay for all parts purchases in full at the time of sale. Individual customers must pay 50% down when they bring their computers in for servicing and pay the balance at pickup. Corporate customers, however, are billed monthly for all sales (parts or service). Although RME has several different banking accounts, all sales are deposited intact into its main cheque account.
Expenditure Cycle: RME purchases its inventory of parts from 15 different vendors. Orders are often delivered the next day. Occasionally, suppliers ship only partial orders. RME pays for some of its purchases COD (Cash on Delivery), but often pays by the 5th of the month for all purchases made the prior month. None of its suppliers allows it to make instalment payments.
Currently, all the procedures as described above are mainly performed manually by RME employees, supported by several PC-based Excel spreadsheets (each of them has several worksheets) which are not integrated together. For example, among the many Excel spreadsheets, there is one that stores all the customer details, and another one storing the details about the spare parts to be sold to customers.
Undoubtedly, there are many problems/weaknesses associated with the current manual system supported by spreadsheets. Three (but not all) of these problems associated with the current system are as follows:
• Because the spreadsheets are not linked together, it is possible that a salesperson fails to update all the spreadsheets that are relevant to a particular sales transaction.
• Due to limited capacity of the PC platform and Excel spreadsheets, it is difficult to scale up the current system when business grows.
• The spreadsheets run slow because of the speed and processing limitations associated with the PC platform.
Thus, the owner of RME, John, has recruited you as the principal software consultant of the firm, responsible for leading and managing a project to design and develop a new and more effective information system (outside the spreadsheet platform) to replace the current manual system and its associated spreadsheets. John has also stated that the new system should be Web-based. This is because RME will open several new physical stores in the future, therefore the new system must be made available to different stores via the Internet, and the system should also be able to update a centralised database (where all the customer, supplier, and
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business data are located). This centralised database will be implemented as part of the systems development project.
Currently, the annual sales volume of RME is $2.0 million and the annual operating cost is $0.5 million. It is anticipated that, after implementing the new system, annual sales will increase by 9%, and at the same time, annual operating cost will decrease by 11%. The annual discount rate is estimated to be 6%. John asked you to estimate the total development cost of the project, after considering all the relevant costs such as: (i) IT staff cost involving in systems development, (ii) hardware cost, and (iii) expenses for user training (if any). Note that there may be some other costs in addition to (i), (ii), and (iii) given here.
The life span of the new system is estimated to be 5 years, and the annual system maintenance cost is $12,000. John has the following four requirements:
(a) The development work must be completed in one year’s time (maximum).
(b) The maximum budget for developing the new system (not including the annual system maintenance costs for subsequent years after implementation) that RME can afford is $0.8 million. In other words, if the estimated total development cost for the new system exceeds $0.8 million, John will not approve the project.
(c) The break-even period (or payback period) must not be longer than 3 years after the new system has been released for production use.
(d) The total Net Present Value (NPV) for the project must not be less than $0.25 million.