The document summarizes how Cummins Inc., a leading diesel engine manufacturer, utilized Six Sigma processes in unconventional areas like its treasury department. A Six Sigma project in the treasury department analyzed the company's debt ratio and recommended shifting some fixed-rate debt to floating-rate. This was done through DMAIC process steps like FMEA, multi-vari studies, and Monte Carlo simulation. It determined 30-40% floating rate debt minimized interest costs and volatility. An interest rate swap implemented this, saving $1 million annually through long-term risk reduction. Six Sigma has now been applied across Cummins, resulting in nearly $1 billion in savings over six years.
Small and midsize companies are experiencing some recovery from the economic downturn but expect only modest improvement in business prospects over the next year. Most companies are pursuing relatively low-risk growth strategies like increasing market penetration of existing products rather than riskier strategies. While companies relaxed their focus on profitability, most aim for sustained profitable growth going forward. Finance executives believe maintaining a lean cost structure will provide an important competitive advantage as the recovery continues. Companies have improved at managing costs over the past two years but see opportunities to get better, especially in vendor consolidation and adapting employee spending behaviors.
This document is a report that summarizes the results of a survey of 325 senior finance executives at small and midsize companies regarding cost management in the economic recovery. It finds that companies are taking a cautious, low-risk approach to growth focused on continuous cost improvement. Finance functions have become more influential in cost savings efforts. Executives plan to achieve more expansive cost savings through continuous monitoring of expenses. The sponsor's perspective is also discussed.
Small and midsize companies are experiencing some recovery from the economic downturn but expect only modest improvement in business prospects over the next year. Most companies are pursuing relatively low-risk growth strategies like increasing market penetration of existing products rather than riskier strategies. While companies previously focused on bottom-line profitability, most now aim for sustained profitable growth. Finance executives believe maintaining a lean cost structure will provide an important competitive advantage as the recovery continues. Companies have improved at managing costs over the past two years but see opportunities to get better, such as consolidating spending and adapting employee spending behaviors.
Small and midsize companies are experiencing some recovery from the economic downturn but expect only modest improvement in business prospects over the next year. Most companies are pursuing relatively low-risk growth strategies like increasing market penetration of existing products rather than riskier strategies. While companies previously focused on bottom-line profitability, most now aim for sustained profitable growth balancing top and bottom lines. Finance executives believe maintaining a lean cost structure will provide an important competitive advantage as the recovery continues. Companies have improved at managing costs over the past two years but see opportunities to further consolidate spending and help employees adapt spending behaviors.
Este documento presenta las normas y preguntas de un juego educativo para equipos. Los participantes se dividen en equipos con nombres y vocales. Deben debatir las respuestas en privado sin delatarlas. La actividad incluye preguntas sobre geografía española como la ubicación y capital de Murcia, la bandera de esta región y algunos de sus monumentos históricos.
Giving feedback is an important part of professional and personal growth. However, feedback should always be constructive, focusing on observable behaviors and their impact, rather than making personal criticisms. The giver of feedback must also seek to understand the other perspective and establish an environment where open communication and improvement is possible.
Small and midsize companies are experiencing some recovery from the economic downturn but expect only modest improvement in business prospects over the next year. Most companies are pursuing relatively low-risk growth strategies like increasing market penetration of existing products rather than riskier strategies. While companies relaxed their focus on profitability, most aim for sustained profitable growth going forward. Finance executives believe maintaining a lean cost structure will provide an important competitive advantage as the recovery continues. Companies have improved at managing costs over the past two years but see opportunities to get better, especially in vendor consolidation and adapting employee spending behaviors.
This document is a report that summarizes the results of a survey of 325 senior finance executives at small and midsize companies regarding cost management in the economic recovery. It finds that companies are taking a cautious, low-risk approach to growth focused on continuous cost improvement. Finance functions have become more influential in cost savings efforts. Executives plan to achieve more expansive cost savings through continuous monitoring of expenses. The sponsor's perspective is also discussed.
Small and midsize companies are experiencing some recovery from the economic downturn but expect only modest improvement in business prospects over the next year. Most companies are pursuing relatively low-risk growth strategies like increasing market penetration of existing products rather than riskier strategies. While companies previously focused on bottom-line profitability, most now aim for sustained profitable growth. Finance executives believe maintaining a lean cost structure will provide an important competitive advantage as the recovery continues. Companies have improved at managing costs over the past two years but see opportunities to get better, such as consolidating spending and adapting employee spending behaviors.
Small and midsize companies are experiencing some recovery from the economic downturn but expect only modest improvement in business prospects over the next year. Most companies are pursuing relatively low-risk growth strategies like increasing market penetration of existing products rather than riskier strategies. While companies previously focused on bottom-line profitability, most now aim for sustained profitable growth balancing top and bottom lines. Finance executives believe maintaining a lean cost structure will provide an important competitive advantage as the recovery continues. Companies have improved at managing costs over the past two years but see opportunities to further consolidate spending and help employees adapt spending behaviors.
