Download - 2ND WAVE
1
Project Title : Reduction of Mail Delivery Cost
Project No. : OAS-06-011 (2W)
Champion : R. Rajan
Team Leader : Achilles Estrella
Lead Member : Benedicto SantoyoMembers : Reymund Navarro
Gloria TriaGregg Garcia
Date : 22 September 2006
2
PROBLEM STATEMENT: The cost of Postage and Freight keeps on increasing yearly by 14% average and in 2005, it reached $931,652 causing serious budget overrun. For 2006, the allocated budget is reduced to $760,000.
DEFINE
GOAL STATEMENT: Reduce postage and freight cost by 18.5% by end 2006.
3
DEFINE
Business Case• Communications Unit receives on a daily basis various
documents for dispatch locally and abroad. These services incur expenses that are charged to Postage and Freight budget.
• Budget for these expenses is centralized in OAS. OAIS-LM monitors the budget utilization of all departments in ADBHQ.
• There is no cost control on the part of the sender. The project is aiming to cut Postage and Freight expenses by 18.5% from 2005 costs.
4
DEFINEDetailed Processing
Start
Messenger (Horizontal)
collects incoming mail
Official?
Clerk (Communication
Room) process the request
Messenger (Hor.) returns to ADB
Staff
Mail?
Messenger sorts and weighs mail.
Checks addresses.
Prepares mailing statement.
Mailing Statement
Messenger weighs, checks
signatory / accuracy of addresses.
Courier?
Pouch
Messenger weighs, checks and prepares Summary of enclosures
Y
Messenger (Vertical) brings
documents to Main Comm. Ctr.
Summary of enclosures
1
1
Mail?
OAIS-LM Main Ctr.Staff endorses
to Mail service provider
Y
N
Courier?
OAIS-LM Main Comm. Staff Dispatch to International
Express Couriers
OAIS-LM Main Comm. Staff collates and
checks accuracy
Dispatches to External
Messenger Couriers
N
Y
Y
Pouch
``
OAIS-LM checks delivery
acknowledgement
Acknowledged?
Y
End
OAIS-LM Main Comm. Ctr Staff
checks / coordinates
N
Y
N
5
CTQ S I P O C
TimelyDelivery
DepartmentAnd Offices
Documents/Publications
PostWeighs, sorts by zone, prepares mailing statement.
Local mailFranking machinePostage statement
Int’l mailDispatch slips (connote) for InternationalMailing
Addressees
CourierWeighs, checks signatory and accuracy of addresses.
Airway bill (AWB)
Consignees
SIPOC
6
SIPOC
CTQ S I P O C
TimelyDelivery
DepartmentAnd Offices
Documents/Publications
MessengerCheck addresses.
AcknowledgementReceipt
Addressees
PouchWeighs, checks & prepares summary of enclosures.
Summary of enclosure ormanifest
RMs and ROs
Fast and accurateresolution
CommunicationUnit
Inquiry/tracking of dispatched documents and publications.
Website trackingDirect phone inquiry with couriers’ customer service.Direct overseas call to consignees.
E-mailTelecommunication
DepartmentOffices
7
Define Measure Analyze Improve Control
15 JanTo
30 Jan
1 Febto
8 Apr
10 Aprto
10 May
11 MayTo
10 July
11 JulyTo
15 Sep
15 days 67 days 30 days 60 days 66 days
8
High-Level Need
Reduce Mail Delivery Cost
Output Unit Mailing Cost
Output Characteristic (Big Y)
Reduce Cost by 18.5% against 2005 actual expenses of $931.652
CTQ
Project Y (Little y) Measure
Operations Definition
Process starts from the time the request for mailing is received up to dispatch to destination
How process will be measured
Upward deviation from monthly expenditure target
Specification Limits
LSL
USL - $ 760,000 (Budgeted amount)
Target Reduce Cost by 18.50% or reduce cost
by $172,356 from 2005 actual
DefectTotal operating cost of more than
$760,000 for 2006
No. of Defect Opportunities Per Unit
1 opportunity for defect
DEFINE
9
DEFINE
Cost Drivers in Mail Service Operations
Vendor DHL, RAF, TNT, Direct Link, Spring, Inland, Phil. Postal Corp.
