Question
Background Abberson is a mid-sized office furniture manufacturer. The company was founded in 1965 and employs 405 people. The manufacturing facility is located in Baytown,
Background
Abberson is a mid-sized office furniture manufacturer. The company was founded in 1965 and employs 405 people. The manufacturing facility is located in Baytown, Texas. Abberson sells its products in two different ways. One is directly to consumer through their showrooms. The other is to sell directly to businesses.
During the past five years, business of Abberson has grown substantially. The management of Abberson thinks it is a time to consider implementing enterprise resource planning systems (ERP). The motivation is to use ERP to solve some of their current problems such as certain business processes are not as effective and efficient as they should be. Example of these problems include: (1) Key business processes such as raw material purchasing has long cycle time; (2) Many of the current systems they use to support business processes are outdated and scattered.
To start this initiative, Abberson put together an ERP project team. This team includes process owners, system end-users, business managers, and IT staff from different levels and locations of the company. The team leadership falls upon some very knowledgeable employees of Abberson such as the Joey Chandler from purchasing and Rachael Bing from accounting. Both Joey and Rachael have some experience with process mapping.
Abbersons Raw Materials Purchasing Process
The manufacturing supervisor in Baytown enters purchase requisition into the PET system. PET system is Abbersons procurement system that handles vendor management, inventory management, purchase requisitions, and purchase orders. This entry will trigger an email sent to the purchasing clerks. The purchase clerks will then read the emails and decide if the requires is for a known part or unknown part. If it is a known part, and there is a preferred supplier for it in the PET system, then a purchasing clerk will email a purchase order (PO) to the supplier for the materials requested. If it is unknown part, then a purchasing clerk sets up a new part in the PET system and conduct new vendor sourcing activities to determine an appropriate supplier for the material. Once these steps are complete, a purchasing clerk emails a PO to the chosen supplier. If no supplier exists for a known part, then a purchasing clerk needs to perform sourcing activities and send the PO to the newly identified supplier.
When the raw materials arrive, they are inspected for quality by the receiving department. If the quality is deemed substandard, then the goods are immediately sent back to the supplier. The raw materials passing quality inspection are then sent to the warehouse employees who count them for accuracy and prepare a receiving report. Warehouse employees then decide where a good place to store the materials in the warehouse might be and send the receiving report to the manufacturing supervisor as proof the raw materials have been received. The manufacturing supervisor will then sign the receiving report as confirmation the material has been received.
After purchasing clerks receive invoices, they need to check each invoice for accuracy against the PO and make sure the appropriate pre-negotiated discounts and payment terms are included. If there are any issues, they consult the supplier and make the corrections. The clerks then send the corrected invoice and PO to the accounts payable clerks in the accounting department. If there are no issues, the invoice is sent directly to the accounts payable clerks.
Accounts payable clerks will assign GL account numbers (to show the increase in inventory [debit] and the accounts payable [credit]) and the cost center number (e.g., what job the material should be charged to) for management accounting purpose. Accounts payable clerk will then enter information into a system called CODE. CODE is a financial accounting system that maintains the general ledger (GL), accounts payable/cash disbursements, accounts receivable/cash receipts, and produces the financial statements. A voucher number will be automatically generated. Supporting documentation is printed and filed in the accounts payable file folders until payment is due.
2. In class, we learned about Business Process Reengineering (BPR) and Business Process Improvement (BPI). The team is looking at using the ERP initiative as an opportunity to perform some technology- enabled BPR. In BPR, practitioners often follow certain principles illustrated as follows. 1. Have those who use the output of the process perform the process (reduce or eliminate handoffs). 2. Empower workers (give employees information and they can make decisions). 3. Treat geographically dispersed resources as though they were centralized (centralize data through a common database). 4. Link parallel activities instead of integrating their results (do not wait until the end of a process to merge the results). 5. Organize around processes, not tasks or functional area (use ERP systems, technology, and best practices). 6. Self-service; move cost and accountability for work to the beneficiary of a process (responsibility for information accuracy also transfers with self-service). 7. Put the decision point where the work is performed and build controls into the process (use automated controls in the process and transfer the responsibility for checking from management to the worker). 8. Capture information once at its source (data should be entered one time where it originates and then dispersed to those who need it). Source: Hammer, M. 1990. Reengineering work: Don't automate, obliterate. Harvard Business Review 68 (4): 104-112. Contrary to BPR, BPI is incremental and evolutionary and has smaller intensity and scope. This process usually starts with study current process and identify issues that are potentially up for improvement. Some common issues with business processes are summarized in the following table. Authority ambiguity Bottlenecks Cycle time Data duplication Handoffs Intermediaries Manual steps Old ways When two or more people are providing approval, this may be unnecessary as it reeks of bureaucracy and increases cycle time of the process. When a number of information flows lead to a single activity, the process may be hindered by insufficient resources dedicated to the roles and events downstream. Bottlenecks can limit the performance or capacity of the entire system, delaying or completely stopping the process. The time consumed during the entire process flow should be at the heart of performance measurement, providing focus on the length of time it takes from start to finish. Occurs when multiple groups involved in the process begin maintaining their own separate information systems. Consequently, the same data are then kept in multiple places. Involve the transfer of responsibility from one role to another, providing the opportunity for mistakes, miscommunication, and delay. Words such as pass it by me" include an intermediary step. Consider if this step is value-added. Technology and systems could be implemented to take the place of manual steps, which are labor-intensive and add to cycle time and errors. Technology and systems are available but not used because employees have not been trained (or have been trained and do not want to use them). Employees revert to "old ways