The importance of computer literacy.
Keeping in Step
|By Anita Dennis|
|ANITA DENNIS is a Journal contributing editor.|
H ow can CPAs help their companies gain a marketing advantage? One CPA uses his technology expertise to bring his employer into the age of electronic commerce, giving it a distinct edge among retailers in the highly competitive fashion industry. His experience in automating many of his businesss most important functions and in decentralizing computer responsibility throughout the organization can serve as a model for other CPAs striving to derive the most value from information technology opportunities.
A PRACTICE NICHE
Michael Cangemi started out in public practice, where he developed a specialty in electronic data processing auditing, the use of computer resources in the audit process. He later used this knowledge overseeing financial auditing and management information systems for a Fortune 500 company and then moved to the position of director of EDP auditing with a large accounting firm when the corporation relocated. One of the firms clients, the Hartstone Group, a British company that was looking to acquire fashion businesses in the United States, called in Cangemi to review the computer systems of an acquisition prospect, the Etienne Aigner Group, during the due diligence process. Because company managers were looking for a computer-literate chief financial officer and executive vice-president, they offered Cangemi the job.
His first challenge at Aigner was to bring the business up to speed technologically. The company, which designs and distributes womens quality footwear and accessories to major department stores, had a mainframe computer and a lot of internal complaints about its computer system. Cangemi knew that some giant retailers, such as Wal-Mart, had computerized their supply chains. "I saw a huge opportunity for a fashion company to get its computer operations in shape and use them to gain a competitive advantage," Cangemi says.
To that end, the company sought faster communications with its customers through electronic data interchange (EDI) to allow Aigner and its customers to swap information, such as orders, electronically. In the retail industry, this is part of the quick response process, a relative of just-in-time inventory control that uses EDI and automatic inventory replenishment programs. But introducing the required systems can be time-consuming and complicated, which in 1993, when Cangemi started at Aigner, made the process seem daunting to all but the largest companies. To expedite the process, Cangemi created a start-up system that allowed the company to receive purchase orders (POs) from various retailers on a PC and then print them out for the customer service department. A more sophisticated version of the system would have transferred all of the information electronically, rather than sending a printout to customer service. But Cangemi knew it would take a great deal of time and money to bring his company up to the state of the art, so he installed this interim step to get it started.
| Company Profile |
Name: Etienne Aigner Group.
Locations: New York City; Edison and Sayreville, New Jersey; Los Angeles.
Date founded: 1950.
Sales: Over $220 million.
Number of employees: Approximately 900.
Form of ownership: Parent company, Hartstone Group PLC, is publicly traded in the United Kingdom.
What we produce: Finely crafted womens footwear, handbags and accessories.
Our main customer: All major department stores plus company outlet and retail stores.
W hile his first system was a very primitive version of quick response, it made the process much easier for Aigners retail customers, who had no idea how their orders were handled once received. During his first year on the job, Cangemis division brought the companys system up to speed by upgrading its internal computer operations and by building the necessary connections in its computer system to allow it to dial into the two major national EDI networks, run by GE and IBM, and to pull down orders from the major department stores that are its customers.
Once Aigner began receiving POs electronically, the company moved on to electronic disbursement of items called advance ship notices. "When a customer buys a pair of shoes," Cangemi explains, "a store such as Macys checks its inventory level and submits an order to us electronically; we process it in our computer system. When we are ready to ship, we send the store an advance ship notice. Because the store knows the order is coming, it can set up its computer system in its distribution center to read our barcode and move the order across the retailers distribution center in a day."
The company can receive orders via EDI for as many as 6,000 to 10,000 pairs on a big selling day; individual orders can be for as few as one pair of shoes or as many as 2,500. Fast turnaround and movement through the stores channels mean lower inventory costs for the retailer, which makes Aigner an attractive company to deal with. In an ideal situation, the system should allow the retailer to send Aigner an electronic PO on day one, perhaps a Monday after a heavy shopping weekend; Aigner can ship its product to the retailer the next day; and the product can be back on the selling floor before the next weekend.
Cangemi also took steps to ensure that his staff keeps informed, placing them on voluntary interindustry communications standards committees that determine how systems work across the entire retail industry. "We wanted to be sure we built our systems to the right standards," so the staff had to understand industrywide standards. Such cooperation to ensure consistency among those involved in the process is crucial, Cangemi explains. "You dont want Federated Department Stores Macys stores to design one electronic PO and the May Co.s Lord & Taylor stores to design another, because then you spend a lot of money trying to read each ones documents."
Cangemi helped introduce quick response into a large part of the companys business. In 1996, it was used in 24% of total footwear sales and in 19% of handbag sales. It is more efficient than the old method, Cangemi says. "Previously, you would send out a shotgun of product periodically. You would pick shoes from sizes 5 through 12 and guess at how many of each. The selling pattern would never match exactly, so the retailer would hold on to a huge chunk of inventory and sell it until the end of the season, when the store would discount it or try to return what was left to us. With quick response, there are few returns because the store receives orders based on what it sells." An unusual selling pattern at any one store then can be reflected in inventory models.
