Assignment on economics

CONTENTS

List of abbreviations………………………………………………………………..……2

List of tables and figures………………………………..…………………………….…3

Introduction.......................................................................................................................4

1. The philosophy and basic content of the Six Sigma ………………………….…..…..6

1.1. Really focus on customer…………………………………………………………….6

1.2. Improving management cycle DMAIC………………………………………………8

2 .The process of applying Six Sigma at OJB in period of 2004-2006………………….16

2.1. Business situation of OJB…………………………………………………………..16

2.2. Implementation of Six Sigma ……………………….………..……………………18

2.3. The results obtained when applying Six Sigma at OJB……………………………22

3. Some measures to raise the credit quality at OJB (Conclusion)….... ………………..23

3.1. Building business strategies…………………………………………………...……26

3.2. Diversification of credit activities……………………………………………………27

3.3. Efficient implementation of credit activity processes………………………………29

3.4. Enhancing inspection activities of credit loans………………………………………29

List of References…………………………………………………………………….…30

List of abbreviations

SMEs – Small and medium sized enterpirses

OJB – Ocean joint stock commercial bank

TQM – Total Quality Management

SBV – The State Bank of Vietnam

APO– Asian Productivity Organization

VPC – Vietnam Productivity Centre

APQC – The American Productivity and Quality Center

HR – Human Resource

- Improve the quality of credit services with Six Sigma

process at Ocean Bank in Vietnam -

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List of tables and figures

Figure 1. DMAIC management cycle……………………….………………………..…….8

Figure 2. OJB’s lending process ………………. …………………………………………20

Figure 3. OJB’s documentation rotating process……………………………….. …………21

Table 1. Levels of Sigma…………… ………………………..……………………………7

Table 2. Define phase descriptions…………………………………….……..……………10

Table 3. Measure phase descriptions…………………………………….……..…………..11

Table 4. Analysis phase descriptions…………………………………….……..……….….13

Table 5. Improve phase descriptions…………………………………….……..…………..14

Table 6. Control phase descriptions…………………………………….……..…………....15

Table 7. OJB capital mobilization situation…………………………….……..……………17

Table 8. Summarized result of Six Sigma projects…………………….……..…………….22

Table 9. Analyzed quotients of credit quality over 3 years…………….……..…………….24



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Introduction

It is true that banking sector has been facing with more and more competition as well as other

in Vietnam. Especially, as a new official member of WTO, joining in an equally ground,

Vietnam will have many opportunities as well as risks at the same time that should be well

prepared for. It is very popular to hear about enhancement for competitive competence in

doing business or manufacturing as a guideline toward world trading orientation. Banking and

Finance activities receive most attention from the government due to its importance and

impacts on the structure of nation economy. If these activities, most importantly the Credit

Operation, are under rational management, it obviously makes positive contribution in

ameliorating and stabilizing macroeconomics, eliminating inflation factor, keeping up the

promising growth rate of the economy. In addition, the indispensable change-over in Banking

is being attended by a large number of citizens who had sat down under multiform crisis in

credit operation from pre-transaction period. The obsession made from domino effect falling

down of “Credit found for people” series or imperious manner, overbearing attitude of bank

clerk in 1980’s still be the faith barrier, though less and less in progress economy transaction.

Currently in Vietnam quality management is along with growing business enterprises in

Vietnam. The integration of quality into all elements of management activities to be

operational is common and indispensable for any organization to survive and grow. But

quality is not naturally born nor whether it is an accident that results as a result of the

impact of a series of all factors that are closely related, is the result of a process that processes

synchronization is also the factor of all: people, management systems, methods, tools that

support the manufacturing process to produce a quality product. Quality and opportunity

are as well as challenge. With increasing customer demand for products, businesses need

to continuously improve product quality. Quality improvement is to enhance performance to

create more benefits for the company and customers. There is one method to enhance product

quality called Six – Sigma. Six Sigma is a methodology for process improvement to reduce to

the lowest defect rate of products. The application of Six Sigma program will help reduce

production costs, management costs, increase customer satisfaction, reduce excess time in the



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process, ensure delivery, expand production, and help enterprises (banks) be more confident

to achieve higher goals.

Within 2 years of application of Six Sigma, OJB have obtained good results in the goal of

improving the quality of services, especially credit operation. This essay describes Six Sigma

approaches that OJB has applied to improving service quality projects. The results are

encouraging, and Six Sigma has proven the effectiveness of the application of scientific

methods in the management process. Based on data in annual credit reports from 2004-2006

of OJB, this context focuses the analysis on a typical result through OJB's credit quality to be

improved by applying Six Sigma process.



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1. The philosophy and basic content of the Six Sigma

1.1. Really focus on customer

In the 80’s and 90’s of the 20th century, when the total quality management (TQM) was

developed, a series of companies proposed the policy and quality objectives to “best

meet the requirements and expectations of customers ". Unfortunately, some enterprises

have a real effort to run short-term requirements of customers in a short period that

ignores the construction of business-oriented system, not customer-oriented as it should

be, to serve the needs of human.

In Six Sigma method, customer orientation is a top priority. For example, performance

measures of Six Sigma start with the identification of customer requirements.