Este documento presenta las normas y preguntas de un juego educativo para equipos. Los participantes se dividen en equipos con nombres y vocales. Deben debatir las respuestas en privado sin delatarlas. La actividad incluye preguntas sobre geografía española como la ubicación y capital de Murcia, la bandera de esta región y algunos de sus monumentos históricos.
Giving feedback is an important part of professional and personal growth. However, feedback should always be constructive, focusing on observable behaviors and their impact, rather than making personal criticisms. The giver of feedback must also seek to understand the other perspective and establish an environment where open communication and improvement is possible.
This document advertises an entry form to win season tickets for the 2015 Pittsburgh Baseball Saturday Plus. It also lists obituaries from the area and provides a calendar of events. The main article discusses a meeting between the Democratic candidates for mayor of Uniontown, where they addressed issues of crime rates and public safety costs in the city. A second article profiles the superintendent of the Uniontown Area School District, Dr. Charles Machesky, who has worked without pay for over three years, saving the district over $1 million.
El documento presenta información sobre tres estudiantes, Jerson Pineda, Natalia Martinez y Sebastian Peña, que cursan la carrera de Administración de Empresas en la Corporación Universitaria Minuto de Dios. Además, brinda detalles sobre el Sistema Universitario UNIMINUTO, sus objetivos y cómo esperan ser reconocidos en Colombia para el año 2012.
No próximo domingo, 4 de março, a partir das 13h, a paróquia de Padornelo realiza um cortejo de oferendas em prol das obras de restauro da igreja do Senhor Ecce Homo, convidando a participação de todas as pessoas e agradecendo antecipadamente a ajuda de todos os colaboradores.
Apply Strategic Plan EvaluationRefer back to the Week 2 compa.docxjewisonantone
Apply: Strategic Plan Evaluation
Refer back to the Week 2 company, Hoosier Media, Inc. Your consulting firm is now ready to present suggestions regarding the strategic plan of Hoosier Media, Inc.
In a 10- to 20-slide presentation with speaker notes, address the following which will be presented to the Director of Marketing:
· The best possible options for evaluating a strategic plan
· Corrective actions that should be taken to ensure company operations are correctly aligned with the strategic plan
Include the following in your presentation:
· How should the company measure organizational performance?
· How will the company examine what progress is being made toward the stated objectives?
· What criteria will be used when determining whether company objectives are measurable and verifiable?
· Based on your knowledge of the company, what changes should be made to reposition Hoosier Media competitively for the future?
Research and find 2-3 topics in current news/events
and be prepared to explain the event/news item and its relationship to
the material that we have covered in the course.
You should review papers, magazines and news feeds
to bring potential items for the group to discuss and decide on the
topics. You should then put together a slide on each item which
describes the event and demonstrates how it would impact strategic
management planning processes.
Six Sigma
The term Six Sigma, popularized by Motorola, Honeywell, and General Electric, has two meanings in TQM. In a statistical sense, it describes a process, product, or service with an extremely high capability (99.9997% accuracy). For example, if 1 million passengers pass through the St. Louis Airport with checked baggage each month, a Six Sigma program for baggage handling will result in only 3.4 passengers with misplaced luggage. The more common three-sigma program (which we address in the supplement to this chapter) would result in 2,700 passengers with misplaced bags every month. See Figure 6.4.
Six Sigma
A program to save time, improve quality, and lower costs.
The second TQM definition of Six Sigma is a program designed to reduce defects to help lower costs, save time, and improve customer satisfaction. Six Sigma is a comprehensive system—a strategy, a discipline, and a set of tools—for achieving and sustaining business success:
1. LO 6.3Explain Six Sigma
· It is a strategy because it focuses on total customer satisfaction.
· It is a discipline because it follows the formal Six Sigma Improvement Model known as DMAIC. This five-step process improvement model (1) Defines the project’s purpose, scope, and outputs and then identifies the required process information, keeping in mind the customer’s definition of quality; (2) Measures the process and collects data; (3) Analyzes the data, ensuring repeatability (the results can be duplicated) and reproducibility (others get the same result); (4) Improves, by modifying or redesigning, existing processes and procedures; a.
Six Sigma is a data-driven methodology for improving processes by eliminating defects. It involves the following key aspects:
- A structured DMAIC methodology of Define, Measure, Analyze, Improve, and Control phases to systematically solve problems.
- A focus on processes capable of producing no more than 3.4 defects per million opportunities. This is derived from operating processes with no more than six standard deviations from the mean.
- Use of statistical tools during the Analyze phase to determine root causes of defects and during the Improve phase to develop and test solutions.
- An emphasis on controlling performance through statistical process controls after improvements are made to maintain results.
This document discusses mortgage pipeline risk management. It begins by defining different types of risk associated with hedging mortgage pipelines, including interest-rate risk and fallout risk. It then provides an example of a secondary marketing report card that reviews secondary marketing operations on an ongoing basis. The report card covers areas like hedge position management, fallout analysis, and trading. It emphasizes the importance of accurately measuring performance in these areas through techniques like back-testing hedge ratios and fallout models.
