A Single Person From Each Group Should Submit Two Files Online

This assignment is to be submitted online via Canvas by the due date and time listed on the syllabus. A single person from each group should submit two files online. One file should be a PDF document containing the current-state Value Stream Map (VSM) for the case. The VSM should not contain any explanations of calculations associated with the construction of the VSM. All explanations of calculations for the VSM should be made in the second file. The second file should be an appropriately formatted PDF document containing all the relevant answers to Questions 1, 2, and 3, including explanations of calculations. The VSM should be formatted to look professional. Points WILL be deducted for formatting related issues. Improvement of a Transactional Process at Ramsville Introduction

Sarah McDougal, Manager of Disbursements at Ramsville thought to herself “Just a few more days until the Kaizen event kicks off.” As Manager of Disbursements, Sarah oversaw four departments in accounting: 1) Sales and Use Tax Department, 2) Payroll, Time and Expense Reporting Department, 3) Accounts Payable Department, and 4) International Accounting Department.

Ramsville’s new CEO, Chris Smith, had developed and championed Ramsville’s new Lean Initiative not long after taking over. After achieving substantial improvements in cost, lead time, and quality from the application of lean principles on the manufacturing floor, Chris felt it was time to apply the same principles to other functional areas. Given the importance of Accounts Payable (AP) in maintaining a smooth flow of incoming material and preserving good relationships with suppliers, Chris felt thatcr the AP area, which had been experiencing increasing lead times for invoice payment, would be a good place to start.

With the top management directive of working on improvements in the AP process, Pat Davis, the Assistant Controller and Sarah’s boss, scheduled a meeting to review the current situation. “Just look at this” Pat said while pointing to a column of numbers in a spreadsheet. “We’ve got almost 18% of our accounts payable overdue, and our suppliers are not happy about it! In a few cases, it’s even impacting further shipments of parts, potentially causing our manufacturing plant to miss shipping due dates and impacting customers. We must get a handle on this!”

Walking the Process

 Following that meeting, Sarah met with Colleen Martin, Manager of the AP Department, to better understand the entire AP process. Colleen provided a good overview of how the process should work,

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but Sarah realized that she would need to walk the process herself to truly understand the current state of things. She scheduled a walk-through of both the mailroom and the AP Department, armed with a clipboard, stopwatch, calculator, paper, and pencil to make a formal current state value stream map (VSM).

The AP process begins at the mailroom which processes incoming mail from all sources, including invoices from suppliers. Once there, Colleen and Sarah spoke with Bill Hoskins, the Mailroom Manager.

 Bill explained the process to Sarah: “We’ve noticed, based on the postmark of incoming mail that it takes about 5 days for most mail to get to us. After all the mail is received, it has to be opened and sorted. We are running a bit behind, so we usually open the mail the day after we get it. If it doesn’t belong to AP we have to route it to the right department. We receive about 225,000 pieces of mail each year. It takes about 1 minute to open and look at each piece of mail, to determine if it is AP mail. We find that about 11% of the pieces a year do not belong to AP.”

 Sarah: “Wow, I didn’t realize so many invoices came in each year. I thought that we had an automatic payment process that was supposed to reduce incoming invoices.”

 Bill: “We do get a lot of invoices coming in, but not all of those actually get sent on to AP. Other processes screen out many of the invoices. First, we have to check mail that is sorted to be AP mail to see if it has a Purchase Order (PO) listed on the document. We have about two days of backlog from the time the mail is opened until the PO check happens. It takes an average of 2 minutes for a data entry clerk to confirm the PO number since all of the invoices have different formatting and we have to enter the PO in our system. Eight data entry clerks work this process for 75% of their work day. Fortunately, we don’t really get any invoices without valid PO numbers on them.”

“As you know, the PFR (Pay from Receipt) invoices don’t go through the standard AP system, since they are paid automatically when the material is received. I sure wish we could get all our suppliers on to the PFR system; and I don’t understand why suppliers already set up on the PFR system still send us paper invoices—it’s really frustrating! So after we are done checking the PO number, we have to check to see if the invoice is part of the automatic PFR process.”

 Colleen: “You’re right Bill, but the problem is that some of the suppliers are running on accounting software that forces them to generate and send an invoice. We’ve talked to them about this, but it’s just too expensive for some of them, especially our smaller suppliers, to change their systems to meet the needs of only one customer. Still, it would be nice for both us and the suppliers if we could come up with a solution.”

 Bill: “There is an inbox for the PFR check that has about a day’s worth of invoices in it, on average. When we find that the invoice is part of the PFR process, we throw the invoice into the paper recycling bin, since the paper invoice isn’t needed and it is just a duplicate of the automatic PFR. We use the extra money we earn from all the paper we recycle to pay for refreshments at our softball games. At

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this point, we throw away about 150,000 invoices per year that are really PFR. We keep exact track of what we throw away, since we want to be sure that we don’t throw away something that we shouldn’t. Since we are really careful, it takes each person an average of 6 minutes to throw away an invoice, and we have 25 people doing it. The remaining invoices are sent to the AP department. The invoices are divided alphabetically by supplier name while we are doing the PFR check, and then sent to the assigned AP person, so that each person gets approximately the same number of invoices each year. Once we send the paper invoices on to AP, the mailroom is done with its part of the process.”

 Sarah: “Let me make sure I have this right. First you receive and sort all the mail, with about 89% identified as AP mail. Then you have to check for a PO. After confirming the PO, you then check to see if it is on the PFR system. If it is, you recycle the paper. If it isn’t, you send the invoice to the assigned AP person. Does that sum it up?”

