Lean Six Sigma Initiative Manual Invoice Processing 2005

Lean Six Sigma Initiative Manual Invoice Processing © 2005 Broad. Source, Inc.

DEFINITIONS Lean Six Sigma • Eliminate non-value-add activities • Eliminate waste • Just in Time (JIT) delivery; customer pull • Improve quality • Reduce defects • “Voice of the customer” – meeting customer requirements • “Voice of the data” – data driven problem solving Lean can be used to: – Eliminate excess inventory – Reduce waiting time or delay – Create continuous flow Six Sigma can be used to: – Reduce number of defects per opportunity – Reduce variation in a process © 2007 Broad. Source, Inc. 2

DMAIC METHODOLOGY Improve Define – state the problem in a measurable way – identify the key output (Y) Measure – collect data to understand current process – identify possible inputs (X’s) to the Y – identify possible solutions – assess risks – pilot and implement Control – document lessons learned – implement ongoing measurement – quantify improvement Analyze – document the process – narrow down the inputs (X’s) © 2007 Broad. Source, Inc. 3

INITIATIVE OVERVIEW Lean Eliminate business non-value-add activities Eliminate waste Create continuous flow Use Customer A as a pilot Six Sigma • • Then… • • Improve process once GSG has completed several iterations of data entry Reduce variation Reduce number of defects Roll out to all customers © 2007 Broad. Source, Inc. 4

DEFINE Problem Statement • Problem Statement - Account Managers spent 26% of their time from 12/19/2005 to 10/26/2006 processing manual invoices which takes time away from finding savings opportunities for customers. • Goal Statement – Account Managers will spend no more than 5% of their time processing manual invoices by 6/30/07 • Voice of the Customer – Decreasing Account Management time on non-value add or business non-value add tasks and increasing time on value-add tasks will increase customer satisfaction. • Potential Financial Benefit – Increase revenue – Reduce costs – Ability to scale Operations © 2007 Broad. Source, Inc. 5

DEFINE SIPOC Diagram Suppliers Inputs Providers of the Resources Required Paper Invoice or file within Email/Web page Carrier Process Requirements High Level Process Description Process Deliverables Data entry resource External customer Customer input (phone calls, MACDs, etc. ) Account management (associations/new account) Charge Management Allocations Batch invoices into AP record Scanner hardware Preparation of manual invoices Customers Requirements Stakeholders Data entry resource trained on process and One. Source Invoice is defect free and accurate (availability of document) Acct Mgr Inventory creation Data entry of manual invoice Acct Mgr Outputs Process Manual Invoice modeled in One. Source View Invoice page resembles manual invoice External Customer specific reqts. for AP report content AP report Frequency of batching Resources to handle volume Data entry resource trained on process and One. Source Data entry into One. Source Check issuer (e. g. Next Process) One. Source allows preview of AP report Review for accuracy and completeness © 2007 Broad. Source, Inc. AP report File manual invoice 6

MEASURE Historical Work Tracker Data Date range – 12/19/05 to 10/26/06 Task Value add? Hours Implementation BNVA 2151. 67 Invoice Processing-Manual BNVA 1753. 41 VA 1080. 23 BNVA 346. 17 Customer Service VA 322. 83 Dispute Management VA 260. 50 Invoice Processing-Electronic BNVA 258. 83 Opening-Sorting Mail BNVA 227. 25 Data Updates and Support VA 214. 08 Ongoing New Bill/Inventory Setup VA 106. 58 Optimization (Post Audit) VA 56. 50 Billing BNVA 51. 42 Audit VA 23. 83 Order Management VA 8. 00 = directly impacts revenue BNVA 2. 00 = related to manual invoice processing Account Management Other Internal Activities Documentation © 2007 Broad. Source, Inc. VA – value-add BNVA – business non-value add NVA – non value-add 7

