High Point Living, Inc.Evaluating the need for a new Accounts Payable system and processes

The IssueTo continue offering quality products at competitive prices, several company processes need improvement.

Our focus is on the Accounts Payable department. As consultants, our job is to:

BackgroundFounded in 1882; Headquartered in High Point, NC. One of the largest fine wood/upholstered furniture producers in the US.Manufacturing/distribution facilities located in the southeastern US. Multiple sales offices maintained abroad.

Investigate the issues.Identify areas for improvement.

Make recommendations.Implement solutions.

Growing competition from overseas

is impactingthe financial bottom line!

Gathering the Facts

Interviewed Jim Payne; Accounts Payable Director

Interview Summary

Contributing factors include: Inefficient handling of paperwork.Inability to track due dates, billing cycles, and other invoice issues.Monthly reports generated with Excel, leading to reliance on outdated information during the decision making process.A flood of unnecessary vendor telephone calls.Outdated equipment currently in use.

The most pressing issue of concern for Accounts Payable is the loss of revenue resulting from late payments and fees to vendors.

Fully installed, tested, and operational prior to April 2015 furniture market season.

The project completion date is firm.

The project budget is $120,000.00.

System ScopePrimary business benefit = immediate reduction in late payments/fees to vendors.

They will gain a greater capability to compete with overseas furniture producers.

More immediate benefits include:

Ability to efficiently track materials and reconcile vendor invoices.More efficient processing of paperwork.Reduction in incoming vendor telephone inquiries.More efficient reporting process using up-to-date information.

Strengthen their position as a worldwide leader in the industry.

System CapabilitiesThe proposed new system and processes will allow:

Vendors to transmit invoices using an electronic submission process.Vendors to view/track outstanding payments.Production to directly input Purchase Orders.Accounts Payable to easily reconcile Vendor invoices and Purchase Orders.

It will further provide:

A convenient “AP Dashboard” to track invoice due dates and billing cycles.Automatic alerts to avoid late payments and fees. Up-to-date reporting for improved decision making.

The new system will maintain vendor, invoice, and payment history information to support robust data analytics.

Operational FeasibilityTop-tier management has exhibited operational support.

The proposed new system and processes will: Increase department efficiency.Reduce outside vendor demands.Enhance the corporate image.

Increased efficiency = more job satisfaction; little risk to workforce reduction.

Nominal operational risks from implementation downtime and employee training, which are reasonable and can be mitigated by:

Successful project scheduling.Adequate financial investment in employee training.

FINDINGS: The proposed new system and processes are operationally feasible, will result in a more efficiently operated department, and will provide many operational benefits.

Economic Feasibility

FINDINGS: The proposed new system and processes are sound business investments; however, financing of $120,000.00 is not economically feasible.

The proposed new system and processes include new servers, user computers, and other necessary peripherals.

Initial acquisition costs $170,000Yearly licensing fees and system support* $10,000 Facility improvements$20,000Total Cost of Ownership $200,000*(approx. 10 yr system life)

Nominal financial risk of rising costs of licensing fees and support is expected.

Tangible/Intangible Benefits:Improved efficiency.Reduced late payments and fees.Decreased information lag time.User-friendly operating environment.Increased user/vendor satisfaction.

High financial risks include: Continued loss of revenue from late payments and fees.Decreased productivity. Increased probability of losing vendors.

Technical FeasibilityCurrent technical infrastructure is inadequate for successful implementation.

The proposed new system and processes will:Provide sufficient capacity for substantial increases in data flow, transactional volume, and corporate growth.provide more than adequate performance and reliability.

Technical risks are low and include:Inability to procure necessary equipment.Inability to improve existing infrastructure.System design flaws.

FINDINGS: The proposed new system and processes are technically feasible.

Risks associated with product performance and reliability are minimal and to be expected. They can be mitigated with proper maintenance and updating.

Scheduling Feasibility

Risk mitigation measures include:Scheduling installation during “off hours” whenever possible. Creation of an easy to understand User’s Guide.Group and one-on-one employee training sessions.

FINDINGS: The proposed new system and processes schedule is feasible.

Risks associated with scheduling are minimal, expected, and include:Downtime during business hours for installation.Inadequate departmental coverage during operational hours.Employee frustration that follows the introduction of new system and processes.

The schedule provides for minor delays and provides sufficient time to accomplish the necessary tasks. As the furniture market season provides a firm end date, risks associated with project acceleration are minimal.

Event TableEVENT DESCRIPTION SOURCE TRIGGER PROCESS RESPONSE DESTINATION

Need to add new vendor to the system Accounts Payable New vendor Create Vendor Vendor creation

confirmation Accounts Payable

Need to search for a specific vendor Accounts Payable Vendor search request Lookup Vendor Vendor details Accounts Payable

Vendor information needs to be edited Accounts Payable Vendor update notice Update Vendor Vendor update confirmation Accounts Payable

Production needs to orders materials Production Purchase Order

request Create Purchase Order Purchase Order creation

confirmation; Accounts Payable notification

Production; Accounts Payable

Production needs to update purchase request Production Purchase Order update Update Purchase

Order

Purchase Order update confirmation;

Accounts Payable notification

Production; Accounts Payable

Vendor submits invoice to Accounts Payable Vendor Invoice submission Create Vendor Invoice Vendor invoice creation

confirmation Accounts Payable

Vendor inquires about invoice payment Accounts Payable Invoice inquiry request Lookup Vendor

Invoice Invoice details Accounts Payable

Accounts Payable authorizes invoice payment Accounts Payable New payment Create Payment Payment authorization

confirmation Accounts Payable

Accounts Payable updates invoice Accounts Payable Invoice update request Update Invoice Invoice update confirmation Accounts Payable

Accounts Payable inquires about payment Accounts Payable Payment search

request Lookup Payment Payment details Accounts Payable

Time to produce reports (weekly, monthly, quarterly,

yearly) “Specified date

reached” Create Reports Reports Accounts Payable

System triggers upcoming payment due auto alert “Pending payment

deadline” Create Auto Alert Alert notification Accounts Payable

Primary Data Flow Diagram

A Closer Look

LOOKUPVENDOR

Add vendor

Vendor inquiry

Confirmation

Details

ACCOUNTS PAYABLE

REP

CREATEVENDOR

ACCOUNTS PAYABLE DATA STORE

Creating the Vendor writes to the data store

Vendor lookup reads from the data store

Secondary Data Flow Diagram

Entity-Relationship Diagram

Table design is straightforward.

Primary and foreign keys clearly identifiable.

Indexing allows for quicker lookup.

Project SummaryLost revenue due to an inefficient Accounts Payable system is the basis for the System Request.

As consultants, we endeavored to thoroughly identify and examine the operational, economic, technical, and scheduling feasibility of providing a new system and processes to the Accounts Payable department of High Point Living, Inc.

Contributing to this loss of revenue:Inefficient handling of paperwork.Inability to track due dates, billing cycles, and other invoice issues.

Reporting frequency is also a concern in that critical decisions are being made using outdated information.

Final Thoughts…

High Point Living, Inc. should proceed with the new Accounts Payable system and processes as defined within the System Scope with an increased estimated budget of $200,000.00.

There are many tangible and intangible benefits.

Risks associated with this project are low.

Our Recommendation:

Overall Findings:

High Point Living, Inc.