Value Added Analysis in the Zapalot Case,

Value Added Analysis

In the Zapalot case, there are some processes that could stand to be improved. Value-added analysis reflects the desire to improve processes. In this case, there are several steps, several people, multiple divisions and far too much time involved. The result is that there is likely to be a significant lag between when the goods are ordered and when the unit ordering the goods receives them. There is also likely to be a substantial buildup of inventory. Thus, the objective of changes should be to reduce the amount of time between ordering and having the goods available for use; to reduce total inventory; and to reduce the risk of errors.

The first thing that stands out about this process is the lack of automation. For a company proud of "it's" (sic) innovative image, the company operates like it was the 1970s. This needs to change. Automation will facilitate many of the other necessary changes. One of the more interesting structural issues is that while ordering is not centralized, the delivery, warehousing and accounts payable functions are not. It should be investigated whether such a structure makes sense. Either the different units -- since they are all located in the same area -- can be centralized, or all the functions relating to procurement can be decentralized.

These options are important to consider. If the goods are delivered to the unit that orders them, this will reduce delays in the process. However, such an approach could create duplication of work and costs. Those costs should be balanced against the cost of the delays, however, which could be considerably more depending on how important those goods are. There may not be any advantage to centralization -- if the firm wants to operate as a set of decentralized units, it needs to embrace that. Conversely, full centralization should be met with a commitment to cross-docking, so that as soon as the Receiver/Inspector has completed the inspection, the goods are out the door to be delivered to the unit.

Even if the current structure remains the same, the process is inefficient. There are too many people involve -- a division COO, receiving clerk, shipping inspector and a pay clerk. The division COO should not be placing supply orders -- somebody lower down should be handling that task. Beyond that, the receiving clerk and shipping inspector positions should be contracted. The time lag involved in what these two people do is far too great. The goods should be inspected immediately upon arrival as part of the receiving process, using the same personnel and the same paperwork.

The paperwork process would go more smoothly with an automated system. For example, the pay clerk spends time matching the PO and RIR with the VIN. That is three pieces of paperwork. If this process was automated, a quick search function would make the matching process much quicker, especially if each PO comes with an order number that is used for all of the different forms. There is more paperwork absurdity if at this point the pay clerk notices that the PO is missing. The PO should never be missing, and if it is this should be noticed immediately by the receiver. Moreover, if the PO is missing, the request should be sent to the same person who initiated the order. At present, this is not the case, thereby causing further delays. Additionally, the request should not require a formal form -- that only slows the process down, and that form is not something that needs to be tracked. If this is done electronically, the entire process would be traceable, and would take less than a minute.

Another issue is that release of the goods should not be dependent on payment. This removes accounts payable flexibility, which is an important aspect of working capital management. As well, it creates the risk of significant delays in putting those goods to use, which increases the amount of inventory on the books. This is also poor working capital management. The goods should be released as soon as they pass inspection, and payment can be dealt with independent of the physical movement of the goods.