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

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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

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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.

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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