Six Sigma is a statistical concept that measures quality in terms of defects per million opportunities. It aims to reduce variation and make data-driven decisions to meet customer needs. The objectives are to improve customer satisfaction, reduce cycle times and defects. Six Sigma can be applied across various business functions and uses tools like DMAIC (Define, Measure, Analyze, Improve, Control). It employs roles like Champions, Master Black Belts, Black Belts and Green Belts to lead projects and achieve a six sigma level of 3.4 defects per million opportunities.
The document discusses regulatory transformation in the financial services industry. It finds that 97% of financial services firms are undergoing some form of business transformation to align with increasing regulations. However, many firms still view the regulatory environment as a burden rather than an opportunity. The document recommends that firms take a strategic approach to transformation and define a target operating model to help turn compliance into a competitive advantage. A successful regulatory transformation requires aligning it with company culture and gaining support from leadership.
chapter 1. The Fundamentals of Managerial EconomicsKasimSadibek1
This chapter introduces the fundamentals of managerial economics. It defines managerial economics as using economics to direct scarce resources efficiently to achieve managerial goals. A manager directs resources to achieve a firm's overall goal of maximizing profits within constraints. Key principles for effective managerial decision making include identifying goals and constraints, understanding incentives and markets, recognizing the time value of money, using marginal analysis, and making data-driven decisions. Marginal analysis is used to determine the optimal level of a control variable by equating marginal benefits and marginal costs. Present value analysis accounts for the timing of costs and revenues to evaluate projects and estimate firm values.
Silverpop was seeking a sales performance management solution to accommodate its growth and scalability needs. It implemented IBM Cognos Incentive Compensation Management, which provided the flexibility to customize plans, centralized compensation data, and accelerated calculations by 70%. The new system offered sales teams enhanced access and real-time visibility into compensation.
One of the major issues in the company is the controlling of the collection period and developing optimum credit policy that minimizing the company loses, i.e how to trade off and balance between two costs, the first is carrying costs and the second is the opportunity costs of a particular credit policy. In other wards to define the point where the total credit cost is minimized.
The document discusses a 5-step process for improving ALM model assumptions in uncertain times:
1) Engage key players like ALCO to develop assumptions instead of isolating it in finance.
2) Do analytical due diligence like historical analysis to inform assumptions.
3) Combine quantitative analysis with qualitative judgment due to data limitations.
4) Stress test key assumptions to understand their impact.
5) Document the findings and assumptions process in ALCO minutes for accountability.
Following this process can help minimize mistakes and maximize model utility for strategic decision making.
Startup financial modeling class - general assembly sf -- septemer 27VentureArchetypes LLC
Financial modeling for startups workshop given at General Assembly class in San Francisco by Nathan Beckord, CFA, Founder of www.VentureArchetypes.com. Part of a 3-part series on raising startup capital.
This document provides an introduction to the concepts and methodology of Six Sigma. It discusses how Six Sigma originated from efforts to improve quality at Motorola and other companies in the 1980s-1990s. Six Sigma aims to reduce defects to 3.4 per million opportunities through a data-driven approach to process improvement. The DMAIC methodology involves defining a process problem, measuring key aspects, analyzing sources of variation, improving the process, and controlling changes. Wide adoption of Six Sigma led to significant financial benefits and quality improvements for early adopters like Motorola, GE, and Allied Signal.
Case study-Strategic Evaluation for Launching SMS Channel on Mailchimp.pdfSubrat Kumar Dash
How Intuit can use SMS solution of Mailchimp to provide A2P messageing to SMB players and add another reveune stream.
In summary, the strategic evaluation presents a compelling opportunity to launch an SMS channel on Mailchimp, aligned with the company's mission and Intuit's purpose in acquiring Mailchimp. By addressing customer pain points and leveraging QuickBooks' customer base, the solution aims to enhance customer engagement, streamline financial processes, and drive revenue growth.
Activity-based management was implemented at First Tennessee National Corporation, a regional bank, 8 years prior. It initially improved profits by $750,000 and by 1994 had increased total profits to almost $11 million, with potential to double that annually by 2000. The bank used activity-based costing to replace an earlier product costing system, providing more useful information to management to control costs and increase profits. Activity-based costing helped examine resource consumption and identify that 30% of customers were providing 88% of profits, while 30% of customers were being serviced at a loss. The bank made changes to address this, like minimum balances and new products.
This document advertises an entry form to win season tickets for the 2015 Pittsburgh Baseball Saturday Plus. It also lists obituaries from the area and provides a calendar of events. The main article discusses a meeting between the Democratic candidates for mayor of Uniontown, where they addressed issues of crime rates and public safety costs in the city. A second article profiles the superintendent of the Uniontown Area School District, Dr. Charles Machesky, who has worked without pay for over three years, saving the district over $1 million.
