(Certified Best Practice by BMPCOE)
Rockwell Collins Avionics and Communications Division - Cedar Rapids, IA
CACD's new accounts payable process electronically matches the purchase order with the receiving document, and the system completely eliminates supplier invoices from the payment process. The Pay From Receipt (PFR) process is now standard for parts and material procurement at Rockwell CACD.
Rockwell determined that most companies pay suppliers by matching the purchase order (what to buy) with the receiving document (what is received) with the invoice from the supplier (what is delivered). These documents address the same type of data, which leads to errors. It was determined that the supplier invoice added no value to the process, and therefore was eliminated. Without this function, the supplier did not need to submit invoices CACD did not input invoices into a database, resolve problem invoices, or store invoices.
The PFR process was implemented in phases, each phase consisting of a selected number of suppliers. A brochure announcing the new PFR process to suppliers was created and distributed, and 1200 suppliers were added to the PFR process between April and July 1993. It was implemented for all production part suppliers by November 1993. Cost of implementation was $58K.
This major business change has provided dramatic savings in administrative costs while maintaining timely payments to the supplier and the integrity of the procurement process. The Accounts Payable Department has been able to perform the new payment process with five employees instead of 15. The cost per document (including information systems cost) has been reduced from $8.00 to $3.00. The PFR process has placed CACD in-house accounting staff costs reductions at a world-class level in accordance with data reported in the Commercial/Government Accounting Function Cost Comparison study by Hackett, 1992, Journal of Accountancy, October, 1993.