The company also is now sending invoices electronically and hopes to receive payment through electronic funds transfer within the next couple of years. Cangemi also would like to refine the system to get a better sense electronically of what stores have actually sold, not simply what they have ordered.
The customers are pleased with the companys efforts. "The retailers compliment us on how well quick response is doing," Cangemi says. The program puts them ahead of the competition in the handbag business, he says, because so few others have anything like it. In its footwear line, where quick response is more common, it keeps the company in step with its competitors.
How else can the company make its products easier to purchase? "In retail, the future is direct sales to consumer," Cangemi says. "The world of retail will be broken down into recurring necessity purchases and spontaneous or not as regular purchases. In either case, stores will be able to reduce inventory."
To take advantage of direct sales, the company is planning to start a store on the Internet and distributing a printed catalog so its customers dont have to go to stores to buy their products. Although womens fashions dont seem like automatic recurring purchase items, Cangemi sees some opportunities. For example, one woman professional he knows has a favorite pair of Aigner pumps that she replaces about every three months. "Once you like a shoe, youll buy it again," he predicts. Such customers can use the Internet to set up regular orders.
LESSONS LEARNED IN AUDITING
In addition to changing its communications with customers, the company also has altered internal attitudes about technology. When Cangemi took over his position, he made usersand not management information systems staffresponsible for their own technology, based on an insight he gained from his EDP auditing experience. Cangemi believes that the people who use technology should have a solid understanding of it.
"EDP auditing grew up as a separate function because many people were uncomfortable dealing with computers," he observes. But Cangemi thinks separation of expertise is a mistake. "If the auditors delegated the work to an EDP audit team, the team didnt understand the audit job they were trying to do. They understood only the technology, so there was missed potential" for a better understanding of all aspects of the engagement, he says. "You cant make the needed refinements if youre just farming out the work." The same problems occurred in industry. "Businesses also created MIS departments because staff in other areas didnt want to deal with computers, when in fact in the retail business you have a computerized cash register. Technology shouldnt belong to MIS; it should belong to the retail people."
| For Further Reading: |
EDI Control, Management and Audit Issues, published by the American Institute of CPAs information technology membership section.
Managing the Audit Function: Corporate Audit Department Procedures Guide, 2nd ed., by Michael P. Cangemi, published by Wiley & Sons.
Quick Response, published by the American Institute of CPAs information technology membership section.
C angemi spearheaded an effort to rid the company of its mainframe, brought in PCs for all personnel and then turned to each department to take the next steps. "If the design department wants computer-aided design, design department staff members are going to lead the project. They are going to select the system rather than have the MIS people tell them what to do." The company offers whatever assistance users need to understand their options, including computer training and the support of the MIS department, which actually has grown in the wake of decentralization. Although different departments can make their own software choices, systems that are used corporatewide, such as general ledger, must be centralized.
Shifting responsibility from MIS to users wasnt easy, he reports. Cangemi faced a battle to get his philosophy accepted. However, once decentralization was implemented, attitudes changed. "People really understand and support it. Now they propose projects and their implementation plans, and the MIS department reviews them and helps in planning."
To implement this kind of change, Cangemi must keep himself informed about new technology. Conferences and user groups help him to understand software packages, he says, while his position as editor of the IS Audit and Control Journal , published by the Information Systems Audit & Control Association, alerts him to new developments in the field.
THE BOTTOM LINE
How much has this computer revolution cost the company? Cangemi says it has resulted in significant savings. When he was hired, the company was considering spending $1 million on an IBM ES9000 system to speed its operations. Cangemi insisted it was better software, not more expensive hardware, that would solve the problem. "The systems were antiquated and spending $1 million on a faster computer wouldnt have fixed them." He scrapped the mainframe in favor of an RS6000 Unix box with an open systems environment for a total cost of $150,000. The move also helped lower personnel costs when three operators running the mainframe around the clock were replaced by one part-time operator. "We spent our money replacing software," he says, such as the new Lawson Financial Systems software bought for $100,000 and the specialized footwear industry package used in distribution. The company also installed Novell network software and Windows, created the quick response program and gave laptops to all the sales people in the field. "All of that fit into the old budget," he says, "and we upgraded a great deal."
The companys experience demonstrates that widespread computer capabilities, plus the right software, can vastly improve a businesss operations without costing a great deal of money. It shows, too, that the first step toward a sophisticated system can be a small one. In order to make a viable transition, management must be committed and knowledgeable, however. If senior management is not in charge of the information system, Cangemi says, companies often hire someone to run an area in which all staff should be knowledgeable. He suggests that when top executives are replaced, companies seek people who "at a minimum can manage technologyand who can drive it, if possible." For companies and their executives, computer literacy is crucial, he believes. "Youre very late if you dont have it already. The world of electronic commerce is already here."