SERVICE QUALITY SIX SIGMA CASE STUDIES

Chris Bott Elizabeth Keim

Six Sigma Black Belt Six Sigma Master Black Belt
American Express Company Integrated Quality Resources, LLC
7701 Airport Center Parkway 4220 Pebble Beach Drive
Greensboro, NC 27409 Niwot, CO 80503-8359
336-668-5799 lizkeim@netscape.net

Sai Kim Lisa Palser

Six Sigma Black Belt Six Sigma Master Black Belt
American Express Company E.I. DuPont de Nemours, Inc.
World Financial Center BMP 35-2315
200 Vesey Street P.O. Box 800035
New York, NY 10285-4525 Wilmington DE, 19880-0035

SUMMARY

This presentation will discuss the effective use of Six Sigma tools to improve several service processes.
Each case will cover the following five steps:

• Define the problem

• Measure the defect
• Analyze the data
• Improve the process
• Control the process

KEYWORDS

Case Studies, Service, Six Sigma

INTRODUCTION

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.

CASE STUDIES

Reduce Closed Store Passive Suppression Uncallables at American Express

Sai Kim, American Express Company

SUMMARY

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, “Reduce Closed Store Passive
Suppression Uncallables”. 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.

INTRODUCTION: Reduce Closed Store Passive Suppression Uncallables

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 to Uncallables -
closed stores. We were able to decrease our defect rate by 65%.

DEFINE & MEASURE THE PROBLEM

The objective of this project was to reduce closed store Uncallables (closed due to business hours),
representing 27.4% of total Uncallables 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.

ANALYZE THE DATA

We applied various Six Sigma tools to identify Vital X’s or the root causes of the defect (critical to
success). The Pareto Chart pointed to the “Closed Store” category, the number one reason for
Uncallables. With the focus on closed stores, we identified the following potential Vital X’s:

• Vendor Call Hours: By shadowing our vendor on merchant visits, we found that visits were
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.

• Closed Store Inspection Process: After we mapped the vendor call process, we identified the
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 as Uncallable. As a
 result, the same merchants were being pulled from our database and visited multiple times - all
leading to rework.

IMPROVE THE PROCESS

After we identified two potential Vital X’s, 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 “Callables”. The new inspection process is expected to save an additional $132,000 annually.

In summary, the following chart outlines the combined test results:

Closed Stores Baseline Test Results

Defect Rate 8.0% 2.8% (Reduced by
65%)
DPMO 80,000 28,000
COPQ $614K $215K
Total Annual Savings - $401K
Cost per Unit $9.25 $9.25
Sigma Level 2.9 3.2

CONTROL THE PROCESS

To ensure that we perform within the acceptable limits on an on-going basis, it is important to monitor the
new process. To achieve “control” 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 reflect Uncallable rates by
reason, which gives us the ability to monitor the defect rate on a monthly basis.

CONCLUSION

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
“Callables” 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
processes.

Eliminate Non-received Renewal Credit Cards

Chris Bott, American Express Company

SUMMARY

This presentation will discuss the effective use of Six Sigma tools to improve our plastic issuance
processes. It will take you through a project American Express completed, “Eliminate Non-received
Renewal Credit Cards”. This analysis will demonstrate how we applied Six Sigma techniques to reduce
the defect rate with ongoing dollar savings.

INTRODUCTION

Eliminate Non-received Renewals - Returned Plastics Due to Change of Address.

DEFINE & MEASURE THE PROBLEM

On average (in 1999), American Express received 72,000 returned Renewal cards each month. Of these,
65% (47,356) are due to the fact that the card members changed their addresses and did not tell us
(therefore the updated addresses are not in our database). The US Post Office calls these forwardable
addresses. Please note: Amex does not currently notify a card member when we receive a returned
plastic card.

ANALYZE THE DATA

We applied various Six Sigma tools to identify Vital X’s or the root causes of the defect. The use of Chi
Square indicated the following:

• By Type of Card/Plastic: we isolated significant differences in the causes of Returned Plastics

between product types. Optimum, our revolving card product, had the highest incident of defects,
but was not significantly different, in the percentage of defects, from the other card types.

• Issuance Reason: the tool proved overwhelmingly that Renewals had far and away the highest
defect rate in the three areas in which we issue plastic - Replacement, Renewal and New Accounts.

• Validated Reason for Returned: Because we suffered scope creep early in the project, it was
important for us to confirm what our initial data was telling us. After testing the five reasons for
returns, returns with “forwardable” addresses were overwhelmingly the largest percentage and
quantity of returns.

IMPROVE THE PROCESS

After identifying the potential Vital X’s, we had to test and validate our hypothesis. An experimental
pilot was run on all Renewal files issued. This “bumping” against the "The National Change of Address"
service was implemented on all Renewal cards in mid August. This solution, due to the strict file
matching criteria, will impact 33% of the remaining population (or 15,000 cards monthly). As a result of a
successful pilot, we were able to reduce the defect rate by 44.5%, from 13,500 to 6,036 defects per
million. This reflects annual savings of $1,228,000.

In summary, the following chart outlines the combined test results:

 Closed Stores Baseline Test Results
Defect Rate 1.35% .6%
DPMO 13552 6036
COPQ $3,360,000
Total Annual Savings $1,228,000
Cost per Unit $6.49 (weighted)
Sigma Level 3.71 4.01

CONTROL THE PROCESS

To ensure that we perform within the acceptable limits on an on-going basis, it is important to monitor the
new process. To achieve “control” status, we will be using the p chart, a tool that tracks proportions of
returns over time. In addition, our vendor has constructed reporting, which gives us the ability to monitor
the defect rate on a monthly basis. The report will tell us if any credit cards that were “bumped” against
the National Change of Address database were returned back to our warehouse.