of doing things." Quality control is when someone else checks work, not when someone checks his/her own work. Is the quality control really needed? Can the work be mistake-proofed to make it impossible for the defect to pass on? Prevention is better than detection. Question whether the current process is adding, maintaining, or eliminating paper records. Storing data in electronic form is optimal as the data then become easier to share. This refers to people spending time fixing errors or remediating problems. The source of the errors should be investigated and modification to the process made to eliminate the potential for errors. Denotes lack of clarity about the expectations, norms, and behaviors associated with a particular job. Ambiguity can lead to inefficiencies in processes. Employee should not be in the position to perpetrate and to conceal fraud. In general, duties to be segregated among employees are: (1) custody of assets; (2) authorization or approval of related transactions affecting those assets; (3) recording or reporting of related transactions. Quality control Paper records Rework Role ambiguity Segregation of duties violations Source: Smith, M. L. 2010. BOLO (Be On The Lookout) List for Analyzing Process Mapping. Available at: http://www.isixsigma.com/tools-templates/process-mapping/bolo-be-lookout-list-analyzing-processmapping/ You are asked to apply the information on BPR and BPI you learned in class and content provided here to the raw materials purchasing process. For each of the issues identified (you need to identify eight of them), you need to describe a redesign that could be made to the raw materials purchasing process to improve efficiency, effectiveness, and/or internal control. Provide your answers in the table below. BPR Principle or BPI Process Issue applied Identified Abberson's raw materials (Note: you state which BPR principle or BPI purchasing process issue process issue you are applying here) (Note: by applying the BPR principle or BPI process issues stated in the left column, what issues specific to Abberson you have identified) 1. 2. 3. 4. 5. 6. 7. 8. 2. In class, we learned about Business Process Reengineering (BPR) and Business Process Improvement (BPI). The team is looking at using the ERP initiative as an opportunity to perform some technology- enabled BPR. In BPR, practitioners often follow certain principles illustrated as follows. 1. Have those who use the output of the process perform the process (reduce or eliminate handoffs). 2. Empower workers (give employees information and they can make decisions). 3. Treat geographically dispersed resources as though they were centralized (centralize data through a common database). 4. Link parallel activities instead of integrating their results (do not wait until the end of a process to merge the results). 5. Organize around processes, not tasks or functional area (use ERP systems, technology, and best practices). 6. Self-service; move cost and accountability for work to the beneficiary of a process (responsibility for information accuracy also transfers with self-service). 7. Put the decision point where the work is performed and build controls into the process (use automated controls in the process and transfer the responsibility for checking from management to the worker). 8. Capture information once at its source (data should be entered one time where it originates and then dispersed to those who need it). Source: Hammer, M. 1990. Reengineering work: Don't automate, obliterate. Harvard Business Review 68 (4): 104-112. Contrary to BPR, BPI is incremental and evolutionary and has smaller intensity and scope. This process usually starts with study current process and identify issues that are potentially up for improvement. Some common issues with business processes are summarized in the following table. Authority ambiguity Bottlenecks Cycle time Data duplication Handoffs Intermediaries Manual steps Old ways When two or more people are providing approval, this may be unnecessary as it reeks of bureaucracy and increases cycle time of the process. When a number of information flows lead to a single activity, the process may be hindered by insufficient resources dedicated to the roles and events downstream. Bottlenecks can limit the performance or capacity of the entire system, delaying or completely stopping the process. The time consumed during the entire process flow should be at the heart of performance measurement, providing focus on the length of time it takes from start to finish. Occurs when multiple groups involved in the process begin maintaining their own separate information systems. Consequently, the same data are then kept in multiple places. Involve the transfer of responsibility from one role to another, providing the opportunity for mistakes, miscommunication, and delay. Words such as pass it by me" include an intermediary step. Consider if this step is value-added. Technology and systems could be implemented to take the place of manual steps, which are labor-intensive and add to cycle time and errors. Technology and systems are available but not used because employees have not been trained (or have been trained and do not want to use them). Employees revert to "old ways of doing things." Quality control is when someone else checks work, not when someone checks his/her own work. Is the quality control really needed? Can the work be mistake-proofed to make it impossible for the defect to pass on? Prevention is better than detection. Question whether the current process is adding, maintaining, or eliminating paper records. Storing data in electronic form is optimal as the data then become easier to share. This refers to people spending time fixing errors or remediating problems. The source of the errors should be investigated and modification to the process made to eliminate the potential for errors. Denotes lack of clarity about the expectations, norms, and behaviors associated with a particular job. Ambiguity can lead to inefficiencies in processes. Employee should not be in the position to perpetrate and to conceal fraud. In general, duties to be segregated among employees are: (1) custody of assets; (2) authorization or approval of related transactions affecting those assets; (3) recording or reporting of related transactions. Quality control Paper records Rework Role ambiguity Segregation of duties violations Source: Smith, M. L. 2010. BOLO (Be On The Lookout) List for Analyzing Process Mapping. Available at: http://www.isixsigma.com/tools-templates/process-mapping/bolo-be-lookout-list-analyzing-processmapping/ You are asked to apply the information on BPR and BPI you learned in class and content provided here to the raw materials purchasing process. For each of the issues identified (you need to identify eight of them), you need to describe a redesign that could be made to the raw materials purchasing process to improve efficiency, effectiveness, and/or internal control. Provide your answers in the table below. BPR Principle or BPI Process Issue applied Identified Abberson's raw materials (Note: you state which BPR principle or BPI purchasing process issue process issue you are applying here) (Note: by applying the BPR principle or BPI process issues stated in the left column, what issues specific to Abberson you have identified) 1. 2. 3. 4. 5. 6. 7. 8Step by Step Solution
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