El documento presenta información sobre tres estudiantes, Jerson Pineda, Natalia Martinez y Sebastian Peña, que cursan la carrera de Administración de Empresas en la Corporación Universitaria Minuto de Dios. Además, brinda detalles sobre el Sistema Universitario UNIMINUTO, sus objetivos y cómo esperan ser reconocidos en Colombia para el año 2012.
No próximo domingo, 4 de março, a partir das 13h, a paróquia de Padornelo realiza um cortejo de oferendas em prol das obras de restauro da igreja do Senhor Ecce Homo, convidando a participação de todas as pessoas e agradecendo antecipadamente a ajuda de todos os colaboradores.
Apply Strategic Plan EvaluationRefer back to the Week 2 compa.docxjewisonantone
Apply: Strategic Plan Evaluation
Refer back to the Week 2 company, Hoosier Media, Inc. Your consulting firm is now ready to present suggestions regarding the strategic plan of Hoosier Media, Inc.
In a 10- to 20-slide presentation with speaker notes, address the following which will be presented to the Director of Marketing:
· The best possible options for evaluating a strategic plan
· Corrective actions that should be taken to ensure company operations are correctly aligned with the strategic plan
Include the following in your presentation:
· How should the company measure organizational performance?
· How will the company examine what progress is being made toward the stated objectives?
· What criteria will be used when determining whether company objectives are measurable and verifiable?
· Based on your knowledge of the company, what changes should be made to reposition Hoosier Media competitively for the future?
Research and find 2-3 topics in current news/events
and be prepared to explain the event/news item and its relationship to
the material that we have covered in the course.
You should review papers, magazines and news feeds
to bring potential items for the group to discuss and decide on the
topics. You should then put together a slide on each item which
describes the event and demonstrates how it would impact strategic
management planning processes.
Six Sigma
The term Six Sigma, popularized by Motorola, Honeywell, and General Electric, has two meanings in TQM. In a statistical sense, it describes a process, product, or service with an extremely high capability (99.9997% accuracy). For example, if 1 million passengers pass through the St. Louis Airport with checked baggage each month, a Six Sigma program for baggage handling will result in only 3.4 passengers with misplaced luggage. The more common three-sigma program (which we address in the supplement to this chapter) would result in 2,700 passengers with misplaced bags every month. See Figure 6.4.
Six Sigma
A program to save time, improve quality, and lower costs.
The second TQM definition of Six Sigma is a program designed to reduce defects to help lower costs, save time, and improve customer satisfaction. Six Sigma is a comprehensive system—a strategy, a discipline, and a set of tools—for achieving and sustaining business success:
1. LO 6.3Explain Six Sigma
· It is a strategy because it focuses on total customer satisfaction.
· It is a discipline because it follows the formal Six Sigma Improvement Model known as DMAIC. This five-step process improvement model (1) Defines the project’s purpose, scope, and outputs and then identifies the required process information, keeping in mind the customer’s definition of quality; (2) Measures the process and collects data; (3) Analyzes the data, ensuring repeatability (the results can be duplicated) and reproducibility (others get the same result); (4) Improves, by modifying or redesigning, existing processes and procedures; a.
Six Sigma is a data-driven methodology for improving processes by eliminating defects. It involves the following key aspects:
- A structured DMAIC methodology of Define, Measure, Analyze, Improve, and Control phases to systematically solve problems.
- A focus on processes capable of producing no more than 3.4 defects per million opportunities. This is derived from operating processes with no more than six standard deviations from the mean.
- Use of statistical tools during the Analyze phase to determine root causes of defects and during the Improve phase to develop and test solutions.
- An emphasis on controlling performance through statistical process controls after improvements are made to maintain results.
This document discusses mortgage pipeline risk management. It begins by defining different types of risk associated with hedging mortgage pipelines, including interest-rate risk and fallout risk. It then provides an example of a secondary marketing report card that reviews secondary marketing operations on an ongoing basis. The report card covers areas like hedge position management, fallout analysis, and trading. It emphasizes the importance of accurately measuring performance in these areas through techniques like back-testing hedge ratios and fallout models.
Six Sigma is a statistical concept that measures quality in terms of defects per million opportunities. It aims to reduce variation and make data-driven decisions to meet customer needs. The objectives are to improve customer satisfaction, reduce cycle times and defects. Six Sigma can be applied across various business functions and uses tools like DMAIC (Define, Measure, Analyze, Improve, Control). It employs roles like Champions, Master Black Belts, Black Belts and Green Belts to lead projects and achieve a six sigma level of 3.4 defects per million opportunities.
