Payment Time Case Study
Major consulting firms such as Accenture, Ernst & Young Consulting, and Deloitte & Touche Consulting employ statistical analysis to assess the effectiveness of the systems they design for their customers. In this case, a consulting firm has developed an electronic billing system for a Stockton, CA, trucking company. The system sends invoices electronically to each customers computer and allows customers to easily check and correct errors. It is hoped the new billing system will substantially reduce the amount of time it takes customers to make payments. Typical payment timesmeasured from the date on an invoice to the date payment is receivedusing the trucking companys old billing system had been 39 days or more. This exceeded the industry standard payment time of 30 days.
The new billing system does not automatically compute the payment time for each invoice because there is no continuing need for this information. The management consulting firm believes the new system will reduce the mean bill payment time by more than 50 percent. The mean payment time using the old billing system was approximately equal to, but no less than, 39 days. Therefore, if µ denotes the new mean payment time, the consulting firm believes that µ will be less than 19.5 days. Therefore, to assess the systems effectiveness (whether µ < 19.5 days), the consulting firm selects a random sample of 65 invoices from the 7,823 invoices processed during the first three months of the new systems operation. Whereas this is the ï¬rst time the consulting company has installed an electronic billing system in a trucking company, the ï¬rm has installed electronic billing systems in other types of companies.
Analysis of results from these other companies show, although the population mean payment time varies from company to company, the population standard deviation of payment times is the same for different companies and equals 4.2 days. The payment times for the 65 sample invoices are manually determined and are given in the Excel® spreadsheet named The Payment Time Case. If this sample can be used to establish that new billing system substantially reduces payment times, the consulting firm plans to market the system to other trucking firms.
