Best practices on cost reduction using Lean Six Sigma

Best practices on cost reduction using Lean Six Sigma

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CenturyLink Overview

CenturyLink formed from the merger of two large telecom providers

$8.8 billion of revenue and $3.8 billion of EBITDA

Headquarter: Monroe, LA

S&P 500 company / expected to be Fortune 500

www.centurylink.com

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Leading Communications Provider

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EMBARQ BPI Evolution

2005 – 2006 EMBARQ separates from Sprint

- EMBARQ formed through spin-off from Sprint

- Focus on spin-off activities

2006 – 2007 Shotgun approach

- Heavy training/tool focus through Six Sigma

- Put it in the business & let them go

- Limited quantifiable benefit

2007 - 2008 Business partnership

- Moving away from tool focus

- Lots of projects

- Kaizen implemented to drive quick results

- Great business benefits, but lost in the business

2008 - 2009 Heavy initiative focus

- No tool focus (use the tools where appropriate)

- Don’t use the words Lean or Six Sigma (BPI only)

- Big quantifiable results!!!

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Business Process Improvement: Looking Back

Partnering with business units to work on business unit specific initiatives

WholesaleCompleted 2 Kaizen events: VoIP, Switch Access PIUFuture areas of focus include: Fiber Access, ICB

Special Pricing, Sonet Services

ConsumerCompleted 1 Kaizen event: Call EscalationFuture areas of focus include: Compensation Cycle

Time, IVR, Sales Reporting

BusinessLimited opportunities identifiedCurrently conducting analysis of operating metrics

within sales support and care function

NetworkCompleted 3 Kaizen Events: Ethernet Provisioning,

Fiber to the Premise (FTTP), ACTL POIFuture areas of focus include: NSM and Production

Planning assessment

Revenue ManagementCompleted BPM build for auto promo code processFuture areas of focus include: 7 Additional BPM builds

ITCurrently addressing Asset Recovery processesFuture areas of focus include: adding additional areas

for asset management

Business Consumer Wholesale Network Rev Mgmt ITBusinessBusinessBusiness ConsumerConsumerConsumer WholesaleWholesaleWholesale NetworkNetworkNetwork Rev MgmtRev MgmtRev Mgmt ITIT

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BPI Program Goals

Aggressively drive an enterprise-wide process improvement initiative• Agreed upon financial targets and timelines to realize those targets• Focused on helping achieve 2009/2010 business-wide targets• Develop detailed design information for the individual processes (sub-processes)

that result in the highest financial and/or customer impact• Support execution/implementation of the new processes, including

communications, management of organizational change and formal documentation of new processes

Focus on end-to-end efforts in addition to BU issues• Look specifically for agreement on key processes to attack for the initiative• Business-centric issues prioritized between each other to ensure optimal benefit• Create end-to-end design documentation including linkages to growth and

expense target plans, initial financial justification and determination of which of the sub-processes require detailed design documents

Ensure that gains are recognized and sustainable• Establish a program management function to ensure that the process changes

hold and, as importantly, that the planned benefits are being achieved

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Phase 1

L

LL

L

S

LLLLLLD

<-X% Growth>

L

P

IT

IT

~$200M

Operating Costs

Revenue

L

L

S

S

L

S

S

Supply Chain

Supply Chain

HRFinance

~$150M

Billing

~$100M

Field OpsProvisioningOrder ManagementCall CenterField Sales

L

L

L

L

HR

~$30M

Finance

~$250M

Network

~$950M

Channels

~$450M

L

L

P

S

S

L

L

LSSLLAccess

LLLSLCLECWholesale

$1.8B

PPPSPEnterprise

PPPSPDSL

25% Growth*

PPSSPMulti-LineBusiness

$1.5B

PPPSLDSL

52% Growth*

SSLSLPOTS

<-6% Growth>Consumer

$2.6B

L

LL

L

S

LLLLLLD

<-X% Growth>

L

P

IT

IT

~$200M

Operating Costs

Revenue

L

L

S

S

L

S

S

Supply Chain

Supply Chain

HRFinance

~$150M

Billing

~$100M

Field OpsProvisioningOrder ManagementCall CenterField Sales

L

L

L

L

HR

~$30M

Finance

~$250M

Network

~$950M

Channels

~$450M

L

L

P

S

S

L

L

LSSLLAccess

LLLSLCLECWholesale

$1.8B

PPPSPEnterprise

PPPSPDSL

25% Growth*

PPSSPMulti-LineBusiness

$1.5B

PPPSLDSL

52% Growth*

SSLSLPOTS

<-6% Growth>Consumer

$2.6B

P – Primary Focus S – Secondary Focus L – Low Focus

A disproportionately high % of opex is associated with order-to-cash for DSL and business products.