The document discusses regulatory transformation in the financial services industry. It finds that 97% of financial services firms are undergoing some form of business transformation to align with increasing regulations. However, many firms still view the regulatory environment as a burden rather than an opportunity. The document recommends that firms take a strategic approach to transformation and define a target operating model to help turn compliance into a competitive advantage. A successful regulatory transformation requires aligning it with company culture and gaining support from leadership.
chapter 1. The Fundamentals of Managerial EconomicsKasimSadibek1
This chapter introduces the fundamentals of managerial economics. It defines managerial economics as using economics to direct scarce resources efficiently to achieve managerial goals. A manager directs resources to achieve a firm's overall goal of maximizing profits within constraints. Key principles for effective managerial decision making include identifying goals and constraints, understanding incentives and markets, recognizing the time value of money, using marginal analysis, and making data-driven decisions. Marginal analysis is used to determine the optimal level of a control variable by equating marginal benefits and marginal costs. Present value analysis accounts for the timing of costs and revenues to evaluate projects and estimate firm values.
Silverpop was seeking a sales performance management solution to accommodate its growth and scalability needs. It implemented IBM Cognos Incentive Compensation Management, which provided the flexibility to customize plans, centralized compensation data, and accelerated calculations by 70%. The new system offered sales teams enhanced access and real-time visibility into compensation.
One of the major issues in the company is the controlling of the collection period and developing optimum credit policy that minimizing the company loses, i.e how to trade off and balance between two costs, the first is carrying costs and the second is the opportunity costs of a particular credit policy. In other wards to define the point where the total credit cost is minimized.
The document discusses a 5-step process for improving ALM model assumptions in uncertain times:
1) Engage key players like ALCO to develop assumptions instead of isolating it in finance.
2) Do analytical due diligence like historical analysis to inform assumptions.
3) Combine quantitative analysis with qualitative judgment due to data limitations.
4) Stress test key assumptions to understand their impact.
5) Document the findings and assumptions process in ALCO minutes for accountability.
Following this process can help minimize mistakes and maximize model utility for strategic decision making.
Startup financial modeling class - general assembly sf -- septemer 27VentureArchetypes LLC
Financial modeling for startups workshop given at General Assembly class in San Francisco by Nathan Beckord, CFA, Founder of www.VentureArchetypes.com. Part of a 3-part series on raising startup capital.
This document provides an introduction to the concepts and methodology of Six Sigma. It discusses how Six Sigma originated from efforts to improve quality at Motorola and other companies in the 1980s-1990s. Six Sigma aims to reduce defects to 3.4 per million opportunities through a data-driven approach to process improvement. The DMAIC methodology involves defining a process problem, measuring key aspects, analyzing sources of variation, improving the process, and controlling changes. Wide adoption of Six Sigma led to significant financial benefits and quality improvements for early adopters like Motorola, GE, and Allied Signal.
Case study-Strategic Evaluation for Launching SMS Channel on Mailchimp.pdfSubrat Kumar Dash
How Intuit can use SMS solution of Mailchimp to provide A2P messageing to SMB players and add another reveune stream.
In summary, the strategic evaluation presents a compelling opportunity to launch an SMS channel on Mailchimp, aligned with the company's mission and Intuit's purpose in acquiring Mailchimp. By addressing customer pain points and leveraging QuickBooks' customer base, the solution aims to enhance customer engagement, streamline financial processes, and drive revenue growth.
Activity-based management was implemented at First Tennessee National Corporation, a regional bank, 8 years prior. It initially improved profits by $750,000 and by 1994 had increased total profits to almost $11 million, with potential to double that annually by 2000. The bank used activity-based costing to replace an earlier product costing system, providing more useful information to management to control costs and increase profits. Activity-based costing helped examine resource consumption and identify that 30% of customers were providing 88% of profits, while 30% of customers were being serviced at a loss. The bank made changes to address this, like minimum balances and new products.
The document discusses implementing Six Sigma in service industries. It explains that while manufacturing processes directly measure outputs like thickness or width, service processes can also be quantified by measuring factors like call handling time or calls attended per day. A company's accounts department found errors in vouchers were a major customer complaint. Analyzing sample vouchers found a defect rate of 30,000 parts per million, equivalent to a 3.35 sigma level. To improve, the company would identify the most critical quality factors, find the root causes of defects, design solutions, implement them, and verify improvements through ongoing audits.
Six Sigma is a highly disciplined process that helps companies focus on developing and delivering near-perfect products and services. It is a statistical term that measures how far a given process deviates from perfection, with the goal of striving for as close to zero defects as possible. Major companies that implemented Six Sigma like Motorola, General Electric, and Honeywell saw significant financial benefits through increased profits and cost savings of 15-40% of sales by reducing process variability. Six Sigma provides a framework called DMAIC (Define, Measure, Analyze, Improve, Control) to help companies redesign processes in a rigorous way to drive out defects.
Six Sigma is a highly disciplined process that helps companies focus on developing and delivering near-perfect products and services. It aims to measure and reduce defects and variation in processes by using statistical methods. The central idea is that if you can measure defects in a process, you can systematically figure out how to eliminate them and get as close to zero defects as possible. Motorola first developed Six Sigma in the 1980s and it has since been adopted by many other companies to significantly improve customer satisfaction and increase profits by reducing variability.