The Six Sigma improvement is determined by the impact of customer satisfaction. We

will examine why and how to identify customer requirements, measure performance and

become a leading development company and meet customer needs.

Six Sigma is not a quality management system such as ISO-9001, or a quality certification

system. Instead, this is a methodology for reducing defects based on process

improvement. For the majority of enterprises in Vietnam, this means that instead of focusing

on quality initiatives which prioritize the error checking on the product, it moves the focus

onto improving production processes so that defects do not occur.

Six Sigma is a methodology based on process improvements to reduce statistical error rate or

disability to a rate of 3.4 defects per million defect opportunities by identifying and

eliminating the source provides the knife dynamic (unstable) in the business process. In

defining disability, Six Sigma focuses on establishing a thorough understanding of

customer requirements and is, therefore, highly customer oriented.



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The goal of Six Sigma is only 3.4 defects (or errors) per one million defect opportunities. In

other words, it is 99.99966% perfection.

It should also be noted that Sigma measures defect rather than product defects. A more

complex product will be more likely to be error free. For example, to the unit of

product defect, there are more in a car more than in a paperclip.

Sigma Level Million defect Hundred defect

One Sigma 690000 69%

Two Sigma 308000 30.8%

Three Sigma 66800 6.68%

Four Sigma 6210 0.621%

Five Sigma 230 0.023%

Six Sigma 3.4 0.00034%

Table 1. Level of Sigma (*)

While the majority of private manufacturing enterprises in Vietnam have about Three Sigma

level or even lower in some cases, a process improvement project to apply Six Sigma

principles can be targeted first Four or Five Sigma to the capital has also resulted significantly

reduce defects.

Customer emphasis is a top priority of business applications of Six Sigma. Enterprises must

understand the customer requirements and expectations . "The voice of the customer" needs

to be heard, recorded, stored and analyzed continuously. Six Sigma introduces the concept

of "management based on real data" which brings about a lot of effective management

activities. In recent years, the focus has been placed on the measure, improved information

systems, knowledge management ... Six Sigma system also aims to build a

system for organizing "a decision based on data. " The implementation of Six Sigma

principles begins with the measurement to assess the current status of the organization to

operate the company based on which to build a management system effectively.



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In fact, Six Sigma helps managers answer two questions needed to support decision

making and to provide practical solutions on realization:

1. Which kind of information and data does your organization really need ?

2. How does your company use materials and information to maximize profits?

----------------------------------------------------------------------------------------------------------

(*) "Sigma" means the standard deviation (standard deviation) in statistics, so Six Sigma means six standard

deviation units.

1.2. Improving management cycle DMAIC

In Six Sigma, "process" is where the activity occurs. In any case of the design of products -

services, measuring performance, improving efficiency and customer satisfaction or even the

management of the Six Sigma business improvements are all directed at the

regulation workflow.

Many organizations fall into a loss of control and are unsure in selecting management priority.

Managers tend to want to achieve all the results in sales, growth rate, the quality criteria,

indicators of human resources, the socio-political goals, ... Placing too many items

organizational objectives makes distributed resources, do not focus on the key stages.

Eventually lead to wastes of time, money and manpower

Six Sigma-oriented methodologies for managers to focus on the key objectives, aimed at

finding and addressing the root causes of problems causing waste, failure, does not meet

the customer requirements. Six Sigma system indicated for the management

principle is "prioritize targets is the way to go up" .



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Figure 1 . DMAIC management cycle

Firstly, the Six-Sigma projects focus on the key issues associated with strategic nature and

they have significantly affected the level of customer satisfaction, and essential for business

results in the form of bringing quick financial performance and large (high income, lower

costs, etc ...).

DMAIC process is the focus of the project Six Sigma process improvement. The following

steps introduce problem-solving process in which the specialized tools are employed to

turn a real problem into a statistical formula, a solution built on statistical models and then

move change it to a real solution.

DEFINE PHASE:

Determination phase aims to clarify issues to be addressed as well as requirements and

objectives of the project. The objectives of a project should focus on the key issues associated



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with the business strategy of the company and the customer's requirements. The Define phase

includes:

• Identification of customer requirements related to improvement projects. The

clarification request from the client side is called the Essential Quality characteristics

(Critical-to-Quality);

• Construction of the definition of disability as accurately as possible;

• Conduct a baseline study (through a general measure of the level of performance before

starting improvement projects);

• Organizing the project team with a sponsor (Champion);

• Estimate the financial impact of the problem; and

• Approval of senior management to proceed with the project.

DEFINE PHASE

Questions need to be

answered

Most commonly used tools

• What is important

for customers?

• What’re types of

errors / disability we are

working to reduce?

• So how much we can do?

• When will we complete

• The Project Summary (Project Charter)-A document

describing the issues clearly, defines a

disability, information about members of the project

team, the goal of the project will conduct and

record the commitment to support the

implementation of those involved.



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the improvements?

• How much does defect cost

presently?

• Who will be involved in the

project?

• Who will sponsor, or

do support this project?

• Trend chart (Trend Chart) - Indicates the trend

of visual defect appear after some time.

• Pareto Chart (80/20) - Indicates the level

of visual impact and negative between the input

factors to output or level of disability.