Destination Zone 1 – Asia 1 Countries
Zone 2 – Asia 2 Countries
Zone 3 – Asia 3 Countries
Zone 4 – Indian Subcontinent
Zone 5 – America
Zone 6 – Europe 1
Zone 7 – Europe 2 / Middle East
Zone 8 – Rest of the World
Mode of Dispatch Express Courier (DHL, RAF, TNT)
Mail Fast (Spring, Direct Link)
Weight of Dispatch Weight per transaction in kilos
Quantity of Dispatch Number of pieces per transaction
Clients Department / Office Work Program
10
DEFINE
POTENTIAL OUTPUT MEASURES
Output Characteristics
Quantity
in Pieces
Weight & Cost of
document dispatched
Mode of dispatch
(Express & Mailfast)
Destination VendorDepartmental
Work
Program
Reduced Mailing Cost
- Strong Relationship
- Moderate Relationship
- Weak Relationship
No Symbol - No Relationship
11
MEASURE
SUPPLIER TOTAL WEIGHT
in Kgs
TOTAL COST
in US$
DHL 17,067 $ 190,930
TNT 16,359 274,680
RAF 24,673 248,358
SPRING 8,097 117,808
DIRECT LINK 5,094 99,876
TOTAL 71,290 $ 931,652
12
Cost
Perc
ent
SupplierCount
20.5 12.6 10.7Cum % 29.5 56.1 76.6 89.3 100.0
274680 248358 190930 117808 99876Percent 29.5 26.7
Direct LinkSpringDHLRAFTNT
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
100
80
60
40
20
0
Pareto of Cost per Supplier
MEASURE
13
DATA
DHL TNT RAF DIRECT LINK
SPRING TOTAL
Weight Cost Weight Cost Weight Cost Weight Cost Weight Cost Weight Cost
1 1,575 3,692 510 5,817 5,016 38,496 2,017 32,400 2,950 38,499 12,067 118,904
2 2,898 19,891 1,121 7,913 4,878 39,186 996 16,884 1,757 19,806 11,651 103,680
3 8,829 78,815 2,119 15,779 4,607 55,167 1,972 45,481 2,651 51,145 20,178 246,387
4 875 19,714 990 14,962 4,765 54,780 110 5,112 740 8,358 7,480 102,926
5 742 7,075 1,194 30,365 2,767 40,736 0 0 0 0 4,703 78,175
6 972 38,259 1,949 33,053 1,781 15,136 0 0 0 0 4,701 86,447
7 1,174 23,488 1,203 23,042 861 4,854 0 0 0 0 3,238 51,384
8 0 0 7,274 143,749 0 0 0 0 0 0 7,274 143,749
TOTAL 17,066 190,934 16,359 274,679 24,674 248,354 5,095 99,877 8,098 117,808 71,292 931,652
2005 Summary of Weight/Cost Per Zone
14
Cost
Perc
ent
ZoneCount
Percent 26.4 15.4 12.8 11.1 11.0 9.3 8.4 5.5Cum %
246387
26.4 41.9 54.6 65.8 76.8 86.1 94.5 100.0
143749 118904 103680 102926 86447 78175 51384Zone 7Zone 5Zone 6Zone 4Zone 2Zone 1Zone 8Zone 3
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
100
80
60
40
20
0
Pareto of Cost per Zone
MEASURE
15
DATA
OFFICE/DEPT
WEIGHT COST COST/
KG
DER 32,131 398,648 12.41
OAS 14,715 152,998 10.40
GOV 2,729 66,702 24.44
ECRD 2,160 30,053 13.91
ERD 2,203 28,740 13.05
CTL 712 24,757 34.77
SEC 693 24,661 35.59
MKRD 1,995 24,426 12.24
TD 979 21,474 21.93
COSO 1,100 19,654 17.87
PARD 1,189 18,680 15.71
BOD 2,055 18,054 8.78
RSDD 1,128 17,028 15.09
BMPSD 1,186 16,057 13.54
SARD 1,219 15,314 12.56
OCO 382 9,835 25.75
OIST 2,167 9,262 4.27
OFFICE/DEPT
WEIGHT COST COST/
KG
OGA 196 6,778 34.58
PSOD 300 6,689 22.30
OGC 903 6,653 7.37
OED 448 5,212
SERD 317 3,815
OPR 104 1,802
SPD 164 1,382
RSCG 1 1,184
REMU 49 1,123
OREI 11 312
PMU 0 164
CRMU 15 117
OCRP 15 61
OSPF 27 15
RSID 0 1
EGEF 0 0
TOTAL 71,290 931,652
2005 Weight/Cost & Per Kg Cost Per Dept
16
Cost
Perc
ent
Dept
Count 2147419654186801805417028160571531439217Percent 44