This document discusses innovation in financial modeling. It provides examples of existing financial models like the FICO credit score and Black-Scholes model. Innovation aims to address shortcomings in these models by accounting for more variables and qualitative factors. The document outlines goals for new financial models, such as improving accuracy, and provides examples of innovative modeling techniques in areas like neural networks, shadow banking, and pricing/hedging methods.
The document discusses estimating a hurdle rate to evaluate projects using net present value, internal rate of return, and other capital budgeting methods. It is preferable to using subjective "gut feelings". The document also discusses assumptions used to estimate the weighted average cost of capital, and whether the cost of capital could change over time due to factors like changes in the firm's risk level, interest rates, or investor preferences.
The document provides an overview of Six Sigma, including:
1) Six Sigma is a data-driven approach to process improvement that aims to reduce defects. It uses statistical tools and methodology applied to projects selected for high impact.
2) Major companies like GE and Motorola have successfully adopted Six Sigma, achieving significant cost savings and quality improvements.
3) Six Sigma aims for near-perfect processes, with less than 3.4 defects per million opportunities. Achieving six sigma quality levels can have substantial financial benefits for companies.
Similar to Six Sigma Minimizes Long-Term Interest Rate Risk (20)
1. The American Society for Quality ■ www.asq.org Page 1 of 4
Making the Case for Quality
• Cummins Inc., a leading
manufacturer of diesel
engines, utilizes Six Sigma
in virtually every facet of its
worldwide operations,
saving nearly $1 billion in
six years.
• Employees in Cummins’
treasury department, a
nontraditional area for Six
Sigma, have embraced Six
Sigma, using it to make a
recommendation to
optimize the company’s
ratio of fixed- to floating-
rate debt.
• A Green Belt project
employing the DMAIC
process resulted in an
interest rate swap that
saves Cummins $1 million
annually through a long-
term risk reduction strategy.
At a Glance . . .
Cummins Capitalizes on Six Sigma to
Minimize Long-Term Interest Rate Risk
Groundbreaking Use of Six Sigma in Capital Markets
When Cummins Inc. took a leap of faith nearly six years ago in labeling Six Sigma as the process
improvement methodology for the company, top leadership meant the entire company, not just the
engineering departments and the shop floors where their renowned diesel engines are produced. At
Cummins, the scope of Six Sigma extends well beyond typical manufacturing operations—it branches
from the legal department to manufacturing to human resources and even to the treasury department,
where innovative employees are saving the company millions of dollars by conducting Six Sigma
projects to reduce earnings volatility and to lower interest rate expenses.
About Cummins Inc.
Established in 1919, Cummins is a global power leader that designs, manufactures, sells, and services
diesel engines and related technology. Cummins serves its customers through a network of 550
company-owned and independent distributor facilities and 5,000 dealer locations in more than 160
countries and territories. The company enjoyed its most profitable year in 2005, earning $550 million
on sales of nearly $10 billion, due in part to its far-reaching Six Sigma initiative.
To date, Cummins has:
• More than 5,000 Six Sigma projects completed, resulting in nearly $1 billion in savings,
• 3,700 employees who have taken Six Sigma training,
• 500 Black Belts, and
• 65 Master Black Belts.
Can Six Sigma Improve Treasury Processes?
The treasury department at Cummins’ Columbus, Indiana, headquarters is divided into two segments:
cash management and capital markets. Within the capital markets group, three employees serve two
primary functions: corporate finance and risk management, which include managing the interest rates
on the company’s debt.
Until recently, virtually 100% of Cummins’ debt was at a fixed interest rate rather than a floating rate.
Historically, floating-rate debt is less expensive than fixed, so a change to the company’s financial strat-
egy by shifting some of the debt to a floating rate provided a potential opportunity to minimize
earnings volatility.
by Janet Jacobsen
2. While a few previous attempts were made to “swap” interest
rates when rates were low, these were short-term tactics con-
ducted with a specific savings goal in mind rather than as a
longer-term risk reduction strategy—until Cummins sent Craig
S. Moore, a new employee in the treasury department, to the
company’s Six Sigma training program.
Moore, now the manager of the capital markets group in the
treasury department, was anxious to begin the four, one-week
internal Six Sigma training sessions after studying former
General Electric (GE) CEO
Jack Welch’s writings, which
detailed GE’s success with
Six Sigma. Early in the train-
ing Moore began to envision
using Six Sigma tools to
devise a recommendation
on the company’s fixed- to
floating-rate debt ratio.
“Part of our goal tree for our department was to reduce risk,
which fits with our company mission to grow profitable, stable
earnings. This (Six Sigma project) was one way for treasury to
contribute to that initiative by reducing risk and helping to
reduce variability in our business results,” Moore explains.
Utilizing the DMAIC Process to Reduce Financial Risk
Moore, with his sponsor, Dean Cantrell, embarked on the
Fixed/Floating Strategy Green Belt Six Sigma project in
December 2004, following the define, measure, analyze,
improve, and control (DMAIC) process that is widely used
throughout Cummins’ worldwide Six Sigma initiative.
