When companies merge, a common result is to merge their payables departments together. When this happens, the combined department will likely find that it is processing a large number of payments to different suppliers for exactly the same inventory items. This increased payables burden is caused by the retention of different part numbers by each of the merged companies for the same inventory items, resulting in duplicate reorders. Each company’s engineering department does not want to go through the painful process of identifying common parts and assigning a single part number to them, despite the significant favorable impact on such downstream functions as purchasing (fewer purchase orders), the warehouse (fewer part numbers to stock), the treasurer (less working capital) and the payables department (fewer transactions). Engineers do not like to consolidate part numbers, because they must do so with the following lengthy process:
- Develop standardized part descriptions to aid in the duplication review process
- Locate duplicate parts
- Decide on a single part number
- Mark that number on all parts currently in stock
- Invalidate all competing part numbers in the item master database
In short, if you are looking for ways to reduce the accounts payable transaction volume, get together with the managers of the purchasing, warehouse, and treasury departments, and pay a visit to the engineering manager.