Process Activity Analysis The procurement process for Omni Wholesale Company inc

Question

Process Activity Analysis The procurement process for Omni Wholesale Company includes a series of activities that transforms a materials requisition into a vendor check. The process begins with a request for materials. The requesting department prepares and sends a materials request form to the Purchasing Department. The Purchasing Department then places a request for a quote to vendors. Vendors prepare bids in response to the request for a quote. A vendor is selected based on the lowest bid. A purchase order to the low-bid vendor is prepared. The vendor delivers the materials to the company whereupon a receiving ticket is prepared. Payment to the vendor is authorized if the materials request form, receiving ticket, and vendor invoice are in agreement. These three documents fail to agree 50% of the time, initiating effort to reconcile the differences. Once the three documents agree, a check is issued. The process can be diagrammed as follows Requesting Receiving Preparing Preparing Materials Request (M/R) Matching /R, R/T and Vendor Invoice Delivering Vendor Purchase Order Receiving Ticket (R/T Selecting Vendor Bids Correcting Reconciliation Differences An activity analysis indicated the following activity costs with this process: Preparing materials request Requesting, receiving, and selecting vendor bids 35,000 Preparing purchase order Preparing receiving ticket Matching M/R, R/T, and invoice Correcting reconciliation differences Preparing and delivering vendor payment Total process activity cost On average, the process handles 20,000 individual requests for materials that result in 20,000 individual payments to vendors. $9,800 5,600 8,400 12,600 54,600 14,000 $140,000 Management proposes to improve this process in two ways. First, the Purchasing Department will develop a preapproved vendor list for which orders can be placed without a request for quote. It is expected that this will reduce the cost of requesting and receiving vendor bids by 70%. Second, additional training and standardization will be provided to reduce errors introduced into the materials requisition form and receiving tickets. It is expected that this will reduce the number of reconciliation differences from 50% to 30%, over an average of 20,000 payments. a. Develop a table showing the percent of individual activity cost to the total process cost. Round percentages to the nearest whole number, if required. Omni Wholesale Company Individual activity cost to the total process cost

Explanation / Answer

a. A B=(A/140000)*100 Activity % of total Procurement Activities Cost Process Cost Preparing material request $9,800 7% Requesting, receiving and selecting vendor bids $35,000 25% Preparing purchase order $5,600 4% Preparing receiving ticket $8,400 6% Matching M/R, R/T and invoice $12,600 9% Correcting reconciliation differences $54,600 39% Preparing and delivering vendor payment $14,000 10% Total process activity cost $140,000 100% b. Average total process cost per vendor payment $7.00 per vendor payment (140000/20000) c IMPROVEMENT IN ACTIVITY COST Activity Activity Activity Cost before Cost after Cost Procurement Activities Improvement Improvement Savings Preparing material request $9,800 $9,800 $0 Requesting, receiving and selecting vendor bids $35,000 $10,500 $24,500 Preparing purchase order $5,600 $5,600 $0 Preparing receiving ticket $8,400 $8,400 $0 Matching M/R, R/T and invoice $12,600 $12,600 $0 Correcting reconciliation differences $54,600 $32,760 $21,840 Preparing and delivering vendor payment $14,000 $14,000 $0 Total process activity cost $140,000 $93,660 $46,340 Cost ofRequesting, receiving and selecting vendor bids before improvement $35,000 Cost ofRequesting, receiving and selecting vendor bids after improvement $        10,500 (35000*(1-0.7) cost of Correcting reconciliation differences before improvement $54,600 Number of payments requiring reconciliation before improvement 10000 (20000*0.5) Cost per reconciliation $5.46 (54600/10000) Number of payments requiring reconciliation after improvement 6000 (20000*0.3) cost of Correcting reconciliation differences after improvement $32,760 (6000*5.46) d Average cost per vendor payment after improvement $4.68 per vendor payment (93660/20000)

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.