Moore’s ultimate goal was to execute an interest rate swap on
a company debt instrument (which mirrored a long-term bond
that was issued by Cummins) utilizing Six Sigma tools. He
viewed this rate swap not as merely a savings tool, but rather
as a risk-reducing strategy that would become part of
Cummins’ capital framework.
His first step was to define the opportunity, which in this case
was finding the right percentage of floating-rate debt for the
company’s balance sheet. “No one had ever done that analysis
before to say what is the right percentage. Zero wasn’t correct,
but no one knew the right amount,” Moore recalls.
The measurement phase for this project was a very straightfor-
ward process, according to Moore. He merely validated the
current interest rate status, which showed that an overwhelming
majority of the debt was at a fixed rate. This step also included
reviewing debt on and off the balance sheet to confirm that a
majority of Cummins’ debt was at a fixed interest rate.
It was during the analyze and improve stages that Moore, a
finance expert who was new to quality tools before joining
Cummins, was ultimately able to use some of the tools he’d stud-
ied during his belt training. “I finally realized that I didn’t have
to use all of the tools in the Six Sigma bag; the objective was the
DMAIC steps. Once I realized that I didn’t have to use every
tool, only those that applied to my project, Six Sigma became
easier,” he notes.
In addition to process mapping and cause-and-effects matrices,
Moore used the following tools for his groundbreaking Six
Sigma project:
• Failure mode and effects analysis (FMEA)
• Multi-vari studies
• Monte Carlo simulation
FMEA
Moore conducted an FMEA to detect potential obstacles that
could develop during the interest rate swap transaction. He
reports that one key issue identified during this analysis was the
possibility of not receiving the desired short-cut accounting treat-
ment: He didn’t want the accounting staff to be required to
document effectiveness each quarter on this transaction because
it is such a tedious process.
By identifying this issue before setting up negotiations with
financial institutions to carry out the transaction, Moore was able
to work through this potential obstacle up front and thus save
time and money down the road. “This was an area where Six
Sigma was very useful as we were able to identify key issues and
work through them with our accountants ahead of time. We had
everyone on board with the proper accounting before we even
began talking to banks,” notes Moore.
Multi-Vari Analysis
Moore also ran a regression analysis of Cummins’ earnings to
interest rate cycles. As shown in Figure 1, a high correlation
existed between earnings and interest rates. He notes that during
times of higher earnings the company should theoretically be
able to support higher interest rates; and conversely during
slower economic times, the Federal Reserve typically lowers
interest rates. “What this correlation told us was that it doesn’t
make sense to have 100% fixed rates,” recalls Moore.
In another multi-vari analysis Moore studied historical interest
rate cycles as depicted in Figure 2. Here the forward curve or the
orange line shows where interest rate traders predict that interest
rates will stand in two to three years or more. The blue line rep-
resents actual interest rates under the London Interbank Offer
Rate (LIBOR). As the chart indicates, interest rate traders nor-
mally overpredict where interest rates will be by approximately
75 basis points. “If they say interest rates are going to be 6% in
the future, it actually is more likely to be 5.25%, so there’s
opportunity there to generate some savings,” says Moore.
Monte Carlo Simulation
The multi-vari studies determined a strong rationale for having a
floating-rate debt, but the next obvious question was, How much
floating-rate debt should Cummins have on the balance sheet?
The American Society for Quality ■ www.asq.org Page 2 of 4
For an overview of Six Sigma at
Cummins, see the case study “Six
Sigma Saves Nearly $1 Billion, Key
Customers, and a Company.”
3. Thus a Monte Carlo simulation was conducted with hundreds of
different interest rate scenarios to chart interest expenses on a
“y” axis and volatility on an “x” axis.
This analysis determined the optimal fixed- to floating-rate ratio
for Cummins by creating an efficient frontier curve as shown in
Figure 3. “On this curve, you minimize the average volatility and
your interest rate expense when you are roughly between a 30%
to 40% floating rate. This is how we were able to determine the
right percentage for Cummins,” explains Moore.
Of course the final step in the DMAIC process focuses on con-
trolling or sustaining the gains that were achieved. Moore says
that he was able to put a control plan in place by looking back at
the results of the FMEA. Cummins was extraordinarily prepared
before negotiating with banks and was quite specific about how
it wanted to complete the deal because the potential failures were
addressed in detail ahead of time.
The long-term control plan now involves a quarterly review of
the balance sheet to review the fixed- to floating-rate ratio and
ensure that Cummins’ finances remain in the target range as
determined by the analysis for this project.
The American Society for Quality ■ www.asq.org Page 3 of 4
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Jan-88 Oct-91 Jul-95 Apr-99 Jan-03 Oct-06 Jul-10
Historical Forward 3m London Interbank Offer Rates
3m forward curve (orange lines)
3m LIBOR spot (blue line)
Yield
The forward curve generally overpredicts where London Interbank Offer Rate (LIBOR)
actually sets interest rates.