39868417 7 3 3 3 3 3 2 2 2
1529982 2 2 2 4
Cum % 44 60 67 71
66702
74 77 79 82 84 86 88 90 92 94
30053
96 100
28740247572466124426
Othe
r
SARD
BPMSD
RSDDBO
DPA
RD
COSOTD
MKRD
SEC
CTL
ERD
ECRDGO
VOA
SDE
R
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
100
80
60
40
20
0
Pareto of Cost per Dept
MEASURE
17
Cost per Kg
Frequency
403020100
6
5
4
3
2
1
0
Mean 17.83StDev 9.215N 20
Histogram (with Normal Curve) of Cost per Kg
Mean is $17.83/Kg
Data based on 1st 20 Depts with the highest total costs.
18
Six sigma level is 1.50
403020100
USL
2018161412108642
1000000
100000
10000
1000
100
10
1
Date:
Lower Spec:Nominal: 14.53 Opportunity:
Reported by:Project:Department:Process:Characteristic:Units:Upper Spec: 17.83
Actual (LT)
Process Performance Process Demographics
Actual (LT) Potential (ST)
Sigma(Z.Bench)
DPMO
0.00
499933.0
1.50
66785.5
Process Benchmarks
Report 1: Executive Summary
19
191715131197531
40
20
0
_X=17.83
UCL=45.43
LCL=-9.77
Observation191715131197531
30
15
0
__MR=10.38
UCL=33.91
LCL=0
ST
* 0.00Z.LSL * *Z.Bench 1.50 0.00Z.Shift 1.50
LT
1.50P.USL * 0.499933P.LSL * *P.Total 0.0667855 0.499933
Mean
Yield 93.32 50.01DPMO 66785.5 499933.0Cp * *Cpk
14.53
* *CCpk * *Pp * *Ppk *
17.8284
0.00
StDev * 9.337Z.USL
17.83 17.83
45.8385-10.1816
I and MR Chart
Process Tolerance
Specifications
Potential (ST) Capability
Process Tolerance
Specifications
Actual (LT) Capability
Data Source:Time Span:Data Trace:
Capability I ndices
Report 2: Process Capability for Cost per Kg
20
ANALYZE
FACTORS THAT IMPACT COST OF SHIPMENT
CLIENT / STAFF
PROCESS
TECHNOLOGY
POLICIES / PROCEDURES
21
ANALYZE
CLIENT / STAFF
Unaware of shipping optionsUnaware of transit time / timing of requestIncomplete addressUnaware of budget restrictionsUnaware of charging options
PROCESS
Weight break limitationsDestination charges unknownCourier limitationsMultiple address but one destinationPiecemeal dispatches instead of bulk
POLICIES & PROCEDURES
Current guidelines are vague Guidelines not followed Rules compromised Consignment other than
documents Unaware of cost implication
TECHNOLOGY
E-publicationE-docsCD ROM
22
ANALYZE
ProcessClient/Staff
Policies &Procedures
Technology
Reducecost ofPostage &Freightby 18.5%
weight break limitations
destination charges unknown
courier limitations
multiple addressbut one destination
piecemeal dispatchesinstead of bulk
C
N
N
C
C
current guidelinesare vague
guidelines not followed
rules compromised
consignment other than doc
unaware of cost implication
C
C
C
C
C
unaware of shippingoptions
unaware of transit time/timing of request
incomplete address
unaware of budgetrestrictions
C
C
C
C
electronic medianot maximized
e-publication
C
unaware of chargingoptions
C
e-docs
23
ANALYZEANALYZE
After all data pertaining to weight and cost per department, country and supplier are gathered, it was decided in the analysis that weight and cost per department is the most practical area where improvement to cut cost can be done since OAIS-LM have direct control over it. Weight and cost per supplier and destination is fixed since it is covered by a contract.
