LT, Inc. LT, Inc. started as a small, family-owned company. For a long time, owners managed...

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LT, Inc. LT, Inc. started as a small, family-owned company. For a long time, owners managed most of the operations, including billing, and customers were happy Over time, the company grew steadily and acquired plants in the United States and many other countries. Most of its operations were departmentalized, and the accounting systems varied among the many companies LT acquired. While LT successfully dealt with most of the problems caused by rapid growth, it remained unable to get a grip on billing errors. The customer service and billing departments were often flooded with complaints about erroneous bills. The billing process at LT evolved over time, resulting in a lack of consistency among billing personnel. Customer order taking and billing procedures were confusing, inadequate and obsolete. Not all billing clerks had the same level of knowledge and training. A lack of documentation added to the confusion and aggravated the situation. Billing personnel followed the policies and procedures they thought were reasonable and did things the way they felt was right. To get a handle on its billing problem, LT appointed a Six Sigma team comprised of employees with various interdisciplinary backgrounds and expertise. The team discussed the problem, researched Six Sigma and lean tools and techniques, learned from other companies and consulted with experts in the field. The first thing the team did was study the billing process and prepare a flowchart (see Figure 9.26). The team then reviewed how billing errors were resolved Most scenarios followed a similar path: A customer calls to inquire about a bill and listens to a pre-recorded message with menu options. The customer listens to several options that don't describe their particular problem and gets frustrated when the system only deals with select inquiries. After several minutes, the customer finally gets to speak to a customer service representative, but only after being put on hold or bounced from one representative to another, forcing the customer to repeat the problem several times. Finally, the customer is assured the problem will be corrected, only to have the next month bring the same bill, the same error, the same complaint, the same aggravation and, in the end, the loss of an annoyed customer. Figure 9.26. Flowchart of LT Billing Process Telephone Mail Orders received Salesperson Order preparation Order verification Order complete? Yes No New customer Yes Set up customer account No Accounting prepares invoice Order sent to accounting and shipping Shipping checks stock No Items Yes in stock Back order placed Shipment made Source: Reprinted with permission from Lakshmi U. Tatikonda, "A Less Costly Billing Process," Quality Progress, January 2008, 31-39. Copyright 2008 American Society for Quality. No further distribution allowed without permission. A further study revealed many different types of billing errors: A further study revealed many different types of billing errors: Bills with wrong prices and charges Bills sent to the wrong customer Bills sent to the wrong address Double billing and late billing Billing for unordered goods Billing for returned goods Billing before the goods were shipped Using cause-and-effect diagrams, the Six Sigma team brainstormed potential causes and explored them in depth (see Figure 9.27). A Pareto analysis showed that 70 percent of the errors were due to an incorrect amount on the bill or billing for unordered goods. Figure 9.27. Cause-and-Effect Diagram for Billing Errors Data input Wrong information Wrong file mounting from order processing Billing clerks Lack of training Misunderstanding of instructions Order entry unclear Lack of supervision Infrequent price update Wrong data entry Obsolete database Failure to follow Carelessness corporate billing procedures Inadequate communication between sales, order processing, and billing departments Outdated procedures Unclear instructions Lack of bill authorization Lack of order taking verification Lack of data verification No written procedures Lack of feedback Lack of controls Procedures Controls Erroneous billings Source: Adapted from Lakshmi U. Tatikonda, "A Less Costly Billing Process," Quality Progress, January 2008, 31-39. Copyright 2008 American Society for Quality. Reprinted by permission. To gain a better understanding of the sources of communication errors, the team members decided to walk through the billing activities. Customer orders arrived via mail, fax and phone. At each step, they were batched and queued for processing. The main steps included order taking (folders made for each customer), order preparation (current and new customers sorted, information added), order pricing, shipping, and billing. Table 9.5 provides a detailed description of the activities. Data and Activities included in the Bining Process Customer Orders via mail, fax, phone, and e-mail. Average daily orders: 200/day Central mailroom Receive outside mail. Sort according to