Presentation given at IDS Scheer Users Conference in Philadelphia in 2001. Highlights the results from one project with the integration of Business Process Management with Operational Excellence / Six Sigma.
Key Areas to Point Out: Our presentation follows the 8-step problem solving methodology - hopefully to provide clarity and linkage from step to step.
Key Areas to Point Out: This is our Team Charter - a key first step in the 8-step problem solving methodology. Problem Statement - Financial overhead costs were too high for PNA to remain competitive with “best in class” companies in the long-term (approx. 30% total reduction necessary; confirmed by benchmarking). Customers - Shareholders / PNA Operations Review Committee. Team Objectives - Reduce Corporate Finance costs by $1.0 million in the first year and by $1.5 million in the second year. You’ll see as we go along that we’re actually beating the year 2 goal in the first year!
Key Areas to Point Out: It is important to mention that we truly had total team involvement - two major initiatives which required participation from the whole team were: 1) data collection from over 150 employees (time study), and 2) process mapping of 50 individual process maps. The magnitude of the effort by the team just to collect the data is hard to explain. It involved data for over 150 employees in up to 61 different categories of work performed. This data was then processed to form the basis for the data analysis of much of the rest of the project - including assigning costs to individual processes and the 50 process maps representing them. It could not have been done without a total team effort !
Key Areas to Point Out: This XY Matrix was one of the team’s first activities - to allow us to get started with process mapping, while the data was still being collected and crunched. It helped us prioritize where to focus with our first process maps. The data later confirmed that the top 7 sub-processes identified by the XY Matrix as being key areas for investigation were also 7 of the 9 most costly sub-processes (all identified in yellow here, except Benefits , which was not addressed by the team because it was outsourced and covered by contractual obligation).
Key Areas to Point Out: Each Finance Team member was also assigned to be a “task leader” for a sub-process - to ensure the process maps were completed quickly and included input from the process owners. This allowed the team to work on process maps throughout the Finance function simultaneously - thereby involving the whole team to get the work done faster .
Key Areas to Point Out: Even before the Finance Team, we had already steadily reduced total Corporate Finance costs by 27% over the previous three fiscal years! ($7,440M actual in FY97 to $5,453M budget in FY00) The new targets shown here represent an additional 28% targeted reduction in the two years following FY00 . ($5,453M budget in FY00 to $3,953M target in FY02) But we will see in future slides that we’re actually on track to exceed that significantly in just the first year , FY01, as a direct result of the Finance Team’s recommendations!
Key Areas to Point Out: Definition of terms: AICPA = American Institute of Certified Public Accountants The Hackett Group = Consultants specializing in Finance Q1 = First Quartile - best 25% in the sample These bars are for Finance Costs as % of Sales . Blue bars represent categories of companies - All Manufacturers, Companies with Sales similar to Pilkington NA, and All Companies. Green bars represent Pilkington NA figures (FY00 and FY01). Key point: PNA performance was already in Q1 - even before the Finance Team began looking at ways to improve performance! But we want to be best in class!
Key Areas to Point Out: These bars are for Finance Positions per $1 Billion in Sales . The comparison is very similar to the previous set of bars . Key point: Again, PNA performance was already in Q1 - even before the Finance Team began looking at ways to improve performance! But, again, we want to be best in class!
Key Areas to Point Out: Corporate Finance costs are more than twice as much of the total cost of financial services as the next closest area (OE SBU) . The burgundy bars are the sub-processes that the Finance Team actually addressed . The figure shown here for total Corporate Finance costs ($4,678M) does not tie directly to the FY00 Budget figure of $5,453, primarily due to the use of actual time estimates and salaries, as well as outsourced services which are shown separately here. It is directionally accurate and consistent with the 2nd level Pareto, which breaks it down into its component parts. (This bullet does not need to be addressed in the presentation unless a question is asked directly about it.)
Key Areas to Point Out: Most of our Root Cause Analysis and identification of opportunities for improvement was done using the 50 process maps created early on .
Key Areas to Point Out: All 50 sub-processes were mapped in a very short time span - most of them in just a few weeks. Great support work was done by just a few key IT people and people from both within and outside the core Finance team. Sub-processes were assigned costs in as much detail as possible, based on the detailed data collected from all the employees performing finance functions throughout the organization. Sub-processes were analyzed for improvement opportunities in these five categories . The VA versus NVA analysis was done in detailed sessions involving the process owners and key employees in the individual areas.
