Published: January 01, 2000
Union Pacific Corporation is one of America’s leading transportation companies. Its principal operating company, Union Pacific Railroad, is North America’s premier railroad franchise, covering 23 states across the western two-thirds of the United States. With 25,000 customers, including steamship lines, vehicle manufacturers, agricultural companies, utilities, intermodal companies and chemical manufacturers, Union Pacific processes a very large volume of cheques each year. Historically, the company had outsourced its cheque processing and imaging to its bank, but with nearly two million keystrokes per month, this was costly. In addition, Union Pacific had a vast array of different remittance formats, resulting in issues with accuracy and timeliness of cheque processing.
The company is constantly seeking opportunities to enhance process efficiency, and reliability, and reduce costs. Automating and optimising cheque processing offered an ideal way to achieve these objectives, with a substantial return on investment (ROI).
Initially, the team approached a variety of third-party cheque processing companies but found that they did not meet their needs for a variety of reasons. In some cases, they did not meet the full diversity of their remittance data requirements, some provided a broader solution with a range of associated functionality that they did not require, while others did not enable the solution to be tailored sufficiently to their needs. Consequently, the team researched what would be required to build an in-house solution, and the degree to which this could be tailored to meet Union Pacific’s specific requirements. As a result of this evaluation, Accounting made the decision to bring cheque processing and imaging in-house.
The Accounting and IT teams then worked together to acquire a specialist software tool that they could adapt to their own needs. Unlike other large companies, Union Pacific has maintained its IT department in-house, which provided the programming, implementation and maintenance for the new application. This included developing more than 2,400 templates for remittance data to cover the large number of exceptions that the firm processes. In the future, this number is likely to increase significantly. A process of constant feedback and refinement has ensured that the technical delivery has been in line with the business requirements and template specifications.
The implementation and roll-out was a structured process, starting with a prototype to demonstrate proof of concept and build trust and confidence amongst the team. This was followed by a full solution build and rigorous testing, with a phased roll-out, starting with a single lockbox followed by the remaining ones.[[[PAGE]]]
Support from senior accounting executives has been a key element in driving the project forward and enabling it to be prioritised compared with other initiatives. A strong element of Union Pacific’s business culture is demonstrating best practices in efficiency and control, and this project enabled the team to realise this objective.
Having made the decision to commit funding and resources to project, building trust between IT and Accounting was essential, so that all parties had confidence and commitment that an in-house cheque processing and imaging tool was feasible. Union Pacific has a highly reputable IT team with a strong track record in developing successful solutions that are specifically suited to meeting the company’s needs. In addition, the development team had experience of building OCR solutions that further built credibility and trust.
Maintaining team morale, professionalism and familiarity with the solution has been an essential factor in the success of the project. There has been consistently strong support from across the team, with a particular emphasis on internal training to ensure that the Accounting department was able to gain the maximum benefit from the solution, with the greatest degree of transparency. Building a solution with a view to enhancing processes is more motivating than implementing a pre-existing solution, as there is a greater sense of ownership and accountability. The project benefited from continuity of personnel, with a small dedicated team combining Accounting and IT.
The most difficult challenge to overcome has been image quality. To increase the percentage of matches, the team had to develop a process to determine which items were a close match, with built-in logic to enforce matches where image quality has impacted a value. Building an in-house solution has been highly advantageous in this respect as bespoke processes and logic could be defined to automate matching as far as possible.
The company has now been managing its cheque processing and imaging in-house since January 1 2012 for one of its larger lockboxes, with its four remaining ones subsequently added. By implementing a bespoke, in-house solution, the outcomes have already been considerable, whilst enabling the Accounting department’s needs to be met exactly. Cash application processes are less resource-intensive, freeing up one FTE for other tasks. The ability to customise templates based on customer remittance detail has improved the accuracy of processing considerably, which will be refined further as more templates are developed. As processes are scheduled to run as soon as images are available, cash application can be completed more quickly than in the past when it was performed manually. Finally, external costs have been reduced as the cost of data keying by the bank has been eliminated.
Despite insourcing cheque processing, and therefore reducing the total amount of business with its bank, Bank of America Merrill Lynch, Union Pacific’s relationship with the bank has continued to strengthen. The two organisations have a long, successful history of collaboration, and working together on this project has placed the relationship on a more strategic footing, as opposed to focusing predominantly on day-to-day operational issues.[[[PAGE]]]
Building a solution is not an easy decision to make, and will not always be the best solution in every situation. The easiest option, typically, is to maintain the status quo and therefore do nothing. If that is not feasible, acquiring a pre-existing solution is the next easiest thing to do. Taking the risk to build is not a decision all leaders will make. To be successful, it is important to understand the business case and requirements in detail, and to be realistic about the team’s strengths and weaknesses. There have been cases where Union Pacific’s team has had the expertise to build custom solutions, but still made the decision to buy or outsource. In situations where a custom solution appears to be the right one, having explored all other options, but there is not sufficient expertise or capacity in-house, working with a third party contractor may help to address this. However a custom solution is managed, the most effective driver of success is co-operation between the group that will use the solution and the team that develops it.
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