Speaker notes: Agilent is a community of inspired and innovative employees. Project results are definitely creating a Six Sigma management philosophy. In addition to the fact that more than 40% of our employees have six sigma training, Agilent also has an innovation program closely linked to the Six Sigma projects.
A cross functional Six Sigma black belt project team was formed. Our goal was to increase indirect material accrual accuracy and drastically improve efficiency. Each member on our highly focused team was empowered to represent their function or business area while contributing toward an Agilent-wide improvement. Initially we spent many hours analyzing how to decrease the large volume (34K manual JV lines) of accruals for indirect materials.
We learned from benchmarking that another company estimated everything over $100K. This allowed us to prioritize and focus on reducing the volume and then focus on accuracy. It validated our gut feel and created innovation – a completely new idea!
Benchmarking is a critical component in terms of monitoring a company's success in attaining strategic objectives and it assists in the assessment of operations issues that support those objectives. We’ll look at how Agilent Technologies used benchmarking within the Accrual Project.
When we benchmarked and shared our accrual process with our peers, we quickly learned how we could reduce the volume of accruals. Our project sponsors would have to buy into this idea. Therefore, we included our executives in the benchmarking process in order to minimize resistance to change, and win their support. We had many sponsors: one from each business. Our benchmarking learnings accelerated understanding and agreement of the real problem areas. It motivated them to consider a centralized solution and helped remove emotion from the discussion.
Benchmarking with Peers to Achieve Cost-saving Efficiencies Global Lean, Six Sigma and Business Improvement Summit Orlando, Florida October 14 - 15, 2009 Barbara Peterson GIO Six Sigma Champion Six Sigma Black Belt Lead Agilent Innovates Award Winner
Multiple, conflicting business rules and policies for accrual thresholds
Lack of information regarding owner/ invoicing/ receiving
Lack of consistency, audit trail, skills and accountability
Purchase orders created after invoice date
Lacking control edits at data entry
Incorrect need-by dates
Accrual process is complex, and highly manual
Agilent’s accrual process, or the process of determining expenses for services received by Agilent but not paid for during the month of the service, was complex, manual, and lacked consistency:
Benchmarking Led to Quantifiable Results Manually reviewed open PO lines By applying the benchmarking concepts I’ll share today, we eliminated the need to review 70% of the 34,000 open PO lines for accruals. The solution to estimate accruals under $50K (based on history) resulted in $1M annual hard cost savings over the past 12 months. All PO lines required manual review for accruals b efore applying benchmarking concepts Estimation eliminated review of 70% of the 34k open PO lines Lines in Workflow Manually reviewed open PO lines 30% PO lines required manual review for accruals a fter applying benchmarking concepts
Confusing benchmarking with participating in a survey
A survey of organizations in a similar industry to yours is not really benchmarking, whatever it may be called. Such a survey will give you some interesting numbers, but benchmarking is the process of finding out what is behind the numbers. In other words, a benchmarking survey may tell you where you rank, but it won't help you improve your position.
2. Forgetting about service delivery and customer satisfaction
Benchmarking stories abound of organizations that have become so fixated on the cost of providing their product or service that they have failed to take the customer into account. Paring down the costs often rebounds in lesser service delivery. Take a "balanced scorecard" approach when developing your benchmarking metrics.
3. The process is too large and complex to be manageable
A process is a group of tasks. A system is a group of processes. Avoid trying to benchmark a total system - it will be extremely costly, take ages, and be difficult to remain focused. Better to select one or several processes that form a part of the total system, work with it initially and then move on to the next part of the system.
4. Confusing benchmarking with research
Benchmarking presupposes that you are working on an existing process that has been in operation long enough to have some data about its effectiveness and its resource costs. Commencing a new process, such as developing a new employee handbook by collecting other people's handbooks and taking ideas from them, is research, not benchmarking.
Choosing a benchmarking topic that is not aligned with the overall strategy and goals of the business; or worse, cuts across some other initiative the organization is already taking. The project lead needs to oversee the benchmarking project and make sure that it is in line with what is happening in the business as a whole.
6. Not establishing the baseline
Going out to make benchmarking visits before you have analyzed your own process thoroughly. Benchmarking assumes that you already know your own process and its level of performance thoroughly. After all, that information is what you have to offer to your benchmarking partners in exchange for the information you are seeking from them.
Source: Anne Evans
Tips and Tricks to Achieve Breakthrough Results
Benchmark with at least 3 companies (inside and outside your industry) and 2 vendors in early in the project to discover best in class practice for the process you are improving
Discovering the best in class process up front can help ensure your project scope and goal are correct
Include sponsors and key stakeholders throughout the benchmarking process
Create a stretch goal
Design and implement the solution knowing it will be expanded and improved over time
Tool to gather goods/services received information
Workflow Process Flow PO Amount Received Calculated* E-mail Workflow Notifications Arrives Workflow Response Submitted
PO Amount Received = PO Amount Received from PO Start Date through end of current month
“ Reminder” Notification will be sent on 24th of the month to the deliver to person for POs missing a Workflow Response
“ Escalation” Workflow Notification will be sent on 27th of the month to the deliver to person’s manager if workflow response has not been submitted by 26 th of the month.
Finance Response process completed Workflow Notifications sent to PO Deliver To persons 20th of each month. PO Deliver To Person Additional Information Workflow Response Submitted March
Accrue actively AFM Update / Install PO auto close Training of PO owners on Need by Date begins Keep accruing! for in-scope NA PO> 25K & not-in-scope NA FY07 Oct FY0 8 Nov FY08 Q3 Estimation Process 78% of Lines covered expand to $50K threshold / and more NA’s added FY0 9 June Accrual Project Solution: Roadmap Estimation Process Accrue per historical accrual rate for all the in-scope NA PO<25K Individual business analyst in charge (blue) Group centralized person in charge (orange) Workflow Process Accrue based on PO owner’s received info and AP team’s invoiced info for in-scope NA PO >$ 25K Accruals only for in-scope NA PO> 50K (only 8% of total ) & not-in-scope NA (14%) NA = natural account Go live Go live Go live
Category to Accrual: Process Mapping FD&O, Inbound Freight Tax Trade Royalty Travel Third Party Commissions Utilities Rent Trade COGS/ 700001 Estimation Process (one process but booked by Group) t t LSCA OUTSOURCED SERVICES PROF. SERVICES TEMP LABOR OFFICE SUPPLIES MRO MARKETING M&E HW, SW & TELECOM EDUCATION DONATION EMG GIO < Threshold
$50K Threshold Workflow
Existing Std process Existing Std Process Existing Std Process Existing Std Process Existing Std Process No Threshold, Manual Accrual No Threshold, Manual Accrual No Threshold, Manual Accrual Fixed Assets/ Repair COGS