Key Areas to Point Out: This slide represents the process for resolving payment discrepancies . Left-hand side of this slide represents the three different processes for each of the three SBUs that existed prior to Finance for resolving payment discrepancies. The highlighted section on the right-hand side of the slide represents the simplified, consolidated, and standardized process to handle the same process for all three SBUs after improvements to the process were identified and implemented! Much better - Wouldn’t you agree ?
Key Areas to Point Out: Here is a topic that is near and dear to the hearts of all of you ! This slide represents a piece of the payroll process - specifically, distributing employee paychecks or direct deposit notifications . This slide represents the prior process. You can see we were paying people on Mondays, Wednesdays, Thursdays, and Fridays - every day except Tuesday ! We have since standardized and automated our payment day of the week to Tuesdays for all employees !
Key Areas to Point Out: Cover a few of them very briefly. These are some of the most significant “high-level” countermeasures . Others are still in the process of implementation.
Key Areas to Point Out: This detailed implementation plan was created for the process owners to be accountable and remain on track in implementing the recommendations of the Finance Team after the team completed its work just before the end of FY00. There was also a list of individual activities (which ultimately reached 101 activities) that preceded this implementation plan, which was used by the team to hold team members accountable for progress and to stay on course during the five months the team met on a regular basis. There is also a modified version of the implementation plan used by IT for tracking and monitoring the Finance Team’s implementation projects for completion.
Key Areas to Point Out: Read the bullets on the slide: 1) First bullet ($5,453M vs. $3,336M) 2) Second bullet ($2,117M vs. $1,000M and $2,117M vs. $1,500M) Use these statements to summarize the progression (if necessary): Original targets from the Team Charter were aggressive - cost reductions of 18% and 28% for FY01 and FY02 from the FY00 Budget. FY01 target set by the Finance Team was even more aggressive - cost reduction of 34% for FY01 from the FY00 Budget. But the actual results to-date are running even more favorable than any of the expectations - actual results are presently running at a rate of 39% lower than the FY00 Budget!
Key Areas to Point Out: Read the bullets on the slide. Stress the effort by the team to minimize risk , while still reducing costs very significantly: 1) Targeted high cost / low risk areas (using innovative process mapping) - primarily areas where transactions are heavy and there was a lower cost answer to handling volume. 2) Developed position-specific transition plans for key areas of expertise. Cost reduction is well beyond expectations set for the team. ($5,453M - $3,587M = $1,866M vs. $1,500M)
Key Areas to Point Out: Standardized processes have been implemented in several Finance areas as a result of projects initiated by the Finance Team . These three areas are some of the high volume areas mentioned earlier where standardization of processing could be leveraged to achieve cost savings .
Key Areas to Point Out: This is a Run Chart by month for the first six months of FY01 thru September - Actual vs. Budget (post-project linkage to countermeasures). It indicates that the countermeasures and implementation projects put in place to reduce finance costs have in fact met and exceeded even the aggressive expectations set out by the Finance Team .
Key Areas to Point Out: And here is the statistical proof ! We compared total monthly Corp. Finance costs for the 11 mos. immediately preceding implementation of Finance countermeasures (excl. March, which was unusually low due to year-end credits and adjustments) and the 6 mos. to-date after implementation . There is a 0% chance that the difference in the two sets of data occurred by random chance ! And for the “Six Sigma-types” in the audience who are wondering whether the sample size is large enough to prove a statistical difference from before to after . . . . . It is! A sample of 5 would have been large enough, but we have a sample of 6 .
