A Fortune 500 company pays invoices to more than 70,000 vendors
worldwide. The scope of this project, however, represents
28 “prompt-paid” vendors, who invoice over $100 million
annually. Each of these 28 prompt-paid vendors offers a two-percent
discount on their invoice to us if our company
processes that invoice within 10 business days. Over the last
two years, the company has not taken advantage of an average
of 50 percent of these available discounts, representing
nearly one million dollars lost annually in potential savings.
For the purpose of this project, the process begins
when the invoice is stamped by the marketing department
as received and ends when the check for payment is
issued and mailed by the accounts payable (AP) system.
This is also how the elapsed time is calculated for meeting
the 10-day requirement for discount eligibility.
An initial high-level analysis on cycle time data provided
by the AP system showed that although some invoices
were paid in nine days, others took 223 days. Obviously
the existing process contained a high degree of variation.
At the end of the project, the improved process was turned over to the process
owner and the finance department signed off on an incremental
annual benefit from this project of $800,000. This
means that the prompt-paid invoice payment process now
realizes a total of $1.78 million dollars in annualized hard
savings for the company. The solution improved the ability to take the two-percent
discount from 469,553 DPMO, or 1.58 Sigma,
to 105,376 DPMO, or 2.75 Sigma, representing an overall
78 percent improvement to the process.