What is Six Sigma?
Six Sigma is “a statistical term that measures how far a given process deviates from perfection. The central idea behind Six Sigma is that if you can measure how many “defects” you have in a process, you can systematically figure out how to eliminate them and get as close to “zero defects” as possible” (GE Website, “What is Six Sigma”). Many organizations use the techniques and tools of Six Sigma Training as a method to improve profits and quality of their products and services. The Six Sigma methodology was developed by Bill Smith, an engineer at Motorola, in 1986.
Finding a Project
During my tenure as the Lead Analyst in Logistics Finance at a local branch of a multinational corporation that had recently been trained in Six Sigma, I was assigned the task of coming up with a Six Sigma Project for the Logistics Finance Department Team. While our team had not been included in the Six Sigma Training, I had similar training in other quality control and defect reduction methods in manufacturing positions with other companies. Also, we had access to the printed training materials for the Six Sigma course.
However, since most of my experience was in the manufacturing realm, it was a real challenge to think of defect reduction in terms of Logistics Finance. Once I could adjust my thinking of a “defect” as not only a flaw in a physical product but also as a failure or shortcoming in the processes or procedures that occurred in our department, it helped me to look at things in a new way and to better prepare our team for finding a project to champion.
A Tangible Financial Return
After many hours, and a great deal of thought, we identified several departmental process failures that might qualify. But, our next challenge was to find one for the project that was measurable in terms of opportunities for improvement, while also providing a tangible financial measure of return; both were prerequisites for project approval. That eliminated all but one, which was a process that dealt with paying freight invoices, and that project gained approval. We proceeded with the project using the DMAIC Methodology.
The History of the Problem
We used a third-party freight payer who handled freight bills and payments to carriers for delivering products to our customers. Freight Bills were sent directly to our third-party payer by the carriers. The analysts in our department had access to the details of those freight bills and payments via access to the third-party’s computer system. The analyst’s job was to find and resolve any freight payment records that were suspended or rejected by the third-party payer.
My job as a lead analyst was to do a statistical audit of all freight payments to determine their accuracy and to assist in problem resolution. In a six-month period, we were experiencing a growing increase in the number of suspended records and an increase in the age of those records. This also resulted in an increasing amount of analysts’ time spent, at both the local and national level: getting the suspension issues resolved, handling carrier non-payment inquiries/complaints and the costs associated with the additional analysts’ time.
Project Goals
- To take ownership and a proactive approach at the local level
- Identify, communicate and/or correct end-user failures at our facility
- Report and follow-up on system issues that are the cause of any failures
- Reduce the number of suspended records and the associated handling costs
Scope & Definition
- Reduce the number of suspended records by 50% in a six-month period
Benefits
- Reduced analyst workload and associated costs attributable to multiple handling and aging of suspended (rejected) freight payment records handled by both the Local and National Logistics Finance Groups.
- Reduced analyst workload associated with handling carrier inquiries/complaints about non-payment of freight bills.
Measurement
- Suspended records as a percentage of total records reported in a Snapshot Report for the beginning of the month. Performance and savings are based solely on this once per month data since cumulative data is not available.
- $15 per each reduction in suspended records (amount determined based upon actual analyst time spent on suspended records divided by analyst wages & benefits.
- Baseline established using prior period January through June.
- Performance measured using actual July through December Key Performance Indicator Report statistics.
Identifying Controllable Root Causes of Suspended Records
Most of these root causes are computer system failures, related to data input and end-user errors. The next highest category of root causes is carrier related and attributable to their data input and end-users.
Incomplete Shipment Cost Document
- No rates
- Computer system weight restrictions
- Computer system tariff restrictions
Missing Shipment Cost Document
- Incomplete shipment
- Missing shipment
Missing Shipment
- Incorrect status in computer system
- Purchase order not confirmed
- Purchase order was not “goods receipted”
- Return not processed
- Truck ordered but not used
Carrier Error
- Balance due submitted incorrectly
- Accessorial charges submitted incorrectly
- Missing load ID
- Invalid load ID
Incomplete Shipment Information
- Carrier ID missing
- Shipment Cost Document execution incomplete
-
Missing delivery
Record Not Transmitted
- Electronic Data Interchange failure
- Invoice submitted early
Cost Savings
Final Performance Results
The Six Sigma Project for Logistics Finance yielded a total savings of almost $27,000 for a six-month period. While the amount saved pales in comparison to many Six Sigma projects, the project served as the springboard for our team to learn and apply the tools and concepts of Six Sigma to other areas of our department. Personally, the project provided me with the basic skills necessary to reduce waste and inefficiency to improve both internal and external customer satisfaction.
PS: For anyone interested in learning more about Six Sigma there is an excellent tutorial on the basics of Six Sigma from www.tutorialspot.com. Also, there is a wealth of other Six Sigma information available on the internet.
Reference: GE Website
