Question:
PROCESS IMPROVEMENT/INNOVATION
Honley Company has 20 clerks that work in its accounts payable department. A study revealed the following activities and the relative time demanded by each activity: Suppose that Honley attacks the root cause of the non-valueadded activities by establishing a totally different approach to procurement called electronic data interchange (EDI). EDI gives suppliers access to Honley's online database that reveals Honley's production schedule. By knowing Honley's production schedule, suppliers can deliver the parts and supplies needed just in time for their use. When the parts are shipped, an electronic message is sent from the supplier to Honley that the shipment is en route. When the order arrives, a bar code is scanned with an electronic wand initiating payment for the goods. EDI involves no paper-no purchase orders- no receiving orders-and no invoices.
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Activities
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Percentage of
Clerical Time
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|
Comparing purchase orders and receiving orders and invoices
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15%
|
|
Resolving discrepancies among the three documents
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70
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|
Preparing checks for suppliers
|
10
|
|
Making journal entries and mailing checks
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5
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The average salary of a clerk is $30,000.
Required:
Discuss the potential effects of this solution on Honley's bill-paying process. Is this process innovation or process improvement? Explain.