Six Sigma Case Study
Reduction of Days Sales Outstanding
This Six Sigma case study looks at a large oil and gas company which had taken over multiple smaller companies over the years and was planning to acquire even more. In order to do this effectively, they require lots of cash. They utilized the best technique possible to increase cash flow - they used the simple concepts of Lean!
In this six sigma case study, we look at a large oil and gas company which was on a mission to reduce their working capital in order to increase their cash flow.
One of the metrics identified where there was opportunity for improvement was Days Sales Outstanding (DSO). This is the average number of days from the time your product is sent out until the time the payment for that product is in the bank.
The DSO currently was almost 200 days for some large sites. The average credit term that was given to customers was 60 days. This showed that there is definitely some room for improvement internally because there is a 140-day gap between the two numbers.
A kaizen event was conducted at each of the sites to reduce DSO. All process owners were involved - from account handlers to mud engineers to the financial people.
A current state map of the invoicing process was created. This map started all the way from the time a customer placed an order until the time the payment had been made for the order.
At most sites, one obvious observation was the reaction of the people doing the mapping. Most of the people at one end of the process did not realize the kind of information that people at the other end of the process actually required. The information was easy enough to provide, but they were never told that they should provide it or that the information is useful for invoicing.
Another common observation at most sites was that there were many steps in the process that were redundant. There were multiple checking and re-checking steps. There were also multiple steps where information was being converted from one system to another (handwritten to Excel to SAP and back to Excel).
These were just the symptoms. The root cause of these symptoms had to be investigated to find the solutions and get rid of these problems and symptoms. For example, data was going through multiple checks because people did not trust the data. We had to find out why they did not trust the data and find solutions to make sure that the data is right from the very beginning of the process. The right data also had to flow through the steps without being modified or corrupted.
With the effort and creativity of the teams at each site, they were able to come up with solutions to make the process faster, more hassle-free, and easier. These solutions were then put into the future state value stream map.
Standard operating procedures were created for all the steps to ensure that everyone used one process, responsibilities were known, and timelines were known by everyone.
The DSO across most sites were brought down to less than 100 days. For most sites, this meant over a million dollars of cash savings. Multiply that by close to 50 sites in the region - that is a lot of cash!
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