Pilkington - Aris Presentation - 05-03-2001
Process Optimization with a Process-Centric Improvement Approach ARIS Users Conference May 3, 2001 First in Glass
Who is Pilkington North America? <ul><li>PNA is a private company </li></ul><ul><li>Owned 100% by Pilkington UK </li></ul><ul><li>North American glass company </li></ul><ul><li>Over 150 locations </li></ul><ul><li>Three SBU’s </li></ul><ul><ul><li>AGR - Auto glass aftermarket </li></ul></ul><ul><ul><li>BP - Building products </li></ul></ul><ul><ul><li>OE - Auto glass to the OEM </li></ul></ul>
PNA SBU’s <ul><li>BP (30%) </li></ul><ul><ul><li>4 large float plants </li></ul></ul><ul><ul><li>Customers - O/E, Windows and M&F </li></ul></ul><ul><li>OE (45%) </li></ul><ul><ul><li>7 Fab/modular plants </li></ul></ul><ul><ul><li>Customers - AGR, Big 3 and NNAMS </li></ul></ul><ul><li>AGR (25%) </li></ul><ul><ul><li>Large Depot/100 Wholesale sites </li></ul></ul><ul><ul><li>Customers - AGR retailers </li></ul></ul>
PNA Business Organization <ul><li>Part of largest glass organization in the world </li></ul><ul><li>Pilkington invented float glass process </li></ul><ul><li>Pilkington leader in product innovation </li></ul><ul><li>PNA has largest float tanks in N.A. </li></ul><ul><li>PNA designs/manufactures most complex auto glass </li></ul><ul><li>PNA OE business is low cost producer </li></ul><ul><li>PNA AGR has leading market share </li></ul><ul><li>PNA AGR has industry’s largest distribution facility </li></ul>
First Step Team Activities <ul><li>Data collected on work activities from 49 Corporate Finance employees in 8 departments and over 100 employees in the business units for 21 financial sub-processes (totaling 61 detailed activities) </li></ul><ul><li>Team prioritized which finance sub-process areas needed to be mapped using XY Matrix and confirmed by data collection - total of nearly 50 process maps completed </li></ul>
Root Cause by Process Modeling <ul><li>50 Level 3 and 4 process maps completed </li></ul><ul><li>40-50 people involved </li></ul><ul><li>Documented how the work is done - both “as is” and “to be” process maps </li></ul><ul><li>Sub-processes assigned costs and prioritized for improvement: </li></ul><ul><ul><li>Simplify - eliminate non-value added </li></ul></ul><ul><ul><li>Standardize - reduce variation </li></ul></ul><ul><ul><li>Consolidate - improve efficiency </li></ul></ul><ul><ul><li>Automate - reduce manual effort </li></ul></ul><ul><ul><li>Outsource - use specialized expertise </li></ul></ul>
Simplify and Consolidate Three different processes for each SBU simplified and consolidated into one
<ul><li>Eliminated NVA work and positions; reassigned some work and positions to SBUs </li></ul><ul><li>Standardized and consolidated payroll processing </li></ul><ul><li>Implemented Receipt Initiated Voucher (RIV) for AGR glass purchases </li></ul><ul><li>Decentralized processing of customer credits </li></ul><ul><li>Automated Accounting processes </li></ul><ul><li>Outsourced pension management </li></ul><ul><li>Lengthened account reconciliation cycles </li></ul>Activities and Countermeasures
Countermeasures Linked to Results Headcount reduction less than planned due to accelerated timing of Payroll centralization project (headcount addition scheduled in FY02) and A/P issues
Customer Satisfaction Results <ul><li>Running rate actual cost reduction in Corporate Finance is $2,117M from FY00 Budget to FY01 Actual to-date. </li></ul><ul><li>This is 112% better than customer expectations of $1,000M in first year and 41% better than $1,500M during first two years! </li></ul>
Summary of Results <ul><li>Goals were achieved by attacking NVA activities and processes - to realize significant cost reductions with minimal risk to the organization. </li></ul><ul><li>Cost reduction for first year is estimated at 124% of customer expectations for two years and is on target to reach or exceed the estimate! </li></ul>
Standardize Improvements <ul><li>Standardize payroll practices: </li></ul><ul><ul><li>Standardized timing of payrolls </li></ul></ul><ul><ul><li>Checks now print centrally in one format </li></ul></ul><ul><ul><li>Standardized policy for special payrolls and checks </li></ul></ul><ul><ul><li>Checks / direct deposit notifications mailed </li></ul></ul><ul><li>Standardize A/P processing (RIV) </li></ul><ul><li>Standardize credit memo processing and automate OE credit numbering system </li></ul>
Primary Metric - Post Project Actual is 7% below FY01 Budget to-date
The Proof is in the Results Two-sample T for FY00-Actual vs FY01-Actual N Mean StDev SE Mean FY00-Act 11 455.9 46.5 14 FY01-Act 6 277.8 25.5 10 Difference = mu FY00-Actual - mu FY01-Actual Estimate for difference: 178.1 95% CI for difference: (134.0, 222.1) T-Test of difference = 0 (vs not =): T-Value = 8.61 P-Value = 0.000 DF = 15 P-value of 0 indicates there is a 0% chance that the difference between the two samples occurred by random chance. The difference between the two samples is statistically significant - our countermeasures have proven effective in reducing Corporate finance costs.
The Results Continue <ul><li>Three people in A/P accepted offers for early retirement resulting in $120,000 savings per year. </li></ul><ul><li>$140,000 per year cash discounts recovered. </li></ul><ul><li>Upon completion of improvements yet to be completed, expect to recover an additional $110,000 per year. </li></ul><ul><li>With the centralization of purchasing, savings of $300,000 per year have been realized with the reduction of five people. </li></ul>
Intangible Result Also Achieved <ul><li>Auto reconciliation of A/P resulting in time savings at the end of the month. </li></ul>