Question Details

[answered] AbigailJackson, Manager of Disbursements of Hilliard Manufa


how do i compute the four columns, proportion defective, LCL, CL, and UCL?



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

 

Manufacturing

 

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.

 

Analysis

 

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

 

400

 

350

 

300

 

250

 

200

 

150

 

100

 

50

 

0 100.00%

 

90.00%

 

80.00%

 

70.00%

 

60.00%

 

50.00%

 

40.00%

 

30.00%

 

20.00%

 

10.00%

 

0.00%

 

Frequency

 

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

 

0.04

 

0.03

 

0.03

 

Proportion Defective

 

LCL

 

CL

 

UCL 0.02

 

0.02

 

0.01

 

0.01

 

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

 


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