Students in our Green Belt course analyze and comment on a case study that deals with products that are returned by customers. They are challenged to discuss what was done well in the case and what could have been done better.
The products being returned for credit are data storage systems that are suspected of being damaged while in transit to customers. The systems are insured by an insurance broker for damage during shipping. The company assumes liability for the damage, gives the customer a refund, and then files an insurance claim. An assessment of the damage is made on all returned systems; therefore, the causes of the damages are known. Root causes include improper packaging materials, tip overs (identified by “tip and tell” devices), and visible product damage from mishandling.
Returned inventory typically represents five percent of the overall inventory and is a significant financial holding. This inventory ties up cash and floor space that may be better used for other purposes. A Six Sigma project was conducted with the stated goal of reducing the dollar amount of insurance inventory by 50%. A secondary goal was to improve the cycle time it takes to process the material, which was an average of 330 days with a standard deviation of 165 days, both of which are astoundingly high numbers.
The team that was assigned to the project spent a great deal of time and effort analyzing why it took so long to process insurance returns. The completed project resulted in returns being processed in an average of 56 days, and a 55% reduction in inventory dollars being held in return inventory. The stated objectives of the project were achieved.
What the project team failed to recognize, and what most students fail to recognize, is that the team worked on solving the wrong problem. What they should have done was identify and eliminate the root causes of returned inventory. The goal should have been to eliminate returns entirely, rather than find a way to process the returns faster.
If you had a water leak at home that was flooding the house, would you look for ways to clean up the water faster? Or would you find and fix the root cause of the leak? In this case the team worked hard to improve a process that should not be required in the first place.
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About the author: Mr. Roger C. Ellis is an industrial engineer by training and profession. He is a Six Sigma Master Black Belt with over 50 years of business experience in a wide range of fields. Mr. Ellis develops and instructs Six Sigma professional certification courses for Key Performance LLC. For a more detailed biography, please refer to www.keyperformance.com.