Case Study: Time and Motion in the Invoicing Process

There are two definitive types of business that can benefit from a continuous improvement project: businesses that have undergone acquisitions and secondly businesses that rely on manual processes solely dependant on human interaction - this particular case study killed two birds with one stone.

THE PROBLEM

Following a fairly recent acquisition, this small consultancy had undergone a number of changes, significantly impacting the operational aspect of the business and in particular the migration of most of the finance function to Head Office.

Previously, all invoicing, purchasing and management accounting had been done in house by a qualified finance manager - upon acquisition that role had been transmuted into a wider reaching operations role, with some of the finance functions now handled by Head Office such as creation of the management accounts, while much of the finance admin now handled at sub office level by a newly appointed operations manager.

It became clearly evident that the invoice process currently in place was not supporting the business in the way that it was intended for a number of reasons, it was suspected that the invoice process was taking too long and that manual data entry processes were creating errors on invoices that created rework - overall this was causing a number of issues within the business, cash flow into the business was suffering as invoices were not being issued/paid as , quickly as they should have been. There was not a single finance system that handled sending of invoices and monitoring cash flow, it was done with inputting into several spreadsheets and sending pdf invoices from email addresses. Not only was there a failure in the process, but there was also impact created by people, a stretched operations manager responsible for all areas of the business and an under resourced Head Office team meant that animosity for errors made on both sides was creating a culture of blame, there was a lack of communication of when any of these internal customers would be served and therefore a lack of certainty across the whole process.

ANALYSIS

To really get to the thrux of the matter and to manage the soft “people” skills in a manner that was compassionate to both parties, it was clear that a data driven approach should be sought, with several problem solving tools at hand it was clear to define the following:

How long was the invoice process actually taking on average?
In what areas was the invoice process taking too long?
If invoices were being rejected, what was the reject rate and for what reason were they being rejected?


Time and motion study

A time and motion study was taken across a sample of invoices across a 3 month timespan, the reason for this is that the bulk of invoicing took place on a monthly basis and reports from employees were that there were many variables that would affect the process (e.g. employees absence, annual leave)

The process looked like this (this was based on the operations manager successfully gathering all information required for invoicing already): 

In conjunction with the time and motion study, we also conducted a simple reject analysis to determine over the 3 month testing period how many invoices were being sent and for what reasons.

Over the 3 month time span 102 invoices were sent, with 5 invoices being sent back over that time period (4.9 % of invoices sent were rejected, much higher than a 6 Sigma requirement of 99.99999999991% success goal).

While this may not seem like a high number of rejects the financial totals of those invoices were in excess of £60k, which is unacceptable for a business that has forecasted that number into incoming revenue.

We simply looked at each invoice and the cause for the rejection, which looked like this:

A further issue to the reject analysis above, was that to rework an invoice it had to be pushed through exactly the same invoice process as above, by adding credit notes and reinvoices through the same 7 day process, just further compounding the cash flow issue. 

THE SOLUTION

Working within a workshop environment with the process owners, we mapped out all the possible solutions. Cost was a highly contentious issue and there was reticence to invest further in a system without understanding the current functionality that was currently in place. There are also concerns about having untrained staff using the system.

The overall solution was to train more key employees on the current invoicing system and utilise the “sub office” or “departments' ' functionality within it with restricted permissions and with the ability for Head Office to be able to oversee all the invoice transactions that were being entered.

By allowing employees to create their own invoices directly from the system and negating the use of spreadsheet inputs it would minimise manual data entry and over processing time, invoices were sent directly from the system and a CRM integration which pulled out billing address data was implemented, again further removing the need to enter this information into a spreadsheet.

All parties have access to the system (with varying permission levels) so all parties can see the financial reports in real time and provide adequate checks and balances.

The reviewed and implemented process looked like this: