Accounts Payable Revenue Generation Project Example - MFT 2005 05 PDF
Accounts Payable Revenue Generation Project Example - MFT 2005 05 PDF
M A G A Z I N E
T H E F I N A L T O L L G AT E
Accounts Payable
Revenue Generation
Projects
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T H E F I N A L T O L L G AT E
Accounts Payable
Revenue Generation
Project
BY JACKIE CAZAR
The Final Tollgate features a Six Sigma project as it would presentation. It is assumed that the project leader has been
be presented to a panel of company executives at the final making regular presentations at each tollgate and that the
project review. The objectives of such a presentation are to executives in the audience have a basic understanding of
1) communicate significant results of the project, 2) share Six Sigma. The content for this project was assembled for
highlights of how results were achieved and 3) gain agree- illustration purposes. It is based on fabricated data from a
ment to close the project. The slides are the Black Belt’s fictional company. Any similarities to an actual project are
visual presentation and the accompanying text is the verbal coincidental.
Do you have an exemplary Six Sigma project to share? Would you like to see it here? Submit it to us at isixsigma.com/submit
DEFINE D M A I C
SIPOC Analysis
Supplier Input Process Output Customer
Prompt-Paid Vendors Purchase Orders 2% Discount Prompt-Paid Vendors
Buyers Invoices Check
Marketing Receipt Date
Accounts Payable 10-Day Policy
System
Stamp Classify and Match Invoice Process Calculate Take 2% Issue Mail
Receipt Date Scan Invoice and PO Invoice Due Date Discount Check Check
MEASURE D M A I C
Percent
50
Count
40
One buyer produced 67% of all PO defects.
“Quick hit” fix cut rate to 10%.
20 Vital Xs Not Found in:
0 0 • Purchase order processing
Defect B1 B2 B3 B4 B5 B6 B7 B8 B9 B10 B11 B12 B13 B14
• Vendor defects
Percent 67 5 4 3 3 2 2 2 2 2 2 2 1 5
Cumulative % 67 71 75 78 81 83 85 87 89 90 92 94 95 100 Focus on Payment Cycle Time
chase order and invoice information. the non-normal nature of the data, the process capability
The fishbone exercise highlighted the need for a meas- analysis was based on a Weibull distribution model.
urement system to accurately collect and track the cycle As another approach to narrowing the efforts of the
time for paying invoices from beginning to end. After team, we performed benchmarking among the 28 vendors
implementing a tracking system, the company hired a and 24 buyers to determine if there were differences in the
temporary contractor for three months to collect that data. way invoices and purchase orders are processed between
Simultaneously, to validate the measurement system, a vendors and buyers, respectively.
Gage R&R was performed, which showed a 63 percent No differences were found among vendors; however,
effectiveness rate for the newly implemented measurement we found that one buyer produced 67 percent of the total
system. The team identified that the date stamped on the defects affecting the submission of purchase orders.
invoice was illegible, causing inaccuracies in the data col- Although we calculated that purchase order errors
lection process. The team recommended changing the explained only 16 percent of the overall defect on lost dis-
mechanism to stamp the receipt date on the invoices. counts – and thus, was not a primary factor to pursue for
After a three-month data collection period (represent- the root cause of our problem – we thought it was impor-
ing 648 invoices) using the improved measurement sys- tant to address the unusually high defect rate from the one
tem, the team performed an updated baseline process buyer immediately. After a series of meetings with the
capability analysis that showed a DPMO of 310,185 buyer’s manager, a new procedure was established that
(Sigma=2.0). resulted in an 85 percent reduction of the buyer’s contri-
Through this analysis, the team also discovered that the bution to the purchase order defects.
data was not normally distributed: the majority of invoices
were paid (using the median) within seven days, with an Analyze (Slide 3)
overall range of one to 42 days. Thus, our data distribution Given the fact that neither the vendors nor the buyers
showed a positive skew. A cycle time distribution with a alone contributed to the large variation on the discount
lower bound at zero is generally non-normal and provided lost, the team decided to focus primarily on the cycle time
a flag for the team to watch in our analysis. To account for for processing invoices. We were also influenced by the
ANALYZE D M A I C
IMPROVE D M A I C
Percent
Count
CONTROL D M A I C
Proportion
0.4 P = 0.3963
• Train additional staff on new control limits 0.3 -3.0SL = 0.2974
• Create automatic monthly control charts and reports 0.2
• Monitor process for three more months 0.1
0.0
Test and Confidence Interval for Two Proportions
Sample X N Sample p 0 5 10
1 1735 3695 0.469553
2 98 930 0.105376 Final Q&A
Estimate for p(1) - p(2): 0.364177 • Is the improves process statistically better than
95% CI for p(1) - p(2): (0.338714, 0.389640)
Test for p(1) - p(2) = 0 (vs not = 0): Z = 28.03 P-Value = 0.000
the old process? YES!
• Is the discount lost with Six Sigma statistically
Test and Confidence Interval for Two Proportions lower than without Six Sigma? YES!
Sample X N Sample p
1 1735 3695 0.469553
2 98 930 0.105376 Final Capability
Estimate for p(1) - p(2): 0.364177 DPMO: 105,376
95% CI for p(1) - p(2): (0.338714, 0.389640)
Test for p(1) - p(2) = 0 (vs > 0): Z = 28.03 P-Value = 0.000 Sigma: 2.75