MEASURE Account Managers were spending - © 2007 Broad. Source, Inc. • 26% of their time on “manual invoice processing” • 5% of their time on tasks that directly impact revenue 8

MEASURE Good candidate for pilot © 2007 Broad. Source, Inc. 9

MEASURE Old Tasks New Tasks Account Management (includes hours from old Order Management) Audit Billing Customer Service Data Updates and Support Post Implementation Bill/Inventory Updates (includes hours from Ongoing New Bill/Inventory Setup) Dispute Management (obsolete) Documentation Implementation Invoice Processing-Electronic Invoice Processing-Manual Ongoing New Bill/Inventory Setup (obsolete) Opening-Sorting Mail Optimization (Post Audit) Optimization and Disputes for Savings (includes hours from Dispute Management) Order Management (obsolete) Other Internal Activities How reliable is Work Tracker data? • Confusion on using “Invoice Processing – Manual” or “Account Management” for time spent on AP report creation. • Operations “re-worked” Work Tracker tasks and re-trained each Account Manager on entering his/her time. = related to manual invoice processing © 2007 Broad. Source, Inc. 10

ANALYZE Final Value Add Analysis Date range – 12/19/05 to 10/26/06 Old Tasks New Tasks Value add? Implementation BNVA 2198. 17 Invoice Processing-Manual BNVA 1807. 58 Account Management (includes hours from old Order Management) VA 1122. 57 Other Internal Activities BNVA 360. 00 Customer Service VA 346. 58 Optimization (Post Audit) Optimization and Disputes for Savings (includes hours from Dispute Management) VA 341. 33 Data Updates and Support Post Implementation Bill/Inventory Updates (includes hours from Ongoing New Bill/Inventory Setup) VA 334. 75 Invoice Processing-Electronic BNVA 261. 33 Opening-Sorting Mail BNVA 227. 25 Billing BNVA 66. 50 Audit VA 23. 83 Documentation BNVA Dispute Management (obsolete) = directly impacts revenue Ongoing New Bill/Inventory Setup (obsolete) = related to manual invoice processing Order Management (obsolete) Hours VA – value-add BNVA – business non-value add NVA – non value-add 2. 00 © 2007 Broad. Source, Inc. 11

ANALYZE Detailed Process Map (from SIPOC diagram) Preparation of manual invoices Open mail Data entry into One. Source Create bill in One. Source Review for accuracy and completeness AP report File manual invoice Stamp invoice with receipt date Add invoice Review View Invoice page in One. Source Create AP record Organize invoices by carrier and due date Add new accounts Add / Edit inventory (if applicable) Add / Edit associations (if applicable) Add / Edit charges (if applicable) Repeat for each invoice Review Manage Audits page for Query for unassociated accounts pending invoices and unallocated cost centers Add invoices to AP record Generate AP report (daily) Invoices filed © 2007 Broad. Source, Inc. 12

ANALYZE Detailed Process Map (from SIPOC diagram) Preparation of manual invoices Open mail Data entry into One. Source Create bill in One. Source Review for accuracy and completeness AP report File manual invoice Stamp invoice with receipt date Add invoice Review View Invoice page in One. Source Create AP record Organize invoices by carrier and due date Add new accounts Add / Edit inventory (if applicable) Add / Edit associations (if applicable) Add / Edit charges (if applicable) Outsourced steps Review Manage Audits page for Query for unassociated accounts pending invoices and unallocated cost centers Add invoices to AP record Generate AP report (daily) Invoices filed © 2007 Broad. Source, Inc. 13

