Accounts Payable Invoicing Error
A prominent product-based company faced a persistent challenge of inaccurate invoicing, within one of its divisions. This division was responsible for generating approximately 10,000 invoices every quarter, and a staggering 39% of them contained errors. These errors led to rework and delays in invoice submission, impacting customer relations, cash flow, and increasing costs. The estimated cost of these poor-quality amounted to a substantial amount of $91,000.
Six Sigma Initiative
In response to this critical issue, the company embarked on a Lean Six Sigma project with a primary objective: to significantly improve invoice accuracy by targeting a 50% reduction in the error rate. The inaccuracies in the invoices had far-reaching consequences, affecting customer relationships, cash flow, and cost management. Resolving these issues aimed to rebuild customer confidence, decrease the Cost of Poor Quality, and streamline the entire invoicing process.
The DMAIC Approach
A dedicated team was formed and chose the Six Sigma DMAIC (Define, Measure, Analyze, Improve, Control) methodology to address the issue. A Black Belt from the Quality and Business Excellence team was assigned as the Project Lead, with the responsibility of not only leading the project to a successful conclusion but also providing training, guidance, support, and imparting the necessary skills for the team to execute the project successfully.
In the Define phase, they estimated that inaccurate invoices cost the company $91,000 annually. The charter was signed off, incorporating the details of the projects including Business case, Problem statement, Goal of 50% reduction in invoice error rate. A team was formed to work on the project.
To measure and understand the problem, the team created detailed process maps to identify bottlenecks and collected details on the origin of these inaccuracies. They employed quality tools such as Cause and Effect diagrams and Pareto charts, Process Failure Mode Effect Analysis (FMEA) to identify the potential variables causing inaccuracies and prioritize them. These variables included contractual inefficiencies, lack of communication, manual entry errors, unclear policies and procedures, and incorrect purchase agreements.
Y=f(x): Multiple factors (X’s) contributing to invoice inaccuracies were identified, including manual processes, poor communication, lack of enforcement, unnecessary steps in the process, purchase agreement process.
Based on the findings of causes and validating them with data, the team identified and implemented some short-term Improvements, such as eliminating the contract process and centralizing pricing responsibility. Long-term Improvements included simplifying pricing, creating a pricing database, and automating the process of managing purchase agreements, simplification of the process.
In the final phase of this Six Sigma DMAIC project, proactive control measures are implemented to maintain the achieved improvements and ensure long-term success in the pursuit of invoice accuracy. By implementing robust control measures, the team is determined to sustain a 50% reduction in the error rate, enhance customer relationships, minimize defects, and optimize cost performance. These steps include continuous data collection and accuracy monitoring, reviewing and updating SOPs, providing training to operators, managing purchase agreements, and defining performance metrics.
At Immensa Consulting, we help organizations by developing skills and streamlining operations and processes. Our services focus on Performance Excellence through Operational and Process Excellence Consulting, Projects Consulting and Continuous Improvement Training/Workshops.
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