• Process flow chart (Process Flow Chart) - to

understand how it works and the sequence of steps of

the current processes.

Table 2 . Define phase descriptions

MEASURE PHASE

Objectives of the Measure phase are to fully understand the level of performance in the

present by identifying the best way to assess current capabilities and begin measuring.

The measurement system should be useful and relevant to the identification and measurement

of sources of variation. This phase includes:

• Identify the specific performance requirements related to the Essential Quality

Characteristics ;

• Establish the process diagrams (process map) associated with the inputs (Input / X)and

output (Output / Y) were identified in which, at each step of the process, to express alignment

of the input factors can affect output factors;

• A list of potential measurement system;

• Analysis of the measurement system and establish a baseline capability of the process;

• Identify areas where errors in the measurement system may occur;

• Take measurements and data collection of input factors, processes and outputs;

• Verifying the existence of the problem based on the measurement system;

• Clarify issues or objectives of the project.

MEASURE PHASE

Questions need to be answered Most commonly used tools



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• What is current process we are in?

• How to compare the levels of

performance ?

• How output characteristics are likely

to affect the

most essential quality (CTQ)?

• Are input factors likely to

affect output (affecting CTQ) by the

most?

• Ability

to measure / detect vibrations of the

system was sufficient, was not?

• How’s the capacity of the

current process?

• How’s current active process?

• How well the current process can be

if everything is running smoothly?

• The current process may be perfect

that which’s according to the design?

• Fishbone diagram - to

show the relationship between inputs and outp

uts.

• Process Mapping - to understand the current

processes and facilitate the project team

can identify potential waste.

• Matrix of cause effect - to quantify the impact

of each factor input to the variation of the

outputs.

• analyze the status of errors and Impact

- use this tool in the measurement step will

help us identify and implement remedial

measures to reduce temporary disability

and save money charges as soon as possible.

• Assessment Reliability of Measurement

System- is used to analyze the variation of the

components of the measurement

system which will reduce the mistrust of

the measurement system.

Table 3 . Measure phase descriptions

ANALYSIS PHASE

In the Analyze phase, the parameters collected in the Measure phase are analyzed for

the author

theories about the root causes of variations in the parameters can be generated and

then proceed to verify.

Is at this stage, the real business issues to be switched on statistical issues, including:

• Generate hypotheses about the root causes underlying causes of variation and

essential inputs (X);



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• Identify a few factors and inputs the most significant impact, and

• Validate these hypotheses by multivariate analysis (Multivariate).

ANALYSE PHASE

Questions need to be

answered

Most commonly used tools

• Is inputs that have the

greatest

impact to the quality

of the basic output

characteristics (based

on actual data)?

• How much the extent

should be?

• Is the combination

of the

variables affecting the o

utcome?

• With changing

inputs, is outputs

corresponding changes a

s expected?

• How many

observations can

be conclusions?

• How much the

reliability of the

conclusions is?

• 5 Why (Five Why's) - use this tool to understand the root

causes of defects in a process or product, and to be able to

break the default wrong before about the causes.

• Assess the distribution characteristics (Descriptive

Statistics, Histograms) - This tool is used to determine the

characteristics of the collected data are normal or abnormal to

help us choosing the tools of statistical analysis appropriate

later.

• Analysis of correlation / regression (Correlation /

Regression Analysis) - To determine the relationship between

the inputs of the process and the outputs or the relationship

between the two groups of data variability.

• Dynamics of the main actors (Main Effect Plot) - Displays

the main agents of the studied ones.

• Analysis of variance (ANOVA) - this is inferred statistical

tool is designed to test for significant differences between the

mean value (mean) between two or more samples.

• Complete the table FMEA (Failure Mode and Effect

Analysis) - application tools on current processes helps us to

determine the appropriate action to improve the disability

prevent recurrence.

• Methods to verify the hypothesis (Hypothesis testing

methods) - this is the set of tests aimed at determining the

source of variation using the data in the past or present to

provide objective answers to questions that were previously

often a subjective answer.



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Table 4 . Analysis phase descriptions

This step allows us to analyze the methods used and the specific statistical tools to separate

the main factors that are critical to a comprehensive understanding of the causes of defects.

IMPROVE PHASE

Improve phase focuses on developing solutions to eliminate the root causes of variation,

proven and standardized solutions. This step includes:

• Identify ways to eliminate causes of variation;

• Validation of the input factors;

• Explore the relationship between the variables;

• Establishing tolerances for the process, also known as upper and lower limits of the

specifications or customer requirements for a process to evaluate the response of a specific

characteristic, and if stable process operation within these limits will help create the product

or service quality expected;

• Optimizing the input factors or reconfigure the parameters of the processes involved.

IMPROVE PHASE




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• When will we know

the inputs that have the greatest

impact to the outputs?

• How do we have to control them?

• Is that we need to try many times to

find out and determine the operating

mode / regulation,

optimal inputs for this major?

• The old process should be

improved and what is the new

process will be like ?

• How much has reduced Defects

Per Million Capacity (DPMO)?

• Flowchart (Process Mapping) - This

tool helps to represent the new process was

implemented after the improvement.

• Process Capability Analysis - to test

the capacity of the process after

implementation of improvement actions to

ensure that we achieve a real improvement in

the prevention of disability

• Experimental Design - the set of tests

were planned to determine the mode /operating

parameters to achieve optimum output as

expected and confirm the improved progress

Table 5 . Improve phase descriptions

CONTROL PHASE

The objective of the Control phase set the standard measures to maintain performance and

fix problems as needed, including issues of measurement systems. This step includes:

• Improve the measurement system;

• Proven long-term capacity of the process;

• Implementation of process control by control plans to ensure problems do not reoccur by

continually monitoring the processes involved.

CONTROL PHASE



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• When the defects have been

reduced, how can

we ensure that improvements are

sustained?

• What systems should be

applied to test the implementation

of improved procedures?

• What’re measures to

maintain the results even when

things change that we need to

establish?

• What’s the lesson can

be improved for everyone to

share in the company any way?

• Planning and control (Control Plans) - This is

a document or set of specified actions,

including schedules and responsibilities necessary to

control the variable input factor

essential to the optimal mode of operation.

• Process Mapping with Control Points -

Includes a single diagram or set of visual

diagram shows the new process.

• The control charts in statistical process- A set

of charts to help track the process by displaying the

data over time between the upper

standard limit (USL) and limited standards under

a center line

• The inspection

slip (Check Sheets) - This tool allows us to store and

collect a systematic way from the source data in the

past, or past events arise. Accordingly, the

form repeated patterns and trends can be identified

and clearly presented.

Table 6 . Control phase descriptions

In short, the selection of Six Sigma projects at an early stage is very important and therefore it

plays a key role for the success of the Six Sigma project organization should consider

carefully the implications can affect the success of the project as well as considering the

possibility of solving the problem without implementing Six Sigma project

2. The process of applying Six Sigma at OJB in period of 2004-2006



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2.1. Business situation of OJB

a. The main business line

OJB obtains permission to do the operation as followings:

- Capital mobilization: deposit-taking, bond financing to build up the funds from both of

inbound, outbound organizations or customers.

- Financing to respective organization or customers with various types of loans, discount of

claims, finance leasing…that are under permission of the State Bank of Vietnam.

- Performance the guarantee of funding, payment, contract implementation, performance bond

and others banking guarantee forms for financier or personals that definite in relevance

documentary provided by the State Bank of Vietnam.

- Investing in contribution or buying stock of inward or outward companies as well as

financiers from sources of charter capital and provident fund.

- Inward currency exchanging and trading on foreign currencies and gold (the outwards

intended to joint as soon as receiving SBV’s acceptance)

- Assigning and operating commission, represent in the respective banking factors.

- Providing all kinds of domestic payment, safekeeping treasure, valuable document, pledge

services, storehouse, and warehouse lassoers.

b. Capital mobilization status

First of all, capital mobilization is an indispensable operation to banks hence it makes the

main resource what to be used for others such as: financing, payment services…

Prior to changing to Urban Commercial Joint stock bank, OJB had been operating within the

limits of Haiduong civil thus, its capital mobilization was sparing with quality and quantity.

Otherwise, this tragic situation also became from competence of the other big bank. So, when

finish this Six Sigma changing, expanding the network along with the new friendly interest

policy, it’s consequently to OJB raise up rapidly its capital mobilization.

As a result, building up the fund of OJB is described by the Table 7

Unit : Millions VND



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ASchedule

figure2004 2005 2006

Margin

2005/2004

Margin 2006/2005

Amount % Amount %

2 Capital Mobilization 63.255 139.184 800.071 +79.929 +120 +660.887 +475

3 Non-personal deposit 36 81 450.179 +45 +125 +450.098 +562

4 Saving deposit 63.219 139.103 186.975 +75.884 +120 +47.872 +34

5 Other deposit - - 56.817 - - +56.817 -

6 Borrowing - - 106.100 - - +106.100 -

Gross resource 78.350 161.700 1.001.335 +83.350 +106 +839.635 +519

Table 7. OJB capital mobilization situation

(Source: OJB annual reports 2004-2006)

The changing situation of capital is realizable through above data sheet in the period 2004-

2006. In the details, OJB capital has been promptly raising up in running, especially in 2006.

In 2005, gross resource made 161.700 millions VND, an increase of 83.350 millions VND

compared to 2004, respective raising rate is 106%. In 2006, gross resource (including VND

and foreign currency) made 1.001.335 millions, increasing 389.635 millions VND in

comparison with the year of 2005 via growth speed 519%, In more details, the non-personnel

depositary had been overshooting with speed of 562% beside 2005. Inside the table, we also

know that in the years of 2004, 2005, OJB primarily had build up the fund through saving

depositary but in 2006 the mist mode of financing is non-personnel one.

That is to say 2006 was a year in which the gross resource of OJB had been made a highest

degree of thriving as much as rapidest speed compared with the same period last years. It’s

logically to get this encouraged progress when the speed of Haiduong urbanization in 2006

has been swiftly booming (Haiduong tends to be class 2 Urban in 2008). Thus, there are many

plan of capital construction, industrial zones in the stream of establishing companies has been

attracting much of outward investing monetary flow. Moreover, OJB itself has rationalized

financing assignment, essential customer care policy, good-mannered, applying flexible rate,

and spreading marketing operations, keep up the precise public relation for making name OJB



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as a strong trademark. Through all theses activates, applying Six Sigma helps OJB manage its

process effectively, especially suitable with the new high requirements from customer. From

hence, OJB is more and more available to catch the dormant capital from enterprises and

citizen. Besides, OJB has carried out modernizations in information technology for banking

process, establish the PCs network connected to the whole system to improve capacity.

Customer orientation is to serve customer promptly and effectively. As a result, the opening

transaction account number to be increased more and more.

Particularly, one more competence development comes from a Six Sigma project for the big

client of OJB is in progress. In the case of clients who have very big dormant capital, OJB has

been providing various priority methods over usual to harmoniously ensure the valuable

benefit for both sides of consigning and purchasing parties. OJB upholds to appoint credit

clerks to the every big client for updating related vouchers, set up the particular mobilized

workgroup that stand by client’s office. In addition, OJB has essentially applied the interest

rate within permission of SBV to build up a stable and solid situation in banking performance.

2.2. Implementation of Six Sigma at OJB

In 2004, Asian Productivity Organization (APO) to approve the project Six Sigma in OJB to

promote the effectiveness of Six Sigma in improving yield and quality of the organization /

enterprise. The project started out in OJB from 1/2004, and was successfully

concluded on 12/2006.

The purpose of the APO project is selected as the concept model for OJB application of

Six Sigma in Vietnam, through which the effect of promoting the application of Six Sigma in

Vietnam and other countries in the APO zone, simultaneous transfer of knowledge and

experience in Six Sigma for IT professionals by Vietnam Productivity Centre (VPC) .

Six Sigma is a very effective tool in reducing waste, improving productivity, reducing product

defects, improves customer satisfaction.

The project launched with the participation of three partners: APO +VPC + OJB. At that time,

OJB was about Three Sigma level, according to studied survey that carried out before. The

bank is striving to improve operational efficiency and quality customer service to become the

first class bank in Vietnam. During the recent challenges of the global economy,

OJB increasingly need to accelerate process improvement systems and processes to adapt to.



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The pilot projects were selected to apply the Six Sigma process improvement are:

• Project 1: Improving the management and operation of ATM

• Project 2: Improving the lending process

• Project 3: Improving the process of document rotation

• Project 4: Reducing the processing time to the customer portfolio

Six Sigma experts from APO undertook to guide the project team of OJB by below methods:

TRAINING – PRACTICING – CHECKING.

• Phase identification (Define): The group identified the problem, given the context of the

project, analyzing the benefits the project may bringing, pointing out the roadmap, project

scope and project team list.

• Phase measurement (Measure): The problem is identified, the focus group analysis

found the factors affecting the objectives of the project and start measuring, collecting

data to clarify issues .

• Phase analysis (Analyze): The purpose is to use statistical tools, analysis tools to find

the root cause of the problem.

• Improve phase (Improve): This phase groups offer solutions to the root cause of the

problem to eliminate or minimize the causes.

• Phase control (Control): The group implemented the solution on a pilot scale, measure

and provide procedures to maintain the achievements of the project a long-term and stable.

In this essay, only improvement related to credit factors would be collected and described as

an example result of Six Sigma enhancement. In each operation process of OJB, project team

work in group try to find the root cause that may perspective takes improvement with

suggested changes. The cycle PLAN – DO – CHECK – ACT has been used to adjust every

activity until they agree with a fully work-out proposal. However, every improvement should

be enhanced by the times, applying Six Sigma process at OJB also abide by this rule as well.



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Figure 2. OJB’s lending process



Receiving

document

Leader

approving

Inform to

customer

Verification

Ratifying

Loan making

decision

Disbursement

procedure

Post-release fund

control

Re-

screening Inform to

customer

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Figure 3. OJB’s documentation rotating process



Customers

Credit document

Credit Clerk

Manager

Director

General director

Credit board

Re-screening

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2.3. The result obtained when applying Six Sigma at OJB

With many difficulties to overcome both the objective and subjective, but after 48 months of

pilot projects ended with many positive results.

IMPROVEMENT

Project 1- Reduce the 3 steps in the process of ATM funds and

increase machine uptime from 95% -> 97%,

- Savings VND 111,286,666 / year.

Project 2- The average time steps of process were reduced from 120 minutes to

80 minutes (~ 25%) of Disbursement procedure to Post-release fund

control.

- Down 47% on-time error detection of Receiving document.

- Down from 18 days to 5 days to minimize the risk of Ratifying

steps.

Project 3- Reduce the 7 sub-steps and 4 signatures of approval procedures

- Increase the Sigma level from 1.6 to 2.5,

- 20% saving transaction time for customers (from 198minutes

to 162 minutes);

- Improve customer satisfaction (from 48.2% to 68.7% customer said

Satisfy in service feedback form).

Table 8. Summarized results of Six Sigma projects

(Sources: Quoted from OJB reports)

Over the Six Sigma methodology can draw the lessons learned are:

Commitment of the leadership-management key to success Six Sigma started from the top



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down and top management department will have to commit sufficient resources.

Six Sigma will not be successful without the support from top management department

The participation of all employees:

Six Sigma requires a change in culture, it changes the way we work. All member

companies must participate and we are committed to make them change. The active

participation of all employees at all levels will ensure the success of the project

Start from small things.

We should focus on small projects to be able to achieve success quickly. If a project

seems massive, break it into smaller projects to be sure to use resources efficiently.

Continuous Training

All employees must be continuously updated techniques solve this problem continuously. It’s

important to create equal educational opportunities for all members of the company.

Make decisions based on facts

Six Sigma goals of working with data. All decisions should be based on reliable data.

3. Some measure to raise the credit quality at OJB



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Even though the government has provided guidelines for commercial bank to have certain

autonomy in their lending decision and responsibility for those decisions, but in reality, banks

do not always have such autonomy. Often times, banks suffer influence from multiple sources

(from local authority or person of influence) the banks lend to businesses that in all fairness

should not be able to procure loans. Heightened risks are due to situation such as these.

A reality that we have come to terms is that presently in Vietnam, an independent credit

ranking bureau has not established. This is an important factor that one must not over clock.

Banks lack unbiased information in the process of examining, understanding and valuing

potential customers in order to accept or refuse a loan application. This limits the ability to

expand credit because banks are not willing to take risks with businesses that they are

uninformed about.

Two components that go hand in hand with credit are risk and profit. If the bank is only

interested in pursuing profit but lack necessary caution in risk management, then the

probability of the risk is high, but instead, if there is not too much spotlight on risk and very

cautions in terms of lending, then the bank may face the possibility of loosing valuable

customers and much profit. This is an issue of balance that not only OJB but all national

banks are facing. Undue stress is placed on safety of fund that the trend is that most banks

limit lending to independent business.

Admittedly, lending to private business in the recent past is risky, nevertheless, not all

international entrepreneurs are created equal, they are aware of their roles in economics. This

is what banks, including OJB, need to focus on in the near future.

No Quotients 2004 2005 2006

1 Mobilized capital/Outstanding 0.98/1 1.26/1 1.21/1

2 Lending revenue/Outstanding 0.84/1 0.87/1 0.83/1

3 Receiving interest from creditivities/Outstanding 6.4% 14% 6.4%

4 Receiving interest from creditivities/Total returns 92% 96% 89.7%

Table 9 . Analyzed quotients of credit quality over 3 years



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The bank’s marketing activities have not really been studied. This kind of work has only been

done cosmetically, a kind of public relation and propaganda that does not come from vigorous

research, therefore unable to grasp fully the need of market in order to satisfy that need.

Previously, the bank’s marketing activities has been considered duties of marketing agents,

but in fact, it is the duties of all banking staff. This weak point is not only seen at OJB but

almost all banks in Vietnam. OJB’s debt over proportion still be ideal but its customer relation

is not really, as they always put forward “My role is your partner”. The mainly supports to

companies of OJB operations just has been debt adjustment, debt extent, added lending

capital, so not yet performed consulting orient role to help companies solving their difficulties

in business.

First and foremost, thoroughly OJB’s lending followed economic sector structure; lending

proportion of public sector still is at high volume. The state-own is very high-risk potential

customers because of small capital owned, lacking of mortgage and much more problems

belong to its essence. The private sector has been not oriented as proper as it should be.

In other sides, a professional skill in appraising has been not qualified in fact, especially in big

size projects such as: construction, heavy industry, trading….Therefore, quality of credit

appraising has still lowed, namely determining practicability of projects, lending projects,

specifying accruement source, borrowings aim using, disbursement time, puzzle in defining

and applying lending modality…Each of these problems all together made an adverse effect

into OJB operations and miss the business opportunities of its customers.

Human resources – this is concentrated matter among others. In credit sector, if creditors

have no possibilities to analyze project/plans, to evaluate the market…then they can not

access the practicability these projects/plans as a mistaken appraising that may lose investing

opportunities of their customers. Additionally, in information collecting, if creditors lack of

necessary skills, they will not fulfill needed information for projects/invested plans. Even

completing information phase, they could not use or analyze sensibly without level of ability.

It’s certainly that Six Sigma not to be the magic key for all problems that OJB have. So it may

help to reliably reduce the defects in every operation process. In the last part of this essay, we

attempt to look inside some processes that Six Sigma appliance could get the positive result as

it done before.



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One of the main and fundamental types of risks in banking activities are the irrecoverableness

of debts that have negative impacts on the business efficiency, reducing profit, limiting the

growth speed of debt balance and capital rotating speed; depriving the bank of payment

capability of the bank at the higher level. Therefore, restriction and minimization in business

risks are always the top priorities and the highest goals of bank’s administrators, requiring

banks in particular and banking system in general to implement the effective professional

measures in business activities with a view to improving bank’s credit quality.

3.1. Building business strategies

Business strategies are always the expressions of the long term basic goals of a bank; selection

of operating directions and allocation of necessary resources to achieve these goals. Thus,

business strategies are first and foremost very essential and of decisive meaning to the

existence and development of any banks. Business strategies have significant influences on

the quality of banks’ operations especially the quality of credit. So, if a strategy is not built in

compliance with the real ability of the bank and the market demands, then that bank shall have

the wrong steps that affect the efficiency of its operations. But if there are not business

strategies, the bank can not foresee the possible changes. Thus, it does not have overcoming

measures.

Additionally, competitiveness between banks have become increasingly fierce in the economy

market nowadays. And that is the reason why it is a must to have a business strategy suitable

with the market practice and the bank’s capability.

To follow this goal, the bank should simultaneously carry out measures as follows:

-First, enhancing and developing regular customers. Ocean Joint Stock Commercial Bank

needs to simplify its loan procedures for enterprises that are its regular customers based on

assurance of safety, satisfying the enterprises’ demands in a timely and quickly manner within

its ability, creating comfortable, trustful and secure psychology and feeling for the customers.

For customers of long-lasting good relations, it is essential for the bank to shorten the

appraisal time as well as other loan-guarantee stipulations.

-Second, for customers of non-state owned enterprises such as joint stock companies, private

companies…, Ocean Joint Stock Commercial Bank needs to have specific policies aimed at

promoting the potential of this customer group. In practice, the number of customers of non-



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state owned enterprises accounts for a high percentage of its customer base. Although these

enterprises enjoy high possibility of risks objectively and subjectively, not all non-state owned

enterprises have the same way of doing business. Many enterprises do business efficiently,

make profits and repay the full loans for the bank. In the transitional period of the economy,

the number of non-state owned enterprises being established has gone up significantly. If the

current situation still remains unchanged, the bank shall miss such a huge source of benefits

and the competitiveness in the area is certain to be reduced.

-Third, selective expansion is done for the new groups of customers. The bank must be

dynamic to take all necessary measures to attract customers in the state owned area to make

closed loans compatible with production process. At the mean time, setting and improving the

efficiency of credit information processing based on the fact that the bank must select

customers through various and essential measures to heighten its market share of the

customers being the general corporations.

Through building customer strategies, the bank can manage its customers more practically.

Owning to this, the bank can participate into new projects of enterprises actively and directly

at the very initial stages, not having to wait until these enterprises ask for loans. Obviously,

through this, the bank can have deeper understanding of the projects.

3.2. Diversification of credit activities

Diversification is one of the operating guidelines of the bank with a view to decreasing risks,

assuring safety both for the bank itself and the depositors. Diversification of credit activities

consists of the diversification of loan methods and loan for trading fields.

-Diversification of loan methods: it is necessary for the bank to supply loans under

commercial paper discount. It is a specialist skill of low risk because discount allows banks to

have the right of recourse when it fails to collect debts from the issuer. Moreover, discount

does not make the banks’ capital frozen due to short duration. Because it is possible to

rediscount, capital of banks can be rapidly cleared, the liquidity of banks’ assets is improved.

Furthermore, the bank can use other different lending measures such as: lending through the

issuance and usage of credits, rotation lending…The bank can combined different lending

methods at the same time. For the new lending methods, the bank should make clear and

thorough explanations to the customers in terms of methods, advantages and disadvantages of

each type so that the customers can carry out their borrowings conveniently the next times.



27

After each time of new method application, it is very pivotal for the bank to gather and

summarize opinions from the customers to bring into full play the strengths and minimize

weaknesses of each method.

-Diversification of loan for trading fields: In economic industries, Ocean Joint Stock

Commercial Bank lends in various trading fields such as tourism commerce, capital

construction…This is quite suitable with the banks’ role. However, the bank should also

attach importance to lending in the traditional trading fields of customers, concentrating on

loans for trading fields that are not considerably influenced by globalization process and

schedule of Vietnam’s accession to the WTO… By this way, the bank can disperse and divide

risks and raise profits. To perform this well, Ocean Joint Stock Commercial Bank must focus

more on seeking and exploitation of customers in this fields; improving appraisal activities of

the projects; enhancing the professional knowledge of credit staff about this field.

3.3. Efficient implementation of credit activity processes

Process of credit activities includes the basic professional contents, implementation steps from

the beginning to the end of a loan which main points are appraisal stages regarding financial

efficiency of the loan; inspection of the borrowed capital usage of the customers, reminding

them of the loan and loan interest payment duration so that they have payment plans… This is

necessary work for credit staff when carrying out their lending aimed at restriction of capital

loss and minimization of risks.

To lend effectively, it is a must to follow and execute fully and strictly the lending process

especially perform well the appraisal activities on the project finance, seizure of information

about the customers, business and production situation of the customers, capital using

purposes, perform well the appraisal activities for each phase of lending process in order to

the lending quality, decrease the risks for the bank, accelerating the production because if the

project’s borrowing method is feasible, the customers use their capital efficiently, then their

credit-worthiness is very solid and reliable. The more effective the appraisal and inspection

stages are, the higher the capital recovery possibility of the bank is and this assures the credit

quality of the bank. Therefore, improvements of professional knowledge during credit process

are extremely essential.



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3.4. Enhancing inspection activities of credit loans

Banking activities are the ones of closed relation with business production activities of fields

in the national economy. Economic fields want to develop and expand their sizes, capital

sources needs to be added by borrowing from the bank. If business production activities of

enterprises are inefficient, it leads to credit risks. Therefore, commercial banks in general,

Ocean Joint Stock Commercial Bank in particular lending enterprises should inspect

stringently and closely the capital using process of enterprises.

Inspection before lending: inspection of the validity, legality of loans and the related people’s

signatures; the match of date and figures of papers and relevant documents, whether involved

credit staff and leaders implementing the lending process in accordance with the stipulations

or not.

Inspection during lending: Inspection during delivery of loans, if transfer of payment to the

counterparts of the borrowing customers is done correctly and suitable with the borrowing

purpose or not, having adequate legal and valid evidences or not. When loans are signed and

approved for disbursement, the credit staff must keep capital borrowing dossiers and other

supplemented documents during observation duration of debt collection until the debt is fully

repaid and transfer of documents archived as stipulated.

Inspection after lending and debt recovery: After granting loans for customers, the tight

inspection and observation on the customers of the bank shall reduce their needs and

intentions of misusing the loans.



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List of References

1. Craig Gygi,, Neil De Carlo, Bruce Williams, Stephen R. Covey, Six Sigma For Dummies,

March 4, 2005, Wiley Publishing, Inc. Indianapolis, Indiana, USA.

2. Diane Ritter, Francine Oddo, Janet MacCausland, The Memory Jogger 2: Tools for

Continuous Improvement and Effective Planning, Michael Brassard, March 16, 2010,

GOAL/QPC, 12 Manor Parkway, Salem, USA.

3. Gerhard Plenert, Strategic Continuous Process Improvement, October 24, 2011, The

McGraw-Hill companies, New York, USA.

4. George Eckes, Sandra Derikson – Six Sigma Team Dynamics : The exclusive key to

process – John Wiley&Sons, Inc, Hoboken, New Jersey, 2003.

5. George Eckes – Six Sigma for everyone – John Wiley&Sons, Inc, New Jersey, 2003.

6. George Eckes – General Electric’s Six Sigma Revolution: How General Electric and others

turned process into profits – John Wiley and Son, Canada, 2001.

7. Lewis, M.A – Analysing Organisational Competence: Implications for the management of

operation – International journal of Operations and Production management, 1999.

8. Mark O. George, The Lean Six Sigma Guide to Doing More With Less: Cut Costs, Reduce

Waste, and Lower Your Overhead, February 8, 2010, John Wiley&Sons, Inc, Hoboken, New

Jersey, USA.

9. Martin Mulder – Creating Competence: Perspectives and Practices in Organisations –

Paper presented at AERA, New Orleans. Enschede: University of Twente. Faculty of

Education Science and Technology, 2000.

10. Michael George - Lean Six Sigma for Service : How to Use Lean Speed and Six Sigma

Quality to Improve Services and Transactions - The McGraw-Hill companies, June 27, 2003.

11. Michael L. George, John Maxey, David Rowlands, Mark Price - The Lean Six Sigma

Pocket Toolbook: A Quick Reference Guide to 100 Tools for Improving Quality and Speed -

The Mc Grow-Hill Companies, George Group, New York, USA, August 1, 2004 .



30

.

12. Michael Brassard, Diane Ritter, Francine Oddo, Janet MacCausland - The Memory

Jogger 2: Tools for Continuous Improvement and Effective Planning -,GOAL/QPC, 12 Manor

Parkway, Salem, USA, March 16, 2010

13. Mike Rother, John Shook, Jim Womack, Dan Jones - Learning to See: Value Stream

Mapping to Add Value and Eliminate MUDA - The Lean Enterprise Institute, Inc, One

Cambridge Center, Cambridge, USA, June 1, 1999.

14. Neil De Carlo, The Complete Idiot's Guide to Lean Six Sigma, Breakthrough Management

Group, Penguin Group Inc. 375 Hudson Street, New York, USA.

15. Parahalad,C.K and G.Hamel – The core competence of the corporation – Harvard

Business Review, May, June, 1990.

16. Peter S. Pande (et al), Robert P. Neuman, Roland R. Cavanagh - The Six Sigma Way: How

GE, Motorola, and Other Top Companies are Honing Their Performance, Mc Graw-Hill,

USA, April 27, 2000.

17. Phillip Slater, A New Strategy for Continuous Improvement: 10 Steps to Lower Costs and

Operational Excellence, January 1, 2007, Industrial Press, Inc.989 Avenue of the Americans,

New York, USA.

18. James P. Womack, Daniel T. Jones - Lean Thinking: Banish Waste and Create Wealth in

your cooperation - Second Edition, a Division of Simon and Schuter, Free Press 2003.Inc,

New York, USA.

19. Thomas Pyzdek, Paul Keller - The Six Sigma Handbook, Third Edition - McGraw-Hill

companies, USA, September 21, 2009.

20. Richard Lynch, Kelvin Cross, Measure Up!: Yardsticks for Continuous Improvement,

Second Edition, November 23, 1995, Blackwell Publishers Ltd, Oxford, UK.

21. Warren Brussee – Statistics for Six Sigma make easy – Mc Graw-Hill, New York, 2004.

22. Ocean Bank annual reports – 2004/2006, The State bank of Vietnam, October, 2005.



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Assignment on economics

Documents

john wileyamp

neil de carlo

define phase

million defect

dmaic management

control phase

measure phase

analysis phase