IMPROVE New Customer A “Pilot” Process Map Preparation of manual invoices Data entry into One. Source Review for accuracy and completeness AP report File manual invoice BSI opens mail BSI stamps invoice with receipt date GSG creates invoice log GSG enters manual invoices (by 8 am EST) GSG Quality Control resource checks invoices on invoice log BSI creates AP record BSI organizes invoices by carrier and due date BSI scans Customer A invoices BSI FTP’s pdf files to GSG and emails notice (by 5 pm EST) GSG updates status and bill notes on invoice log GSG Quality Control updates status and bill notes on invoice log BSI reviews Manage Audits page for unassociated accounts and unallocated cost centers GSG email invoice log to BSI by 8 am EST BSI queries for pending invoices BSI reviews issues on invoice log and corrects problems BSI adds invoices to AP record BSI generates AP report (daily) BSI files invoices © 2007 Broad. Source, Inc. 14

IMPROVE FMEA exercise Failure Mode and Effect Analysis – brainstormed what could go wrong (defects) before Customer A pilot started and possible solutions to mitigate the risks Process Step / Input BSI sends invoices to GSG by 5 pm our time Potential Failure Mode GSG does not receive all of the invoices (or incomplete invoices) Potential Failure Effects S E V invoice not entered into One. Source; 7 invoice gets paid late; BSI rework Potential Causes Elaina fails to transmit all of the invoices O C C 2 Current Controls none D E T 10 R P N 140 Action Missing Invoices Report (brand new bills 'may' slip through the cracks) Elaina will notify GSG of her invoice count - then GSG will reconcile © 2007 Broad. Source, Inc. Resp Elaina Actions Taken / Timing S O D R E C E P V C T N Jen to train Elaina week of 11/13/06 7 1 1 7 15

IMPROVE GSG started processing manual invoices in Nov 06. © 2007 Broad. Source, Inc. 16

CONTROL Lessons Learned • Regular communication needed between GSG and BSI • One. Source enhancements needed – “QC Complete” invoice status – invoice “requires attention” flag • Need another Work Tracker bucket for “GSG Review” © 2007 Broad. Source, Inc. 17

CONTROL Control Plan Date "Manual Invoice Processing" Hrs Total Hrs Monthly % Sample Mean (%) Sample Std Deviation (%) Lower Control Limit (%) Upper Control Limit (%) 6/15/2007 14 160 8. 75% 6. 78% 2. 93% 0. 00% 15. 58% 7/1/2007 13 159 8. 18% 6. 78% 2. 93% 0. 00% 15. 58% 7/15/2007 17 157 10. 83% 6. 78% 2. 93% 0. 00% 15. 58% 8/1/2007 14 157 8. 92% 6. 78% 2. 93% 0. 00% 15. 58% 8/15/2007 12 159 7. 55% 6. 78% 2. 93% 0. 00% 15. 58% ……. © 2007 Broad. Source, Inc. 18

CONTROL Financial Benefit Known data: Data Source BSI Account Manager average hourly rate = $X Director of Operations GSG resource average hourly rate = $Y Director of Operations BSI average time per invoice = 5 min / invoice Work Tracker GSG average time per invoice = 8 min / invoice Timesheets provided by GSG during pilot phase Average number of manual invoices for Customer A per month = 1400 One. Source Production database query Assumptions: • The average number of invoice for Customer A per month will not fluctuate greatly • BSI could not reduce its “time per invoice” metric without outsourcing the work Savings: • $22, 196. 96 per year for Customer A © 2007 Broad. Source, Inc. 19

DEFINE Problem Statement • Problem Statement – GSG throughput rate for manual invoice processing for the Customer A pilot of 7. 5 invoices per hour (8 minutes per invoice) is too low. BSI is fearful that some invoices will not be entered into One. Source in a timely fashion. This could delay the Account Managers creating customer’s AP reports which would result in late payment of invoices. • Goal Statement – – GSG will achieve a throughput rate of 12 invoices per hour by 9/30/2007 for all customers • Voice of the Customer – External customers require timely AP reports. GSG processing more invoices per day would reduce risk of not having invoices in One. Source that need to be tied to an AP report • Potential Financial Benefit – A higher throughput rate would decrease BSI’s costs and increase the total financial benefit from outsourcing manual invoice processing © 2007 Broad. Source, Inc. 20