Pixystems Toys Information
Pixystems Toys is a leading manufacturer and distributor of children’s toys across the globe through third-party distributors (non-company owned stores) and through their flagship store located in New York. The company is headquartered in Cleveland, Ohio, and has manufacturing locations in Brazil, China, Mexico, and across the United States. Product development is also done in Cleveland with new products released every six months. The majority of the toys manufactured by Pixystems are top sellers that are sellouts during holidays. Some of their most well-known products include toy cars, plush dolls, and electronic games.
The company does all back-office processing at its headquarters where they have shared service centers for accounts payable (AP), payroll, and inventory management. These shared service centers handle the processing of transactions related to these processes across the globe driving a consistent process and controls. Customer sales are managed at the flagship store by the local sales team while online sales and sales to distributors are handled at headquarters.
Pixystems recently hired a new CFO who is focused on improving the financial performance of Pixystems and improving operational efficiency in AP, payroll, inventory, and sales. She has challenged each of the managers of these business processes to identify areas for improvement and quickly address errors. Internal audit has also been working closely with the CFO, managers, and external auditors to identify control gaps, areas of non-compliance, and operational efficiencies.
The CFO has also engaged your team to review these business processes using Pixystems’ data and performing analytics. She would like you to make any necessary recommendations, identify data issues, and provide her and the managers with insights gained through your analytics. During your last meeting, she shared the following information with you:
• The Internal Audit team has identified errors within AP that are negatively affecting working capital. The root cause of these errors has not yet been determined but is thought to be a control gap that will need to be addressed by the AP manager and subsequently tested by the external auditor.
• Cash flows have not been consistent over the past year. Pixystems sees the majority of sales taking place around holidays and uses a retail fiscal calendar to accommodate the cyclical nature of sales.
• At least two inaccurate payments to key vendors have been identified by the AP manager and monitoring for duplicate or erroneous payment is not conducted.
• Payments within terms are also not monitored and leverage of discounts is not reviewed to ensure quantity levels have been met and Pixystems receives the appropriate discounts.
• Majority of employees working at headquarters and managers at the manufacturing locations are salary employees and not entitled to overtime (twice hourly rate) payments. All other workers should be paid hourly.
• Payroll is paid to salaried employees on the 1st and 15th of each month through direct deposit. Hourly employees are paid bi-weekly (every two weeks).
• Executive team receives an annual bonus each year which is paid at the end of the year. The amount is dependent on the employee’s overall performance ranking and Pixystems’ performance as a whole.
• Average annual employee pay increase is between 3-5% for salaried employees
• Inventory levels of finished goods at the flagship store are set by headquarters with sales and marketing consultation.
• Finished goods inventory is owned by the manufacturing facility until loaded on a truck (FOB Shipping Point) to a distributor or sent to the flagship store which then takes ownership.
• Online sales directly to customers are sent from the manufacturing facility
• Physical inventory is taken once a year and the completion of cycle counts is at the discretion of the facility manager.
• Adjustments to inventory levels due to spills, damaged goods, old age, etc. are done once per month and are approved by the facility manager and headquarters.
• Distributors must place orders from Pixystems with a minimum of a month's lead time. Special and expedited orders must be approved by headquarters.
• Available inventory levels for direct customer sales are communicated via the online ordering system which allows customers to order up to the quantity available at the manufacturing facility or distribution center.
• Sales representatives are assigned to specific distributors and are responsible for both increasing sales and managing the relationship Pixystems has with the distributor.
• Promotions and discounts must be approved by sales and marketing
• Sales are highest around the holiday and certain toys quickly become out of stock.