Below are three cases studies, using the Six Sigma methodology for defect reduction using Define,
Measure, Analyze, and Control, from American Express and DuPont. Each will discuss the nature and
quantification of the problem and the benefits of resolving the problem. Then, each will describe the
analysis done to determine the root cause and evaluate potential solutions to the problem. Lastly, each
will discuss control mechanisms used to ensure sustainability and the results achieved.
This presentation will discuss the effective use of the Six Sigma tools to improve external vendor
processes. It will take you through a project American Express completed, \u201cReduce Closed Store Passive
SuppressionUncallables\u201d. This analysis will demonstrate how we applied Six Sigma techniques to
reduce the defect rate from 8.0% to 2.8% with expected annual savings of $401,000.
It is important that all American Express merchants place our point-of-purchase materials (POP) or decals
on storefronts, cash registers, or check presenters. POP helps our card members, especially Corporate
card members, identify service establishments that honor American Express cards. In addition to
increased perception of coverage, POP increases merchant and card member satisfaction and revenues for
both the merchant and American Express.
Despite the benefits of placing POP, merchants place competitive POP and no American Express POP;
we define these merchants as passive suppressors (merchants with at least 1 POP placed are defined as
non-suppressors). To monitor passive suppression, we work with an external vendor. The vendor is
responsible for placing POP in the market place and identifying passive suppressors, as well as,
measuring placement and passive suppression rates.
When we began our analysis, we learned that we had a 36%Uncallable rate, a rate at which we fail to
visit merchants for various reasons such as the store is closed, address is incorrect, ownership has
changed, etc. Applying Six Sigma tools, we focused on the largest factor contributing toUncallables -
closed stores. We were able to decrease our defect rate by 65%.
The objective of this project was to reduce closed storeUncallables (closed due to business hours),
representing 27.4% of totalUncallables and 8.0% of 831,000 annual total attempted visits. The process
represented a 2.9 sigma level and cost of poor quality of $615,000 annually.
completed from 8:00 AM to 6:00 PM. It was brought to our attention that 45% of closed stores fell in
the retail segment and 16% in the restaurant segment. Since these two industry segments typically are
not open for business at 8:00 AM (or even at 9:00 AM), we hypothesized that vendor call hours
contributed to the high defect rate.
second Vital X, the inspection process. The current policy states that a merchant with at least one
POP placed is defined a non-suppressor. However, in spite of POP placement on the exterior of
closed service establishments, the vendor was not collecting this information. In fact, the calls were
immediately terminated without checking for externally placed POP and reported asUncallable. As a
After we identified two potential Vital X\u2019s, we had to test and validate our hypotheses. We changed the call hours for all visits to after 10:00 AM. Secondly, our vendor was required to continue the inspection process and audit exterior placement status (Amex POP only, Competitive POP only, All POP, etc.), regardless of regular business hours.
As a result of new call hours, we were able to reduce the defect rate by 43.7%, from 8.0% to 4.5%. This
reflects annual savings of $269,000. The second test, continued inspection, indicated that 35.4% of the
remaining 4.5% closed stores had at least 1 American Express POP placed on the exterior of the
establishment. We concluded that a little over a third of merchants in the closed store category were not
suppressing American Express cards, information we did not collect in the past. Going forward, we can
use this data to forecast the total number of attempts (merchant visits) needed to achieve a targeted
number of \u201cCallables\u201d. The new inspection process is expected to save an additional $132,000 annually.
To ensure that we perform within the acceptable limits on an on-going basis, it is important to monitor the
new process. To achieve \u201ccontrol\u201d status, we will be using the p chart, a tool that tracks proportions of
closed stores over time. In addition, we have revised the vendor call report to reflectUncallable rates by
reason, which gives us the ability to monitor the defect rate on a monthly basis.
Later call hours and a continued inspection process for closed stores significantly enhanced efficiency.
Moving forward, we can make 43,336 fewer vendor visits and still achieve the same absolute number of
\u201cCallables\u201d as we did in past years. Also, we can expect $401,000 in annual savings with $0 project
investment. In terms of key learnings, we found that it is important to shadow vendors periodically to
identify areas for improvement or opportunities not readily evident to the vendor or the client. This will
help us accommodate the changing marketplace and meet business objectives using more efficient
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