CONCLUSION

Using the National Change of Address will enable over 180,000 card members to get their credit cards.
Prior to this implementation, these card members would have never received their cards automatically.
This will undoubtedly increase our revenue and customer satisfaction.

Cycle Time Improvement for a Human Resources Process

Lisa Palser, E.I. DuPont de Nemours, Inc.

SUMMARY

This presentation will discuss how Six Sigma was applied to improve cycle time for an employee’s
application for long-term disability benefits. This process was selected because the process owner was
receiving customer complaints; the process's performance was not meeting customer expectations. The
process starts at the time the application is sent to the benefit provider until an ‘accept’ or ‘deny’ decision
is delivered. How Six Sigma was used with a third-party benefit supplier will also be discussed.

INTRODUCTION – Long-Term Disability Application Process

The Long-Term Disability Application Process is initiated in the fifth (5th) month of the employee's six
(6) month short-term disability leave of absence. The cycle time requirement of the corporation is to
receive an approve/deny decision prior to the end of the short-term benefit. The financial cost of not
having a timely decision is that the short-term benefit is extended, which costs the corporation more than
the long-term benefit. The cycle time objective of this process is to perform within a 45-day upper
specification.
MEASURE

The project team included the process owner, subject matter experts, and the supplier's account managers.
The project team mapped and documented the current process. Using the process map and experience,
the project team and the supplier's claim processors developed a cause-effect diagram for the factors
influencing the process outcome, the cycle time. The customers, represented by 12 randomly selected
employment sites, were surveyed for their view of the process and the 45-day upper specification was
validated. Their insights were added to the process map and the cause-effect diagram. In addition, they
were asked about an 'ideal' outcome to determine other potential process improvements and potential
future projects. Baseline data was collected from the selected sites. In addition to the overall cycle time
measure for each application, the team gathered data related to the application at various milestone dates
between the initial application and the decision so that we could assess where the significant breakdowns
in the process occurred.

ANALYZE

The good news from the initial analysis was that mean cycle time was 30 days; the bad news was that
there was significant variation resulting in a 0.83 Sigma value. Various analysis tools were applied to
identify the root causes of the defects. We discovered that there is no significant difference in the cycle
time at different DuPont sites, even though each site uses a slightly different process. The most
significant factors affecting cycle times were:

• Incomplete medical and/or job information requiring frequent re-work to gather and process missing
information.
• The benefit supplier's agent who processed the application.
• Delays in receiving objective medical information from the employee's physician.
• Substantiation of the employee’s condition by an independent medical evaluation.
• Mail cycle time from the site to the benefit provider agent’s desk.

Note: The team identified opportunities to analyze data to determine if there is a similar rate of approval
or denial for disability by business unit or site, if there are trends in disability incidence or diagnoses, etc,
however these were not the focus of this project.

IMPROVE

There is no formal design of experiment being done in this project. Through the identification of the
sources of variation and customer and benefit supplier feedback, several process improvements, training,
and communications are underway. The process improvements addressing the sources of variation within
the control of DuPont include:

• Electronic distribution of materials to employees and sites to reduce mail times.

• Implementation of fax server technology to process applications, eliminating mail times for new
applications.
• Improvement of the application package, providing more complete directions and forms for the
employee and site to complete when submitting the application.
• Improvement of the application package, providing more complete directions and forms for the
employee’s personal physician.

The process improvements to address the sources of variation within the control of the benefit supplier
include:
• Staffing changes to reduce administrative burden on claims processors.
• Re-negotiation of contract terms for independent medical exam suppliers, to include tighter standards
with financial penalties for poor performance.
• Implementation of e-mail confirmation and bi-weekly status reports on each case to the DuPont
employment sites reminding all participants of required actions and preventing confusion over the
status of a case.
• Addition of supplier and turn-around time reporting.
• Introduction of formal quarterly supplier process performance reporting to the DuPont process owner.

CONTROL

Several control mechanisms are being formally instituted to continually monitor and manage process
performance.

• A new database is being established to track each application and to monitor the key sub-cycles. This
database will be used by the process owner and be used to identify and react to 'out of control' cases
before overall performance is affected. Supplier and total turn-around time reporting will be used to
monitor and control case cycle times.
• In addition to the implementation training, periodic training will be provided to site HR personnel on
benefits and benefit processing, particularly if there are benefit plan or process changes. In addition
the training material will be add to and maintained in the corporate collaboration database, which is
always available to site personnel for review, when personnel changes or refresher training is desired.

CONCLUSION

Applying the Six Sigma methodology provided factual information regarding the process performance
and the sources of variation in a way that enabled rapid approval, from both DuPont and benefit supplier
management, of the process improvements and information technology investments required to improve
the process. The controls being implemented provide on-going measurement and managing by fact for
the supplier services to specified service level standards and provide a clearer foundation for resolving
any service issues.

OVERALL CONCLUSION

The Six Sigma problem solving methodology of Define, Measure Analyze, Improve, and Control can be
used successfully in service processes to gain significant defect reductions. The use of data to guide
decision-making ensures that the right root causes are identified and addressed. The Control phase
ensures that the improvements are sustained.

ACKNOWLEDGEMENTS

American Express: Paul Winsick, Andy Cvitanov, Keith Siemek, Vickie Barefoot, Nick Apel, Jessica
Shklar, and Chuck Aubrey

DuPont: Don R. Linsenmann, Joanne M. Smith, and John P. McHugh