 Bill: “Yep, that’s about it.”

 Sarah: “Thanks Bill, we appreciate your time and information. Colleen, let’s go find out what happens after the mailroom passes the invoices along to AP. I’ve asked Sam Wolf to help us with the AP part of the process, since Sam has been working as an AP analyst for about 5 years and has done a variety of different jobs in the accounting department.”

 Colleen: “Hi Sam, Sarah and I are ready to have you walk us through the AP process on this side. We’ve just finished talking with Bill Hoskins, who explained the process up to the point that the mailroom sends the invoices to you. Let’s start with how long it takes the invoices to get to you from the mailroom.”

 Sam: “Well, they make deliveries three times a day; at 9:30, at 1:30, and at the end of the day to clear out their area before the end of the shift. So I guess you could say that the average invoice takes 2.5 hours to get to us once the mailroom is done. The mailroom distributes the invoices to the inbox of the assigned AP analyst. Our inboxes usually have about 2 days worth of incoming material. We process the inbox on a first-in-first-out basis, and once an invoice comes up to be worked on, the first thing we do is make sure that they aren’t on the PFR system.”

 Sarah: “Wait a minute, didn’t the mailroom already check to see if the invoices were PFR and get rid of those that are? Why are you checking for the same thing again?”

 Sam: “Yes, they do check, but we still find about 1,250 invoices per year that they missed. It really is a pain to check for PFR status, and it takes us 7 minutes per invoice because we have to be extra careful to catch ones that were missed when the mail room people checked them. Sixteen of the analysts spend about 20% of their time doing these checks. This is such a time consuming effort that we have been keeping track of how many we find each week, and I can get that data for you, if you want.”

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Colleen: “We’d like to have that data, thanks. Okay, you screen the incoming invoices for PFR and then you only work on the invoices that aren’t PFR, right?”

 Sam: “Yes, at this point, we have only actual invoices that need to be manually processed through the AP system. Now an analyst has to determine if the invoice is ready for payment. It could be that the pay-by-date is out in the future or we have a payment schedule agreement with the supplier. It takes about 5 minutes to sort each invoice to determine if it is ready for immediate payment or should be set aside to be paid later. Sixteen of the analysts spend about 15% of their time sorting for payment readiness. Invoices that aren’t ready for payment are set aside, which happens to about 20 invoices each day. On average, ‘pay later invoices’ aren’t processed for 15 working days. It takes about 1 minute (and the equivalent of ¼ of a full time person) to look at a ‘pay later invoice’ and move it over to payment processing when it is due. When a payment is ready to be paid, regardless of whether it is a ‘pay now’ or one of the ‘pay later’ invoices that is now due, it takes about 2 minutes to enter it into the payment processing software. We take turns and have one AP person work on this all day.”

 Sarah: “So all of the invoices end up going through payment processing, although some go straight there if they are ready for payment, but some wait for a while until they are due, is that right?”

 Sam: “Yes, they all have to go through the full payment processing, eventually. After they have been entered into the payment processing system, they have to go through a batch inspection process, which runs 4 times per day so an average invoice waits 1.5 hours for processing. We want to be sure that nothing is getting paid incorrectly, so we actually spend 2 minutes per invoice doing a final inspection of the payment before the batch is released. We take turns doing this with one person working on it per day.”

“At this point the payment should be on the way to the supplier. However, we still have to file the paper invoice along with proof of payment. It takes about 4 minutes per invoice to file the paper documents. But we usually do all the filing at the end of the day, so an average invoice waits for about ½ day until it is filed. It would take the equivalent of 3 full time people to do all the filing, but each analyst is supposed to do their own before they leave for the day.”

 Sarah: “Okay Sam, let me make sure that I have the process straight. You get the paper invoices from the mailroom. Then an analyst does a PFR check. If the invoice is PFR, it is thrown away; if not, it moves through the system for payment processing. You have to determine if it is ready to pay now, or should be set aside to be paid later. When an invoice is ready to pay, you input it into the system, process the batch and then file the paper documents. Does that about cover it?”

 Sam: “Yes, that’s about what we do.”

 Sarah and Colleen met later in the day to review the data they had collected and to begin drawing their current state VSM.

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Sarah: “It looks like we’ve gotten a lot of good data on the current process, and it seems that there are several opportunities for improvement. Let’s finish up with the current VSM and then run it by Bill and Sam to make sure that we’ve captured everything correctly. Then we can call a meeting to begin working on our future state map.”

 Summary of Ramsville work day

 Number of mail room clerks: 36 Number of AP analysts: 18 Average annual vacation days: 5 Number of company holidays: 5 Work day:   7:30am to 4:30pm Breaks   2 @ 15 mins each (paid) Lunch   30 mins (unpaid) Daily Meeting  15 mins Housekeeping/5S 15 mins

Case Analysis:

 1. Draw the current VSM (use seconds for TAKT time/processing times/cycle time calculations). Be aware that every single invoice may not move in a perfectly linear flow through the system. Please carry out all calculations to 2 decimal places. Explain your calculations as needed and submit a PDF version of your VSM.

 2. From your VSM analysis, answer the following questions: a. What is the total lead time for an invoice from receipt until filing? (keep in mind that every single invoice may not move in a perfectly linear flow through the system). b. What is the total processing time for each “type” of invoice? c. What percentage of time does each “type” of invoice spend waiting?

 3. Identify which activities add value and which do not. Provide explanations for your choices.

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