FORD MOTORS ACCOUNTS PAYABLE

In the early 1980s FORD was searching for ways to cut overhead
and administrative costs. One of the places FORD believed it could
reduce costs was in its Accounts Payable Department, the
organization that paid the bills submitted by suppliers.

Situation of Accounts payable department in 1980s.

North American department employed more than 500 people.
FORD executives believed by automating the existing
manual process, which would not qualify as business
reengineering, they could attain a 20% head count reduction
(bringing down the size to 400 people).

What changed FORD’s executives thinking?

FORD had recently acquired 25% stake in a Japanese company-
MAZDA. FORD executives noted that the smaller company took
care of its Accounts Payable chores with only 5 people.
Automating to achieve 20% reduction clearly would not put FORD
on cost-par with MAZDA, so the FORD executives were forced to
rethink the entire process for Accounts Payable.
The critical shift in the perspective was company can only
reengineer business process and not the administrative
organizations that have evolved to accomplish them.
“Accounts Payable” cannot be reengineered as it is not a process
but a department comprising of clerks doing paper work at the
operational level.
Learning: Reengineering must focus on redesigning a fundamental
business process, not on departments or organizational units.
Define a reengineering effort in terms of an organizational unit,
and the effort is doomed. Once a real work process is reengineered,
the shape of the organizational structure required to perform the
work will become apparent. Some departments or organizational
units may even disappear.

What FORD did a part of reengineering?

The process that FORD eventually reengineered was not
“accounts payable” but “procurement”.

FORD’s old parts acquisition process was remarkably

conventional- purchasing department sends purchase order to a
vendor, with a copy to accounts payable. Vendor shipped the
goods to FORD and the receiving clerk would complete a form and
send to accounts payable. Meanwhile, the vendor sent an invoice to
accounts payable.

Accounts payable had 3 documents relating to these parts- the

purchase order, the receiving document and the vendor invoice. If
all three matched, a clerk issues payment. But in case of FORD
clerks spent majority of time in straightening the situations where
the three documents did not match and sometimes, the resolution
required weeks of time.

In the new process clerks do not match purchase order with invoice
as the invoice was completely eliminated and FORD now had only
125 people in accounts payable.
The old process for Accounts payable in FORD
Send Purchase Order
Purchasing
Dept
IF PO, GR and Vendor
Invoice match
Send a make Payment
copy of Send
PO Match PO, Good
GR, Invoice s

Resolve conflict
Send
Invoice

Accounts Receiving
Send Goods Receipt
Payable Dock
The new Re-engineered process for Accounts Payable in FORD
Send Purchase Order
Purchasing
Dept
Vendor
Payment
Enter PO automatically
Online (1) Send Goods
released by Send
Back if does not
system Goods
match with PO

Matc
Shared Receiving
h to
database Dock
PO

(2) IF matches with PO book receipt of Goods in database