departments. Put in boxes. Deliver to departments. Stamp postage and send outgoing mail. Order taking Receive orders from customers and central mailroom. Open customer mail orders. Record customer phone orders on paper. Sort all orders by customer name and stamp date. Prepare folders with customer order information. Move batch of customer orders to order preparation once a day. Credit check Check customer credit once a week. Add credit status to folders. Sort customers according to acceptable and not acceptable credit. Batch and move the sorted folders to billing. Order Preparation Receive folders with customer order information. Sort folders according to new and current customers. Send new customer folders to data processing. Receive new customer folders from data processing. Move customers order folders to order verification. Receive folders from order verification. Make two copies of customer order folders. Send one copy of the order to shipping and one copy to billing. Data processing Receive new customer folders from order taking. Batch the folders, assign a customer number and create customer record. Add new customer number and other information to customer folders. Batch customer folders to order preparation once a day. Order verification Receive customer order folders from order preparation. Check stock availability. Make price estimates. Add price estimates to customer order folder. Move the folders to order preparation once a day. Billing Receive copy of customer order folders from order preparation. Send new customer folders to credit check. Receive customer folders from credit check with credit status. Sort the customer folders according to acceptable and not acceptable credit. Send the customer folders with not acceptable status back to order takers. Send the acceptable customer folders to sales tax department. Receive customer folders from sales tax. Calculate the total amount (purchases, taxes) to bill. Enter all the necessary data into computer and print invoices twice a month. Address envelopes, fold, insert invoices and close. Move the envelopes to central mailroom twice a day. Shipping Receive customer order folders from other preparation. Pick and pack the items in the order. Print and paste address labels on the boxes. Ship the packages twice a day. Using the information provided, outline specific steps that you would recommend to improve the process. Include a list of performance metrics that you would recommend that the company monitor in the future to track the efficiency and effectiveness of the process. Summarize your results in a formal report to the company's management. LT, Inc. LT, Inc. started as a small, family-owned company. For a long time, owners managed most of the operations, including billing, and customers were happy Over time, the company grew steadily and acquired plants in the United States and many other countries. Most of its operations were departmentalized, and the accounting systems varied among the many companies LT acquired. While LT successfully dealt with most of the problems caused by rapid growth, it remained unable to get a grip on billing errors. The customer service and billing departments were often flooded with complaints about erroneous bills. The billing process at LT evolved over time, resulting in a lack of consistency among billing personnel. Customer order taking and billing procedures were confusing, inadequate and obsolete. Not all billing clerks had the same level of knowledge and training. A lack of documentation added to the confusion and aggravated the situation. Billing personnel followed the policies and procedures they thought were reasonable and did things the way they felt was right. To get a handle on its billing problem, LT appointed a Six Sigma team comprised of employees with various interdisciplinary backgrounds and expertise. The team discussed the problem, researched Six Sigma and lean tools and techniques, learned from other companies and consulted with experts in the field. The first thing the team did was study the billing process and prepare a flowchart (see Figure 9.26). The team then reviewed how billing errors were resolved Most scenarios followed a similar path: A customer calls to inquire about a bill and listens to a pre-recorded message with menu options. The customer listens to several options that don't describe their particular problem and gets frustrated when the system only deals with select inquiries. After several minutes, the customer finally gets to speak to a customer service representative, but only after being put on hold or bounced from one representative to another, forcing the customer to repeat the problem several times. Finally, the customer is assured the problem will be corrected, only to have the next month bring the same bill, the same error, the same complaint, the same aggravation and, in the end, the loss of an annoyed customer. Figure 9.26. Flowchart of LT Billing Process Telephone Mail Orders received Salesperson Order preparation Order verification Order complete? Yes No New customer Yes Set up customer account No Accounting