Garden Patch Case Study

 

All settlement activities getting the invoice and paying the bill would be handled by PayOut in one of two ways. They can either generate checks against our bank account to pay suppliers, or they can pay from their own account on our behalf. Under the second option, we would wire them money to cover the payments made for us. PayOut’s system would interface with our general ledger to create the necessary journal entries. Any detail reporting we would need on procurement and payables activity would come from the PayOut system. PayOut would also handle all of our 1099 reporting at year-end.2

“If we choose to go with PayOut, there would be a $40,000 fee to transition to their system. Additionally, PayOut’s ongoing services would cost us $15,000 per month. This price is good up to an annualized volume of 30,000 invoices. PayOut could probably start saving us money on purchases in about two months, and labor reduction would take about three months.”

Mary concluded the meeting with the following directive. “It seems we have all the information we need. Ty, get your people to prepare a report that analyzes the financial implications of our options. I also would like the report to include the pros and cons of each option, aside from the numbers. Let’s make a decision soon.”

Required

Assume that you are a staff accountant at Garden Patch Foods and CFO Ty Brown has asked you to help him prepare the requested report for the president. Specifically, he wants you to run the numbers that have been gathered by him and Bill to estimate the financial impact of the options available to the company (remember that status quo is always an option). Additionally, he wants you to identify any nonfinancial issues that need to be considered, especially in light of the fact that the company intends to continue growing through acquisition. Information systems and internal control issues should be considered as part of these nonfinancial issues to the extent you believe they are relevant.

Since outsourcing and shared service arrangements are new to everyone at Garden Patch Foods, you are going to have to do some research to identify general issues relevant to these options and then apply those issues to the situation faced by Garden Patch Foods. Some resources that might be helpful are:

• Dash, J. 2001. Business process outsourcing. Computerworld. (January 1). Available at http:// www.computerworld.com/managementtopics/xsp/story/0,10801,55557,00.html .
• Davis, C. E., E. B. Davis, and L. A. Moore. 1998. Outsourcing the procurement-through-payables process. Management Accounting (July): 38-44. Also available at: http://www.sourcenetsolutions.com/outsourcing-whitepapers/news/7dav.pdf .
• Gareiss, R., and R. Weston. 2002. Analyzing the outsourcers. InformationWeek (November 18): 30-42.
• Goolsby, K., and F. K. Whitlow. How to make your Accounts Payable function really PAY. Available at http://www.sourcenetusa.com/publications/download/apfunction_white_paper.pdf.
• Krell, E. 2002. Sourcing goes strategic. Business Finance (September): 33-37. Available at: http://businessfinancemag.com/archives/appfiles/Article.cfm?IssueID=366&ArticleID=13901.
• McReynolds, A., and B. O.Brien. 2002. Earnings pressures boost shared services. Financial Executive (January/February): 36-39.
• Websites
o SourceNet: http://www.sourcenetusa.com/
o Shared Services and Business Process Outsourcing Association – http://www.sharedxpertise.org/
o The Outsourcing Institute – http://www.outsourcing.com

You may also want to search your library’s electronic resources using the keywords “outsource” and “shared services.” The report you provide to Ty should adhere to the following format:

Part IV: Calculation and Support for Financial Evaluation of Each Option

• Calculate the financial savings based on the numbers generated by Bill and Ty.
• Use sensitivity analysis to consider the 5 percent, 10 percent, and 15 percent range of outcomes depending on the amount of possible savings on purchases realized by each option.
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Garden Patch Case Study