Process Activity Analysis The procurement process for Omni W

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 Matching M/R, R/T, and Vendor Invoice Preparing and Delivering Vendor Check Receiving, Preparing Materials Request (M/R) Preparing Purchase Order Preparing Receiving Ticket (R/T) an Selecting Vendor Bids Correcting Reconciliation Differences

Solution

a) Procurement activities Activity Cost Percent of total process cost Preparing materials request 11200 8.00% 11200/140000 Requesting, receiving and selecting vendor bids 35000 25.00% 35000/140000 Preparing purchasing order 7000 5.00% 7000/140000 Preparing receiving ticket 9800 7.00% 9800/140000 Matching M/R, R/T and invoice 14000 10.00% 14000/140000 Correcting reconciliation differences 47600 34.00% 47600/140000 Preparing and delivering vendor payment 15400 11.00% 15400/140000 Total process activity cost 140000 b) Average total process cost per vendor payment 140000/20000 7 $7 per payment assuming 20000 payments c) Procurement activities Activity Cost Activity cost after improvement Savings Activity cost savings Preparing materials request 11200 2800 11200*75% 8400 Requesting, receiving and selecting vendor bids 35000 8750 35000*75% 26250 Preparing purchasing order 7000 7000 0 Preparing receiving ticket 9800 9800 0 Matching M/R, R/T and invoice 14000 14000 0 Correcting reconciliation differences 47600 23800 47600*50% 23800 Preparing and delivering vendor payment 15400 15400 0 Total process activity cost 140000 81550 58450 d) Average total process cost per vendor payment 81550/20000 assuming 20000 payments 4.0775 $4.0775 per payment