Memo: Improving Ramsville Accounts Payable

Pages: 10 (2472 words) Published: April 14, 2015
Team Lean 1
Memorandum

Date: November 13th, 2013
From: Team Lean: Carina Tricaso, Diana Hauptman, Mannan Kohli, Matt Arthur, Thomas Young To:  Dr.  Andrea  Prud’homme
Subject: Improving Ramsville Accounts Payable
Key Issues
The key problem encountered by Ramsville is that 6.5% of the accounts payable (AP) are overdue, causing Ramsville’s  relationships  with  their  suppliers  to  deteriorate. In a few cases, it is impacting further shipment of parts,  potentially  causing  Ramsville’s  manufacturing  plant  to  miss  shipping  due  dates  and negatively impacting customers. Ramsville’s  irregular  distribution  of  workers  and the inefficient accounts payable process has led to over-utilization in some processes and superfluous capacity in others and several non-value add segments of the process, which results in a lot of waste. These issues have led to defects such as late payments and sending payments to the wrong company, which have inevitably led to a conflict between Ramsville and their suppliers. Ramsville requires an improved accounts payable process that decreases the total lead-time while eradicating the errors that they have been making.

Analysis
The present process comprises ten steps and has five different takt times. It first receives 300,000 pieces of mail in the mailroom but 35,000 of those mails do not belong to AP, so have to be sorted out first. The remaining 265,000 invoices then go through a Purchase Order check and then move them to the Pay From Receipt (PFR) Check. The first PFR check removes 200,000 of the PFR receipts. The remaining 65,000 receipts then go through an additional PFR checks from accounts payable analysts that further removes 1,250 receipts on average. After this final PFR check, 63,750 invoices are moved to the sorting process which determines if the invoices are “pay  now”  or  “pay  later”.  The  “pay  later”  invoices  are  queued  for  fifteen  days   before  moving  to  the  payment  processing  process  where  the  “pay  now”  invoices  go  directly.  The  invoices  are   then examined for the third and final time and then processed and mailed out. After the payments are mailed out, the invoices are first batched and then filed with proof of payment. The total processing time of the whole process is just 1740 seconds and 1800 seconds for  the  “pay  now”  and   “pay  later”  routes respectively. The lead-times or the total times for the different routes, however, are 11.60 and  26.60  days  respectively  for  the  “pay  now”  and  “pay  later”  options. The bottleneck for this process is the payment processing step and the batch step at utilization on 106.25% (Page 4, Appendix 1). So the time an invoice spends being worked on or moved through the system is significantly lower than the total time it spends in the system.

Team Lean 2
Ramsville is currently operating with 6.5% of their total accounts payable overdue. Apart from an inefficient and redundant process, a number of concerns can be identified within the process too. Firstly, 342 of the 631 defects (54.20%) found in the past six months have been late payments (Page 8, Appendix 3). Therefore, reducing the amount of late payments is where we need to focus our time and resources. Secondly, an average of 23.77 PFRs make it through the first PFR checkpoint each year (Page 9, Appendix 4). This is a problem because analysts are spending their valuable time on meticulous inspection and sorting tasks. As can be seen in Appendix 4, the number of “defects” per week stays within the upper and lower control limits (.0294 and .0071, respectively), except the data for week 12, which falls below the lower control limit. We are concerned by week 8, since it is very close to the upper control limit, while other data points stay close to the historical average population proportion defective. It would be in our best interest to also investigate weeks 38, because there is a declining trend line over that time period. The main...
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