Question

Ford buys in about two thirds of its car parts from outside suppliers. At one time, Ford employed 500 people to order components, receive the parts and pay suppliers. Ford believed that by rationalizing procedures and installing new computer systems, it could reduce staffing levels to about 400. However, Mazda a Japanese car company, already did the same job using less than 100 staff. Even allowing for scale differences between the two organizations, the gap was enormous. The main difference was in business procedures. Mazda did not wait for invoices from its suppliers. In contrast, Ford’s purchasing department created a purchase order, a copy of which is sent to accounts payable. Subsequently, when the goods were received, goods inward sent a copy of the receiving documents to accounts payable; which also received an invoice from the supplier. It was accounts payable’s responsibility to match the purchase order against the receiving document and the invoice, then issue payment. In practice, the department spent most of its time investigating mismatches. Ford’s original idea was to use computers to streamline the investigation procedure. However, Mazda’s experience highlighted the need for a redesign of a complete business process. As a result, Ford has developed an ‘invoiceless processing’ payment system. In this system, when purchasing department raises an order, it enters information into an online database. When parts arrive at goods inward department, it enters the information into an online database. When parts arrive at goods inward department, a warehouse man waves a barcode reader over the label, entering the parts inventory and sending electronic payment to the supplier. As a result, the clerical and data processing complexity is eliminated. Through these changes, ford has achieved a 75% reduction in headcount, rather than the 20% it would have achieved had the original plan gone ahead. With reference to the Case Study above, identify and briefly explain any benefit (only one) that Ford enjoyed, or expected to have enjoyed, by adopting Mazda’s Business Handling Style. Your responses to this question should be done using the following three separate components; and clearly numbering each component. In one word, a phrase or at most one sentence, identify and state the benefit.

Answer 1

The above scenario shows the automation of purchase ordering process in Ford Company

The purchase process includes the following stages:

1. Raise a purchase order
2. Send order copy to supplier
3. Receive goods
4. Verify the copy of receiving documents
5. Verify the invoice of inward goods
6. Match the purchase order against receiving document and invoice
7. Issue the payment to supplier

Since all the process is done in different stages , the physical documents needed to be passed between various sections in the department (like warehouse, dispatch, accounts and production).This is very time consuming process and requires a lot of human effort. It was also mentioned that the investigation procedures consumed most of the time in dealing with the mismatched documents.

For this problem , Ford decided to perform all this process in a computerised procedures and rationalising the activities.The following are the key points to be observed:

• Eliminates the use of In voices
• The computerised procedure eliminated use of paper documentation rather maintained the data in an On-line database
• All the purchase orders are made online and the data regarding purchase orders is maintained in the online database
• All the inward goods information will be maintained in the online database
• The inventory management for the received shipment (goods) is automated thereby eliminating errors caused by manual data entry
• All the payments are made electronically (on-line payment).
• Reduced human effort to a maximum extent (requires 75% lesser staff than manual process )

• )

The benefit of implementing computerised purchasing system

Ford has enjoyed a benefit of reduced costs incurred for staffing of employees for manual processing in terms of time and money more than what it was expected to have. The benefits were boke down into three components as :

• Low administrative costs in processing
• Accuracy and Speed of processing
• Centralised data management

1. Low administrative costs in processing

Overall staff reduced by 75%

	Staff required
Processing done manually	500
Computerised processing	125

Staff employed for ordering (manual process)    = 500

Staff to be reduced in online processing (75% of 500) = 375

Staff required for online processing = 500-375 = 125

It is a known fact that , the lesser the staff ,the administrative control will be better.

2. Accuracy and Speed of processing

Since the data is maintained on an online data base , the data is made available to all the departments present in the company .Also , the same data can be used for inventory management and verification of inward goods.

The data entry at the inventory is done with bar code scanner so there will be fewer errors in data being updated into the database.

Since the payment transactions to the seller is done electronically, they will be immediately credited into the accounts payable thereby reducing the time involved in clearance of cheques which require few days for crediting into payable accounts.

3. Centralised data management

Since the data is stored on an on–line database ,they could be accessed by all the departments and the data is maintained consistently compared to physical documentation. Also the data could be used for Auditing whenever required.Also , if the company wants to purchase from more number of suppliers , the same infrastructure is enough which makes the processing system a scalable one