The O.M. Scott & Sons Company
* Founded in 1868
* Processes weed-free grass seed
* Has a highly seasonal demand for its products
* Started experiencing rapid growth in 1945
* Major internal control issues
* Should S & S keep their current trust receipt program even though sales and accounts receivables are increasing as cash is decreasing? * Will S & S be able to operate as a national firm even though some dealers are acting illegally as wholesalers?
Alternative Course of Action
* Keep trust plan with more limitations
* Build retail stores and eliminate dealers
Brief Analysis of Alternatives
If Scott Keeps the trust plan the company needs to add more limitations to their policy. As you can tell from their income statement sales have increased from $30,416,800 in 1960 to 34,331,700 in 1961 as cash decreased from $2,328,700 in 1960 to $1,454,300 in 1961. S & S is having a hard time controlling inventory sales because their dealers and sales people are acting unethically.
If S & S built more retail stores they would be able to eliminate dealers and keep track of inventory. Although, as you can tell from exhibit 1 the company has lost to much money to fund this project. In exhibit 1 the company kept ending sales from 1960 the same as ending sales in 1961. Scott sales should have stayed the same in both years but by looking at the example the company can’t account for $11 million in inventory. Building more stores would take to much time and accumulate more debt.
Suggested Course of Action
The company should add more restrictions to their trust receipt program because this is the fastest and easiest way to fix their current problem. Scott should involve a third party to count inventory in each dealer’s business. This way sales people and dealers are forced to be truthful. Also S & S should not continue to restock shelves until the company is paid for heir...
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