BUS202 Principles of Finance

The experiment data in below table was to evaluate the effects of three variables on invoice errors for a company. Invoice errors had been a major contributor to lengthening the time that customers took to pay their invoices and increasing the accounts receivables for a major chemical company. It was conjectured that the errors might be due to the size of the customer (larger customers have more complex orders), the customer location (foreign orders are more complicated), and the type of product. A subset of the data is summarized in the following Table.

Table: Invoice Experiment Error

Customer Size: Small (-), Large (+)

Customer Location: Foreign (-), Domestic (+)

Product Type: Commodity (-), Specialty (=)

Use the date in table above and answer the following questions in the space provided below:

1.What is the nature of the effects of the factors studied in this experiment?

2.What strategy would you use to reduce invoice errors, given the results of this experiment?

1. Nature of the effects of the factors studied in the experiment:

  The effects of the factors as studied in the experiment are calculated and they are represented briefly in the form of a table as follows:

 According to the above table, if the type of the product is a commodity, there is small number of errors. Thus, by combining the commodity products and overseas customers, the number of errors is limited; however, it is not lower in contrast to the smaller customers and domestic customers. The number of errors has been the most, when a bulk order is placed for specialty items compared to commodity items and blending the products with locations (Byrd Jr, Smith & Helms, 2015).

2. Strategy for minimizing invoice errors:

As discussed above, specialty products are the biggest contributor to invoice error and hence, the intention would be to minimize the errors associated with this type of products. Along with this, effort needs to be made for detecting the reasons behind the invoice errors related to the specialty product (Hellström, 2016). Furthermore, concentration needs to be directed on the commodity products by reducing supply of the specialty products due to the increasing number of errors in the same.

References:

Byrd Jr, J., Smith, D. L., & Helms, M. M. (2015). Time for a cure? This homespun remedy for healthcare cost inflammation could help reduce errors and fraudulent billings. Strategic Finance, 97(3), 32-39.

Hellström, A. (2016). Machine Learning in Finance Management: Case OpusCapita.