Figure 2 Historical Floating/Forward Rate Analysis
Figure 3 Fixed/Floating Rates Achieve Risk
Diversification
The efficient frontier demonstrates that combining fixed and floating
debt can reduce interest expense volatility as well as cost.
• The fixed-floating “efficient frontier” is a graphical representation of
the tradeoff between the interest expense and volatility of a mixed
portfolio of fixed- and floating-rate debt.
• A portfolio of 100% fixed-rate debt has the highest cost, while a portfolio
of 100% floating-rate debt has the lowest cost and highest volatility.
• However, the relationship is not straight-line, as overall volatility is
reduced by combining two instruments that are not perfectly correlated.
• The tradeoff between fixed and floating is therefore one of interest
cost versus interest expense certainty.
Higher risk
Higher
cost
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
5.5%
5.7%
5.9%
6.1%
6.3%
6.5%
6.7%
6.9%
7.1%
7.3%
7.5%
4% 6% 8% 10% 12% 14% 16% 18% 20%
Average volatility
Interestexpense
100% Fixed
100% Floating
Current portfolio
Target portfolio
Minimum risk:
40% floating
Rates since 1968: U.S. 3m T-Bills vs. 10-year bonds.
Assumes 10% of portfolio is refinanced every year.
Figure 1 Cummins’ Earnings Before Interest/Interest
Rate Correlation
Observations
• Cummins’ earnings before interest (EBIT) versus interest rates:
• EBIT and average one-year London Interbank Offer Rate (LIBOR)
have shown a positive correlation over the past business cycle.
• 1992–2003: r2
= 0.84
Observations
• Cummins’ change in EBIT versus change in interest rates:
• LIBOR levels have been very low compared with the historical trends
since 1992.
• Correlation between annual percentage change in interest rates and EBIT:
• 1992–2003: r2
= 0.48
Earnings Before Interest (EBIT) Versus London Interbank Offer Rate (LIBOR)
0
500
1,000
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
0
200
400
600
LIBOR EBIT
One-yearLIBOR(bps)
EBIT(USDmm)
Financial year end
Change in EBIT Versus % Change in LIBOR
(100)%
(80)%
(60)%
(40)%
(20)%
0%
20%
40%
60%
80%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
(150)%
(100)%
(50)%
0%
50%
100%% change in LIBOR Change in EBIT
Annualpercentagechange
inoneyearLIBOR
EBITchange
Financial year end
*based on lognormal changes
4. Rate Swap Saves Money, Reduces Risk
Once the project received approval from the Cummins’ board of
directors in spring 2005, financial market conditions were such
that a brief hold was placed on the execution of the interest rate
swap until the market shifted back to a desired point. Ultimately
the rate swap was completed in late 2005, shifting approximately
30% of Cummins debt to a floating rate of interest.
According to Moore, the company will save an average of more
than $1 million per year until the debt instrument’s maturity date.
He calculates this savings based on the average interest rate in the
last 15 years versus the Cummins’ interest rate for this transaction.
Moore says that these results met company expectations and
accomplished the project’s goals. “The results were substantial
and one of the best things to come out of this was a risk-reducing
strategy, which fits within our overall mission,” he notes.
Jump Start for Future Projects
Moore credits the fixed/floating rate project for putting a positive
spin on Six Sigma in a nontraditional setting. “It broke through
the mental barrier people have in thinking Six Sigma is only for
manufacturing and doesn’t apply to nonmanufacturing roles like
treasury,” he says.
Now on his sixth Green Belt project, Moore sees growing
acceptance for Six Sigma in the finance area. He reports that the
cash operations area has really taken Six Sigma to the next level
and they have a hopper of Six Sigma projects with at least 16
potential ideas.
“We’ve really adopted Six Sigma and it is now a part of the
DNA of the treasury department. Once we successfully com-
pleted the first project, people then realized how it could apply to
them and improve decision making in addition to building
stronger processes and controls,” states Moore.
For More Information
• To learn more about Cummins’ groundbreaking fixed/floating
interest rate Six Sigma project, contact Green Belt Craig
Moore via e-mail at craig.s.moore@cummins.com.
• For more information about Cummins Inc., visit the com-
pany’s Web site at www.cummins.com.
• Read the companion case studies to this piece:
•• Six Sigma Saves Nearly $1 Billion, Key Customers, and
a Company
•• Cummins Six Sigma Project Results in a Smoother Ride
for Dodge Ram Pickup
Contributing to This Article
Craig S. Moore is manager of the capital markets group in
Cummins’ treasury department. A certified treasury professional,
Moore earned his MBA from DePaul University. Moore is a Six
Sigma Green Belt and has participated in 11 Six Sigma projects
at Cummins in his two years with the company.
About the Author
Janet Jacobsen is a freelance writer specializing in quality and
compliance topics. A graduate of Drake University, she resides
in Cedar Rapids, Iowa.
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