Question Details

[answered] AbigailJackson, Manager of Disbursements of Hilliard Manufa

Help please... is a little time sensitive. You think you can help me out? I just needed to know how UCL, LCL, and proportion defective were calculated (see memo).

thank you for your helP! :)

1 TO: AbigailJackson, Manager of Disbursements of Hilliard Manufacturing


FROM: (your name and job title)


DATE: 27th November, 2015


SUBJECT: Recommendations for the improvement of the Accounts Payable Process of Hillard




Key Issues


This memorandum highlights the critical issues being faced by the Hillard Manufacturing in


Accounts Payables process. This memorandum also provides for the recommendations to handle


these issues. Hillard Manufacturing has 6.5% of the accounts payable as overdue due to which


suppliers are frustrated. Another critical issue which Hillard Manufacturing is facing is that


significant numbers of invoices are being paid incorrectly. Suppliers continuously face issues


with their payments not only realizing later but they are also full of errors. With these issues


Hillard manufacture might lose its suppliers which can cause problems in manufacturing process.


Therefore it should take timely action to improve this Accounts payable process.




The current state of Value Stream Map (VSM) of the processes in Accounts Payable process is


being reflected in Exhibit 1. The total process time for each invoice in the current system is 1860


seconds and 1920 seconds for ?Pay now? and ?Pay later? invoices respectively. However the


production lead time for ?Pay now? and ?Pay later? invoices is 14.1042 days and 29.1042 days


respectively. Therefore the percentage waiting time for an invoice in ?pay now? is 99.85%


whereas in ?pay later? its 99.92%. These calculations are presented in exhibit 1 itself.


The major bottleneck which is there in current AP process is of PFR checking. Even though it is


being checked twice once by mailroom and secondly by AP analysts still the error percentage is


high. We would recommend that the PFR checking should only be carried out by mailroom to


avoid duplicity and this would reduce errors also as mailroom staff would be solely responsible


for the errors. Another bottleneck is that the lead time is very high causing delay in payments.


There are various activities which are value added such as sorting of the AP and non AP mail as


and sorting of PFR and non PFR invoice leads to time saving. Another activity of recycling paper


which is being followed by mail room earns money for the Hillard manufacturing. Finally the


pay later process helps Hillard manufacturing to manage it finances in a better way.


The activites which are not adding values and can be excluded are PO checking activity as the


mailroom manager Fred Stevens mentioned that they don?t get invoices without PO number.


Also the PFR checking done by AP analysts is duplication of efforts. The improvements should


be done in PFR checking process followed by mailroom clerks so as to reduce errors. Finally the


manual processing of invoices should be discouraged and suppliers should be encouraged to


move to PFR system. 2 Recommendations


As per our recommendation in order to reduce lead time 3 clerks (working at 25%) should be


allocated to other activities such as Payment Processing, as it is b which bringing the utilization


below 100%. We would also advise that the ?Pay Later? invoices should be checked in 5 days


rather than in 15 days so as to reduce the lead time. As we have advised earlier that there is no


need for checking PO number and the PFR checking process should not be done by AP analysts.


Furthermore steps should be taken to improve the PFR checking by mailroom clerks.


A p-chart was created on the basis of PFR data provided by AP analysts to check the PFR


checking performance of mailroom. It is very clear for exhibit 2 that the process of PFR?s was


out of statistical control as the upper control limit was 2.94% and the lower control limit was


0.71%. The proportion of defective in week 8 was 2.92% which was near to the upper control


limit and the lower control limit was also breached in week 12 when the proportion was .46%.


These extremes should be invested to know the proper reasons for same. We would recommend


improving the PFR checking process as there are dual checks on PFR still there are complaints of


paying the PFR invoice. A record can be maintained for suppliers which are being paid on PFR


system and still send invoices. The invoices from these suppliers should directly be diverted to


recycle bin in the mail room. We would also recommend company to encourage its supplier to


use PFR by offering incentives and other benefits.


As per the Exhibit 3 it is clear that biggest issue in supplier complaint is late payment of the


invoices. This issue is affecting the payment quality. The P chart in exhibit 3 shows that first 5


types of errors account for 78.29% of the complaints of the suppliers. Therefore we would


recommend to concentrate on solving these five issues: - ?paid late?, ?checks sent without


invoice reference,??payment never made,??wrong invoice message,? and ?other issues?.


We would also advise the continuous review of Accounts payable process so as to avoid or


reduce wasteful activities. Furthermore Hillard Manufacturing should look for ways to avoid this


wasteful activity of manual processing of Accounts payable. We understand that there are small


suppliers who caanot invest in PFR system. Hillard Manufacturing should provide them with


financial support or incentives as it will reduce the work load of Hillard Manufacturing and will


lead to cost saving. 3 Exhibit 2:- Number of Supplier complaints


Number Errors 1 Paid Late Frequency Cumulative Frequency Percentage 342 342 54.20% 2 Other 46 388 61.49% 3 Checks sent without invoice reference 42 430 68.15% 4 Payment never made 35 465 73.69% 5 Wrong invoice reference 29 494 78.29% 6 Paid Short 27 521 82.57% 7 Sent to the right company but wrong address 21 542 85.90% 8 Check sent without signature 18 560 88.75% 9 Paid on a cancelled purchase order 12 572 90.65% 10 Payment sent to the wrong company 11 583 92.39% 11 Overpaid 9 592 93.82% 12 Payment sent for material that was returned 9 601 95.25% 13 Two companies payment sent in one envelope 9 610 96.67% 14 Paid PFR invoice 8 618 97.94% 15 Paid paper invoice twice 7 625 99.05% 16 Payment returned for unknown reason 6 631 100.00% 631 4 Pareto Chart


















0 100.00%
























Percentage Exhibit 3:- PFR being found by AP analysts Week PFRs found each


week Proportion Defective LCL CL UCL 1 30 0.0231 0.0071 0.018284615 0.0294 2 27 0.0208 0.0071 0.018284615 0.0294 3 24 0.0185 0.0071 0.018284615 0.0294 4 23 0.0177 0.0071 0.018284615 0.0294 5 22 0.0169 0.0071 0.018284615 0.0294 6 21 0.0162 0.0071 0.018284615 0.0294 7 19 0.0146 0.0071 0.018284615 0.0294 8 38 0.0292 0.0071 0.018284615 0.0294 9 21 0.0162 0.0071 0.018284615 0.0294 10 22 0.0169 0.0071 0.018284615 0.0294 11 23 0.0177 0.0071 0.018284615 0.0294 5 12 6 0.0046 0.0071 0.018284615 0.0294 13 25 0.0192 0.0071 0.018284615 0.0294 14 25 0.0192 0.0071 0.018284615 0.0294 15 26 0.02 0.0071 0.018284615 0.0294 16 25 0.0192 0.0071 0.018284615 0.0294 17 25 0.0192 0.0071 0.018284615 0.0294 18 25 0.0192 0.0071 0.018284615 0.0294 19 20 0.0154 0.0071 0.018284615 0.0294 20 24 0.0185 0.0071 0.018284615 0.0294 21 23 0.0177 0.0071 0.018284615 0.0294 22 26 0.02 0.0071 0.018284615 0.0294 23 24 0.0185 0.0071 0.018284615 0.0294 24 25 0.0192 0.0071 0.018284615 0.0294 25 23 0.0177 0.0071 0.018284615 0.0294 26 26 0.02 0.0071 0.018284615 0.0294 618 Quality Control P-Chart








Proportion Defective






UCL 0.02








0 1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526 6


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