prepares invoice Order sent to accounting and shipping Shipping checks stock No Items Yes in stock Back order placed Shipment made Source: Reprinted with permission from Lakshmi U. Tatikonda, "A Less Costly Billing Process," Quality Progress, January 2008, 31-39. Copyright 2008 American Society for Quality. No further distribution allowed without permission. A further study revealed many different types of billing errors: A further study revealed many different types of billing errors: Bills with wrong prices and charges Bills sent to the wrong customer Bills sent to the wrong address Double billing and late billing Billing for unordered goods Billing for returned goods Billing before the goods were shipped Using cause-and-effect diagrams, the Six Sigma team brainstormed potential causes and explored them in depth (see Figure 9.27). A Pareto analysis showed that 70 percent of the errors were due to an incorrect amount on the bill or billing for unordered goods. Figure 9.27. Cause-and-Effect Diagram for Billing Errors Data input Wrong information Wrong file mounting from order processing Billing clerks Lack of training Misunderstanding of instructions Order entry unclear Lack of supervision Infrequent price update Wrong data entry Obsolete database Failure to follow Carelessness corporate billing procedures Inadequate communication between sales, order processing, and billing departments Outdated procedures Unclear instructions Lack of bill authorization Lack of order taking verification Lack of data verification No written procedures Lack of feedback Lack of controls Procedures Controls Erroneous billings Source: Adapted from Lakshmi U. Tatikonda, "A Less Costly Billing Process," Quality Progress, January 2008, 31-39. Copyright 2008 American Society for Quality. Reprinted by permission. To gain a better understanding of the sources of communication errors, the team members decided to walk through the billing activities. Customer orders arrived via mail, fax and phone. At each step, they were batched and queued for processing. The main steps included order taking (folders made for each customer), order preparation (current and new customers sorted, information added), order pricing, shipping, and billing. Table 9.5 provides a detailed description of the activities. Data and Activities included in the Bining Process Customer Orders via mail, fax, phone, and e-mail. Average daily orders: 200/day Central mailroom Receive outside mail. Sort according to departments. Put in boxes. Deliver to departments. Stamp postage and send outgoing mail. Order taking Receive orders from customers and central mailroom. Open customer mail orders. Record customer phone orders on paper. Sort all orders by customer name and stamp date. Prepare folders with customer order information. Move batch of customer orders to order preparation once a day. Credit check Check customer credit once a week. Add credit status to folders. Sort customers according to acceptable and not acceptable credit. Batch and move the sorted folders to billing. Order Preparation Receive folders with customer order information. Sort folders according to new and current customers. Send new customer folders to data processing. Receive new customer folders from data processing. Move customers order folders to order verification. Receive folders from order verification. Make two copies of customer order folders. Send one copy of the order to shipping and one copy to billing. Data processing Receive new customer folders from order taking. Batch the folders, assign a customer number and create customer record. Add new customer number and other information to customer folders. Batch customer folders to order preparation once a day. Order verification Receive customer order folders from order preparation. Check stock availability. Make price estimates. Add price estimates to customer order folder. Move the folders to order preparation once a day. Billing Receive copy of customer order folders from order preparation. Send new customer folders to credit check. Receive customer folders from credit check with credit status. Sort the customer folders according to acceptable and not acceptable credit. Send the customer folders with not acceptable status back to order takers. Send the acceptable customer folders to sales tax department. Receive customer folders from sales tax. Calculate the total amount (purchases, taxes) to bill. Enter all the necessary data into computer and print invoices twice a month. Address envelopes, fold, insert invoices and close. Move the envelopes to central mailroom twice a day. Shipping Receive customer order folders from other preparation. Pick and pack the items in the order. Print and paste address labels on the boxes. Ship the packages twice a day. Using the information provided, outline specific steps that you would recommend to improve the process. Include a list of performance metrics that you would recommend that the company monitor in the future to track the efficiency and effectiveness of the process. Summarize your results in a formal report to the company's management.