24
1. Negotiate with client to reduce volume of shipment.
2. Identify and coordinate with client the appropriate charging options if the consignment is covered or related to TA or RETA wherein budget for shipping and distribution is also allocated.
3. Advise client to submit their materials for shipment early to avoid using the express options which entails more expensive shipping cost due to time constraint.
4. In case of multiple addressees, collate consignments with one destination (or agency, like World Bank, IMF, etc.) and ship them in one bunch instead of one-transaction-per-envelope to reduce cost.
5. Negotiate with RMs/ROs Country Directors to forward documents or publications to various Ministries and Executing Agencies in their location.
6. Inform client of the other shipping options/services offered by the Communications Unit, particularly the use of airmail and airfreight modes for bulk/voluminous dispatches for cheaper shipping cost.
7. Assist client in searching for additional delivery information (more complete address) of the consignee in case of incomplete addresses to avoid “incomplete or unlocated destinations” which entails additional expense when forwarded to other locations or returned to origin.
8. Advise client to disseminate information electronically instead of hard copies.
ACTIONS TAKEN TO LOWER COST STARTING JAN 2006
CONTROL
25
Dept/Office Weight Cost Cost per Kg
BOD 3,223 57,448 17.82
BPMSD 619 10,607 17.15
COSO 9,572 70,613 7.38
CTL 1,108 23,686 21.38
DER 16,043 153,575 9.57
ECRD 1,073 12,131 11.31
ERD 691 7,262 10.51
MKRD 1,517 13,857 90.14
OAG 199 5,870 29.50
OAS 9,008 93,962 10.43
OCO 379 7,284 19.24
OCRP 39 2,895 74.92
OED 262 2,853 10.88
OGC 416 4,012 9.64
OIST 576 4,993 8.67
OPR 15 356 23.03
OREI 246 3,205 9.28
PARD 1,595 21,483 13.47
PSOD 342 6,172 18.06
RSDD 3,633 27,994 7.71
SARD 2,261 16,159 7.15
SEC 548 16,646 30.40
SERD 1,425 11,934 8.38
SPD 425 6,788 15.96
TD 713 9,477 13.29
TOTAL 55,928 591,262
2005 – 2006 WEIGHT / COST COMPARISON PER DEPARTMENT CONTROL
Jan to Dec 2006Jan to Dec 2005
Note: September to December data for 2006 are projected figures
Dept/Office Weight Cost Cost per Kg
BOD 4,784 84,756 17.72
BPMSD 1,186 16,057 13.54
COSO 1,100 19,654 17.87
CTL 712 24,757 34.77
DER 32,131 398,648 12.41
ECRD 2,160 30,053 13.91
ERD 2,203 28,740 13.05
MKRD 1,995 24,426 12.24
OAG 196 6,778 34.58
OAS 14,715 152,998 10.40
OCO 382 9,835 25.75
OCRP 42 76 1.81
OED 448 5,212 11.63
OGC 903 6,653 7.37
OIST 2,067 9,262 4.48
OPR 104 1,802 17.33
OREI 157 1,601 10.20
PARD 1,189 18,680 15.71
PSOD 300 6,689 22.30
RSDD 1,129 18,212 16.13
SARD 1,219 15,314 12.56
SEC 693 24,661 35.59
SERD 317 3,815 12.03
SPD 164 1,382 8.43
TD 994 21,591 21.72
TOTAL 71,290 931,652
26
Mean – $37,266
Non-normal distribution
4000003000002000001000000
Median
Mean
800006000040000200000
Anderson-Darling Normality Test
Variance 6697182128Skewness 4.0009Kurtosis 17.1748N 25
Minimum 76
A-Squared
1st Quartile 5933Median 160573rd Quartile 24709Maximum 398648
95% Confidence I nterval for Mean
3486
5.37
71046
95% Confidence I nterval for Median
6707 23864
95% Confidence I nterval for StDev
63900 113847
P-Value < 0.005
Mean 37266StDev 81836
95% Confidence I ntervals
Summary for Jan-Dec 2005New
CONTROL
27
Ppk - -0.18Sigma level – 2.04USL of 27,000 and LSL of 47,000
Indi
vidu
al V
alue
252321191715131197531
2
0
-2
_X=0.054