* 2006 10-K

© Deloitte Touche Tohmatsu 2004. All rights reserved. 0104

D el o i t t e T el eco mmun i cat i o n s I n dus t ry V al ue Map

C o n d en sed V ers i o n(Practical paths to increase shareholder value)

It’s easy to say shareholder value is important. Not so easy to make it influence the decisions that are made every day: where to spend time and resources, how best to get things done, and, ultimately, how to win in the competitive marketplace.

This Map is designed to accelerate the connection between actions you can take and shareholder value. It is not rocket science and it is not complete, but it can jump-start the process of focusing on the things that matter most and then choosing practical ways to get them done.

Here are two simple ways to use it:§ Start at the top. Working your way

down, at each step ask yourself, How will we improve this? This will help ensure that your tactics support your objectives.

§ Start at the bottom. Working your way up, at each step ask yourself, Why are we doing this? This will help ensure that every tactic leads to shareholder value.

Revenue Growth

Current CustomerVolume

New CustomerVolume

Price Realization

Churn Reduction

Increase Tenure of Customer

Relationships

Increase Breadth of Customer

Relationships

Offer Innovative Products

& Services

Offer Innovative Products

& Services

Acquire New Customers

Analyze & ManagePricing

Barriers to Switching

Service Effectiveness

Cross-Sell / Up-Sell

Voice & Data Usage

Voice & DataDevelopment

Product Awareness

Voice & DataDevelopment

Product Awareness

Brand Awareness

Customer Reach

Demand & Supply Management

Price Optimization

Operating Margin(after taxes)

Sales & Retention

Cost of Services (COS)

General & Administrative Income Taxes

Improve Sales & Marketing

Efficiency

Improve Product

Development Efficiency

Improve Network

Efficiency

Improve Logistics & Service

Efficiency

Marketing & Advertising

Direct Sales

Indirect Sales

Customer Segmentation &

Treatment

Product Development

Logistics & Distribution

Handset & Device Merchandising

Engineering & Operations

Network Operations (NOC)

Improve Corporate & Shared

ServiceEfficiency

Customer Service & Support

Order Fulfillment & Billing

IT & Backoffice

Procurement

Human Resources

Real Estate & Infrastructure

Business Management

Financial Management

Improve Income TaxEfficiency

Income TaxManagement

Asset Efficiency

Property, Plant& Equipment

(PP&E)Inventory Receivables

& Payables

Improve PP&E

Efficiency

Improve Inventory & Spares

Efficiency

Improve Receivables &

PayablesEfficiency

Real Estate & Infrastructure

Networks

Handset & Device

Network Equipment

Accounts, Notes & Interest Receivable

Accounts, Notes & Interest Payable

Expectations

External Factors

Company Strengths

Improve Management &

Governance Effectiveness

Improve Execution

Capabilities

Governance

Business Planning

Program Delivery

Business Performance Management

Operational Excellence

Partnership & Collaboration

Relationship Strength

Agility & Flexibility

Shareholder Value

• Establish and prioritize the list of end-to-end processes to be reviewed

• Allocate team members based upon highest return/highest impact processes

Concurrently:

Establish impacts to the overall enterprise and the associated interactions

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The Business Process Improvement Approach

High SpeedInternet

Identificationof

core focusareas

within &acrosslanes

EMBARQ BPI Analysis

ImprovementOpportunities& Roadmaps

New BuildEconomics

Supplier Contracts

Parts & Materials

CustomerContracts

Extensive Data Collection

Overall Objective:

Identify tangible improvement

opportunities aligned to EMBARQ’s 3 year

operating plan

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What we’ve heard …

End to End Process Ownership

•We have limited E2E process ownership and/or metrics to sustain on-going change

•Multiple VPs touch each process•Competing initiatives appear

across processes•Fixes in one area cause problems in

another • Individual measures need to support

broad process changes

Help Enable Change

•People have indicated they’re ready for improvements, but …

•Broad change causes anxiety•People are reluctant to suggest

cross-functional change•“We tried that in the past” and

“It will never work” resistance•Need to align compensation /

rewards with process goals

Better Forecasting is a Necessity

•Vendor’s require excessive lead time and our costs increase due to limited forecasting

•We’re missing revenue due to our inability to tie exhaust to customer forecast

•Capital planning is sub-optimal•We overstock because of forecasting

variability

Data Issues

•Unnecessary truck rolls due to poor plant data quality

•We’re not fully leveraging assets due to our inability to track them

•We’re less efficient due to multiple re-keying and data errors during the customer provisioning process

Common Pain

Points

Several broad themes span the individual BPI process areas.

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Phase II

Design Solution

Assign Inventory

Request 3rd Party Service if Required

Carry Out Dispatch Tasks

Activate Service

Send Trigger to Billing

Enter Customer’s Full Contact Details

Check Availability / Coverage for DSL

Check Customer’s Eligibility (e.g. credit)

Determine Payment Method and Create the Customer’s Sub-Billing Account

Reserve Technician for Best Available Date

Check Inventory If Necessary

Collect Deposit or Initial Fees

Submit Order

Check Zip Against Database

Check Service Availability w/ 3rd Party or Other Carrier

Arrange Customer Premise Survey if Necessary

Feasibility / ROI Check if no Current Availability

Bill Calculation

Invoice Applied

Invoice Generated

Customer Wants DSL

Service

Generate Payment

Reconcile Payment

Apply Payment In Customer Account

Apply Payment In General Ledger

DSL Service Order to Delivery E2E Process

Customer Gets DSL Service

Customer Call

Call Center Network Team Billing Finance

Siebel

ZIP Catalog / GIS

OSS Systems

Billing Systems

ERP

Feed from Pricing Engine

Incorporated into Monthly Statement

Process Flows Kaizen Information Procedure Manuals

Design Solution

Assign Inventory

Request 3rd Party Service if Required

Carry Out Dispatch Tasks

Activate Service

Send Trigger to Billing

Enter Customer’s Full Contact Details

Check Availability / Coverage for DSL

Check Customer’s Eligibility (e.g. credit)

Determine Payment Method and Create the Customer’s Sub-Billing Account

Reserve Technician for Best Available Date

Check Inventory If Necessary

Collect Deposit or Initial Fees

Submit Order

Check Zip Against Database

Check Service Availability w/ 3rd Party or Other Carrier

Arrange Customer Premise Survey if Necessary

Feasibility / ROI Check if no Current Availability

Bill Calculation

Invoice Applied

Invoice Generated

Customer Wants DSL

Service

Generate Payment

Reconcile Payment

Apply Payment In Customer Account

Apply Payment In General Ledger

DSL Service Order to Delivery E2E Process

Customer Gets DSL Service

Customer Call

Call Center Network Team Billing Finance

Siebel

ZIP Catalog / GIS

OSS Systems

Billing Systems

ERP

Feed from Pricing Engine

Incorporated into Monthly Statement

Key Metrics

Average Handle TimeService Level (%)Productivity (%)

Key Metrics

Good Jobs in 8% Commitments Met - Service Orders

(HSI)Percent Repeat Tickets (HSI)

Key Metrics

% rating errors per dayTime to resolve customer queries

Key Metrics

# of nopays$$ collected vs. $$ Spent

1 x $9 (initial order)

2 x $4 (chase-ups) 1.2 x $110 (Truck Roll)

1.1 x $20 (Activation)

1 x $2 (Invoice)

0.3 x $5 (Bill Query)

0.01 x $50 (nopay)

Incr

em

en

tal

Cos

t

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Process Steps

Legend

1) Linked Process Impacts –

2) Areas of High Cost Impact –

3) Sub-Process For Drill Down –

• Capture existing processes and metrics including current costs by function

• Identify appropriate approaches to solve associated problems

• Provide an end-to-end graphical view of process steps and cost impact

• Determine highest cross functional impact

• Gain executive buy-in on proposed changes and benefits

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Phase III

• Execute design sessions for sub-processes that were identified during Phase II

• Develop a plan for the quantification and ongoing measurement of the planned improvements

• Revise the end-to-end maps based upon the detailed design sessions

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Supplier Contracts

Key Accomplishments:Contract Compliance

• Identified root causes of violation spend • Updated Network methods & procedures, posted updates to Network Services intranet site and

delivered training to address identified gapsSupplier Management

• Completed scorecard assessments and executive review sessions with 12 critical suppliers (integrated supplier risk management into program)

• Integrated supplier risk management (financial & IP) into the program & executive discussions

Planned Actual

Contract Compliance:

Conducted audits of non-PO violation spend in Network and Business Operations

Completed as planned

Held Kaizen session to align M&P’s with fiscal & sourcing policies Completed as planned

Delivered training on M&P’s/policies Completed as planned

Conduct ongoing quarterly audits to continually address future violations Audits suspended in 2009 due to merger/resource constraints and anticipated NewCo process changes

Supplier Management:

Development of scorecard/methodology Completed as planned

Conduct executive review sessions with identified suppliers Completed as planned

Developed 3-4 strategic-level improvement areas with each supplier Business units continue to execute on plans

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Supplier Contracts

Planned Actual

Reduce excess cable in field locations by $XX

Recovered and used $XX of cable

Conduct Clean Sweeps in 20 locations by year-end. Target recovery of $XX of unused assets.

•Recovered to inventory - $XX plus over $XX in plug-in cards

•Consignment sales - $XX

•Scrap Sales - $XX

•XX pallets of product

Add images and plain English descriptions to the TONES catalog

The majority of all items were completed by year-end (over 3000 products)

Improve Supplier Performance – Delivery to Lead Time for top 8 suppliers

•X of X currently above XX%.

•One supplier dropped due to decreased spend.

•Seven suppliers improved year-over-year

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Customer Contracts

Initiative Before BPI After BPI

Government Repository

(Pramata)

• The contract repository tool (ASP) stores contracts by year which made gathering the entire contract difficult.

• Not all contracts were stored in ASP – some resided with sales personnel in the field or could not be located at all

• Special Ts&Cs were not consistently identified and managed

• Government contracts will be centrally stored and easily accessible.

• Key/special terms and conditions are extracted and catalogued in a contract summary

• Data requests can be managed quickly via repository reporting capabilities

• Contract with Pramata is expandable to other contract types, for example supplier and real estate

• Provided an overview and demonstration to CTL. Reviewing possible integration with their contracts

Terms and Conditions

• Uncertainty as to what contract documents existed

• Terms and conditions were not consistent across documents and may have been outdated or non-applicable to today’s operating environment

• Clear understanding of what contracting documents and gaps exist

• Internally provided a website matching the tariffs, terms and conditions to the product Improvement recommendations prioritized and in progress

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New Build Economics

Accomplishments Results

• Stood up Capital Targeting Tool for evaluation of projects to determine economic viability

• Billing and deposit methodology was created and implemented in cases where it was determined developer assistance was required

• Generated shareholder value through investing only in those New Builds which offer an opportunity for an acceptable return

• Completed cost structure reviews leading to work with vendors for cost reduction, best practice implementation and training for more efficient use of capital and labor

• Continue project reviews for New Service Addresses in 2009

• Continuing process improvement

• Brings efficiency and consistency to the economic evaluation process; XX projects were reviewed from May to December

• XX bills have been calculated and sent to developer for deposit or aid to construction

• Projects found to be uneconomic resulted in a Cap-Ex reduction of $XX

• The process improvement initiatives provided for a XX% cost decline in our preferred FTTP technology

• $XX is forecast to be reviewed and billed due to economic viability

• Reduced cycle times, economic review completed in farther in advance of project construction dates

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High Speed Internet

Focus Area

Initiative Objective Annual Benefit

HSI Equipment

Systematic CPE Recovery on Cancelled Orders

Recover HSI equipment from customer if the order was cancelled.$XX

Optimize Shipping Change HSI order due date & RAS date from 2 to 3 days. $XX

Tangible Customer Facing Equipment

Implement database to store, trace and help proactively troubleshoot new and refurbished equipment serial #’s at the household level.

$XX to $XX Flexible pricing strategy

(Numbers based on CenTel current modem lease program)

Records Clean-Up

Pre-Grooming & Records Clean-Up Pilot

Verify and correct records and pre-groom all primary capable lines in the Gardner market. Conducted pre-pilot time and motion study baseline the pilot in the Gardner market.

Reduced dispatches & clear times Fewer trouble calls & internal calls to support groups

0, -1, +1 MEDR Errors Address unnecessary escalations that are a result of errors in MEDR. Improve process for correcting records.

$XX rev opportunity Fewer trouble calls

Dispatch Reduction

Cancelled Order Dispatch Reduce/eliminate rolling trucks on cancelled orders. $XX cost avoidance

Cancelled Order Revenue Prevent XX% of cancelled orders due to reducing capacity management and records issues.

$XX rev opportunity

Dispatch Report by Tech Support Center

Measurable tool to hold centers accountable by total customer experience vs. metric

TBD

Capacity Management

Network/Marketing Communication

Ensure all Business units are proactively and consistently providing campaign and utilization information

TBD

Underutilized Devices RCA, Identify Process Improvements and Implement changes $XX for each 1% increase in utilization

Training & Communication

Replacement HSI CPE Reduction

Reduce unnecessary replacements through detailed agent reporting and online training.

$XX

Retail HSI CPE Focus Increase Retail pick up option for necessary HSI CPE replacements. $XX

External Customer Training Online HSI customer training modules for key & high volume topics TBD

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Summary

Targeted approach worked best for EMBARQ• Find the 5 biggest issues confronting the business• Dogged approach

Leadership engagement the key – can’t be successful without

Cannot lead with the tools – goes in one ear and out the other

Lead with results – don’t even talk about the tools unless necessary