Successful re-engineering at Mobil Oil Australia Ltd.
During the 1990s, an increasingly competitive world drove the use of business process re-engineering and business restructuring to improve profitability and return on capital employed.
Restructuring and downsizing took place in many organizations to reduce costs and management layers. The challenge was to structure a leaner, more customer-focused and flexible organization to meet the competitive challenges in the global economy. In the same timeframe the need for information technology business solutions enabled integrated business packages to dominate the information systems industry. Many businesses found installing integrated packages was traumatic and, following long, painful and expensive implementations, some companies had difficulty identifying any measurable benefits.
In hindsight it seems that much of the value of these large systems was in the infrastructure foundation they created for future growth based on information technology. For companies that now have integrated systems in place, the key problem is translating this infrastructure into bottom line value.
Mobil Oil Australia Limited provides an example of a business process re-engineering project, which achieved its objectives by effectively using the functionality of the enterprise resource planning system previously installed.
SAP (Systems, Applications and Products in Data Processing) had been previously installed as the core system in Mobil Oil Australia Ltd. Originally developed and marketed in Germany, SAP is an integrated international software package providing core business applications. In the 1990s the software became better known internationally and captured a large share of the integrated package market in medium and large companies throughout the world. With extensive functionality and a high level of integration, the software covers the full range of business requirements, including financial accounting and control, sales and distribution, materials and inventory management, production planning and human resources management.
Mobil Corporation (until its merger with Exxon) was a large multinational oil company, headquartered in the USA, and operating in more than one hundred countries throughout the world. Organizationally it was divided into four or five lines of business divisions, each of which was the equivalent of a multinational corporation in its own right. The lines of business divisions were in effect separate organizations under a corporate umbrella. Each division and country based business had a full range of staff support services, including information technology, legal, tax, accounting, insurance, treasury, purchasing, engineering, environment, health and safety (EH&S), etc. The top or corporate level of Mobil also had a large range of staff support services, many of which overlapped or duplicated the services in the divisions.
Mobil Oil Australia Limited was a significant asset of Mobil Corporation, employing 2,000 people, with its head office in Melbourne, two refineries, and various manufacturing facilities, plants and offices throughout the country. It was responsible for the Mobil marketing and refining interests in all states and territories of Australia, with a market share of about 20 per cent. Product was distributed to consumers by road, ship and pipeline to bulk terminals, coastal bulk plants, inland bulk plants and a network of 550 company-owned or leased service stations Australia-wide.
Initiation of the change
In view of the replication of staff support services in the divisions and at the corporate level, the president of Mobil Corporation felt there was room for rationalization and process improvement of staff support services across the company. The concept was to share staff support services between divisions and corporate, i.e. shared services, and significantly improve the processes underlying those services.
To understand best practice fully Mobil conducted a study of its worldwide organization. Consultants helped cost out and compare company business processes, internally and externally, against best practice or benchmarks.
One of the areas identified for improvement was the accounts payable process. A representative from the region was nominated by Mobil Oil Australia to join the global team in the USA to work on external benchmarking and to help devise a plan to implement improved payables processes. After three weeks the global team presented its accounts payable recommendations to be implemented worldwide.
Based on the recommendations and the key performance indicators supplied, each Mobil affiliate was expected to deliver nominated headcount savings in accounts payable. The level of savings was considered tough but achievable, although disagreement was voiced about the non-recognition of the impact on headcount in user departments of devolving some of accounts payable work back to purchasers.
Although Mobil Oil Australia had previously implemented SAP as its core business system, the payment of accounts remained heavily paper-based. A total of 15,000 paper documents were processed each month and 3,800 cheques were dispatched to suppliers. The preparation of cheques was a separate, secure activity and higher-value cheques required two signatories.
"The local accounts payable team evaluated a list of best practice recommendations and concentrated on those that were suitable for implementation locally."
In the pre-SAP environment, when a particular department required goods or services a paper-based requisition was approved and sent to a buyer in the purchasing department. The buyer prepared a purchase order and sent it to the supplier. A copy of the purchase order was filed and a copy sent to accounts payable. When the goods that were the subject of the purchase order were received, another copy of the purchase order, acknowledging receipt of the goods, was sent to accounts payable. There the goods receipt was matched with the filed copy of the purchase order. Signatures, authority levels and account coding were checked and then the documents were re-filed together to await the arrival of an invoice from the supplier. When the invoice arrived from the supplier, it was matched with the purchase order and goods receipt for quantity and price, and a cheque prepared.
The post SAP purchasing system consisted of five steps:
- create and approve requisition;
- create and approve purchase order or a call-off from an outline agreement;
- goods receipt the purchase order;
- match vendor invoice with goods receipted purchase order; and
- pay vendor.
These processes still contained a lot of filing, retrieval and matching of paper documents with the SAP transactions and re-keying vendor invoice data at the accounts payable end of the process. All this activity generated paper, paper shuffling and cost. Despite the formal purchasing mechanisms the vast majority of purchases were processed by a field buyer in the pre- and post-SAP environment without the involvement of a professional purchasing buyer.
The local accounts payable team evaluated a list of best practice recommendations and concentrated on those that were suitable for implementation locally. The primary focus was on addressing the inefficiencies in the five-step SAP purchasing process and the sources of the purchasing transactions that impacted on accounts payable. The emphasis was on electronic processing and removal of processing costs.
Although the staff were familiar with the SAP system, training was required to ensure that they understood the new processes involved in requesting goods, ensuring the right price was entered and that correct references for vendors and suppliers were used. A help desk, established at the beginning of the changeover, helped people to adjust to the new system. If employees had a question they simply called the hotline and the issue was resolved on the spot. Follow-up training was then arranged if required. The help desk proved to be a prime tool in smoothing the path to acceptance. The help desk team ensured the frontline staff continually felt supported and could pick up any process shortfalls that occurred during implementation.
Improvement to Mobil Oil Australia
The project eliminated burdensome purchasing practices, empowered employees and freed up the organization to focus on their core activities. The tedious and time-consuming “paper shuffling” jobs in the central accounts payable department were largely eliminated while service quality was improved and processes, such as the timely payments to suppliers, made more reliable.
Many cheques per month were reduced to one cheque as the bank provided one schedule for the total amount purchased on the credit cards for payment. The invoicing process for low-value purchases was effectively outsourced to the credit card supplier and thousands of invoices no longer had to be received, approved for payment, paid and filed. A purchase order was not required when using a credit card, making the purchasing process very direct, simple and quick, freeing up employees all around Australia from the paperwork hassle.
The purchasing department was no longer involved in the day-to-day purchase of routine items. Evaluated receipt settlement processing harnessed the power of the previously installed enterprise resource planning system and demonstrated to the organization that the system could be enhanced with very little additional investment to obtain significant benefits.
This project was part of a much larger venture designed to implement a global staff support model throughout the corporation and re-engineer processes to improve efficiency and lower staff support costs. The project is an example of what can be achieved through business process re-engineering even after the implementation of an enterprise resource planning system with its built-in process improvement.
As demonstrated in the case study, an installed enterprise resource planning system does not mean all process improvements have been achieved. What it can mean is that there is a powerful resource at hand which may be employed profitably to facilitate change. The savings can come with very little additional investment and business process re-engineering can still eliminate paper, reduce labour input and provide a faster, more reliable and more user-friendly system.
This is a shortened version of “Business process re-engineering pays after enterprise resource planning”, which originally appeared in Business Process Management Journal, Volume 11 Number 2.
The authors are Ian Martin and Yen Cheung, School of Business Systems, Monash University, Clayton, Australia.