UCL=2.334
LCL=-2.226
Mov
ing
Ran
ge
252321191715131197531
2
1
0
__MR=0.857
UCL=2.801
LCL=0
Observation
Val
ues
252015105
2
0
-2
210-1-2
LSL*USL*
Specifications
LSL* 0.563723USL* 0.925461
20-2
Overall
Specs
Overall
Location 0.0539871Scale 0.92327Pp 0.07
Ppk -0.18
Process Capability Sixpack of Jan-Dec 2005NewJohnson Transformation with SU Distribution Type
-1.134 + 0.613 * Asinh( ( X - 2263.564 ) / 3117.149 )I Chart
Moving Range Chart
Last 25 Observations
Capability Histogram
Normal Prob PlotAD: 0.409, P: 0.321
Transformed Capa Plot
CONTROL
28
Mean – $23,650Non-normal distribution
16000012000080000400000
Median
Mean
40000300002000010000
Anderson-Darling Normality Test
Variance 1251569801Skewness 2.65473Kurtosis 7.42386N 25
Minimum 356
A-Squared
1st Quartile 5432Median 106073rd Quartile 22585Maximum 153575
95% Confidence I nterval for Mean
9047
3.63
38254
95% Confidence I nterval for Median
6294 16550
95% Confidence I nterval for StDev
27624 49216
P-Value < 0.005
Mean 23650StDev 35378
95% Confidence I ntervals
Summary for Jan-Dec 2006 new
CONTROL
29
Ppk is -0.26Sigma Level – 2.28
Indi
vidu
al V
alue
252321191715131197531
2
0
-2
_X=0.001
UCL=2.654
LCL=-2.651
Mov
ing
Ran
ge
252321191715131197531
3.0
1.5
0.0
__MR=0.997
UCL=3.259
LCL=0
Observation
Val
ues
252015105
2
0
-2
210-1-2
LSL*USL*
Specifications
LSL* 0.85021USL* 1.27387
420-2
Overall
Specs
Overall
Location 0.00136706Scale 1.08488Pp 0.07
Ppk -0.26
Process Capability Sixpack of Jan-Dec 2006 newJohnson Transformation with SU Distribution Type
-1.323 + 0.693 * Asinh( ( X - 3335.381 ) / 2061.389 )I Chart
Moving Range Chart
Last 25 Observations
Capability Histogram
Normal Prob PlotAD: 0.135, P: 0.975
Transformed Capa Plot
CONTROL
30
Jan-Dec
2005
Jan- Dec
2006 (Projected)
Jan-Aug
2005
Jan-Aug
2006
Mean $ 37,266 $ 23,650 $ 23,826 $15,767
Sigma Level 2.04 2.28 2.40 2.58
Operating Cost
$931,652 $591,259 $595,649 $394,173
Cost Savings $340,393 $201,476
SUMMARY
Improvement in mean in Jan-Aug periods of 2005 and 2006; projected improvement in Jan-Dec 2006
Target – Reduce cost to $760,000 for 2006 (budgeted amount)
Projected cost reduction for 2006 is $340,393.
CONTROL
31
HARD SAVINGSCONTRO
L
With the implementation of the proposed solutions (actions taken to lower cost of Postage & Freight), total savings from January to August 2006 for postage and freight is $201,476. It is estimated that at the end of 2006, the total savings would be $340,393.
32
SOFT SAVINGSCONTRO
L
We have increased the staff awareness through effective information dissemination, on the most cost effective options and measures OAIS-LM has been implementing.
Increased customer satisfaction – we received lots of emails from both PS and SS extending their appreciations and gratitude for the efforts provided to them.
We were able to help in purging the mailing list, thus eliminating obsolete addresses.
Enhanced business relationship with service providers and clients.
33
LESSONS LEARNEDCONTRO
L
1. We can achieve cost reduction and at the same time satisfy our client without jeopardizing the quality of service.
2. Flexibility, open communication and diplomacy are essential and powerful tools in any negotiations.
3. We have proven that given a certain amount of budget to work with, we are able to achieve this with teamwork within our unit and close coordination / cooperation with clients.
34
The End