Collections Accountability Leases that Terminate into Term Code TMDCR Tom Merry October 23, 2003 Week 4 Presentation.

Collections Accountability Leases that Terminate into Term Code TMDCR

Tom MerryOctober 23, 2003Week 4 Presentation

2

0307-12-002 Week 3 Presentation Project Outline

Problem Statement

Analyze Phase Pareto Cause & Effect Diagram (C&E) and

Matrix Failure Mode & Effects Analysis

(FMEA)

Measure Phase Data Collection Plan MSA DPMO and Z score Project Benefits

Define Phase Big Y Process Maps

Next Steps

Questions

Appendix

3

Project Outline Problem Statement:

This project focuses on improving & establishing appropriate billing

processes to maximize collections for IOS Capital lease agreements

that have met their obligation and have then been terminated.

Goal:To increase collections revenue while minimizing any associated incremental collections costs.

Defect:Failure to collect any dollars owed and/or failure to have less than 50% of A/R balance over 90 days.

4

Define Phase

Project Metric “Big Y”: Y = Dollar Opportunity to be Collected Data shows $16,000,000 in TMDCR “Now Due” bucket Greater than 80% is “not owed” by customer due to delays in our process that lead to continued billings – determining this is the main challenge of the project

Y1 = What customer owes (buyout/payoff quote sent to customer

by IOSC)

C1 = Collection $ from Y1

5

Define PhaseCustomer Leases

Equipment

Lease End

No

IKON Notifiedby Customer

Yes

Auto-Renewal

Monthly Billing

CustomerTerminates

No

Sales to SaveCustomer

Yes

SavedYes

- time adds to problemmonthly billing continues

No

IOSC handlesquote

Quote byMarketplace

No

Quote by IOSC

Yes

Customer saysOK

Bill Customer

YesNo

Pick UpEquipment

Does CustomerPay

Yes

No

MP Send TermRequestNo

IOSCTerminates YesYesEnd

No

NewContract

Limited Marketplaces

TMDCR TerminationProcess Map

Delays CauseMonthly Billing To Continue

Sales attempt to save customer Collection time (some Marketplaces) Time between Pick Up and Term

6

Define Phase

Marketplace

Request to IOSCfor Buyout Quote

IOSC GeneratesQuote

orMarketplace

IOSC BillsCustomer

in some situations

Pick Up Equipment(Marketplace)

RequestTermination

(IOSC)

Collect

Collect

Wait Pick Up Equipment

CustomerDemands Pick Up

Term Code

Marketplace Billedby IOSC

Residual

Quote

Collect

RefundMarketplaceQuote

Pick Up Equipment

RequestTermination

Marketplace Billed

Residual

+ Quote

- Credit

RequestTermination(Bad Debt)

Marketplace Billed

Residual

Quote (Bad Debtpursued by IOSC)

No YesBilling Stops

Billing Stops

ComparisonPick Up & Collect

vsCollect & Pick Up

Sales Effort to Savethe Customer

Termination OccursAnd Billing Discontinues

Pick Up & Term then Collect

Collect & Pick Up then Term

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Measure Phase

Data Collection Plan Challenges on “Big Y” Y1 = IOSC mailed quote (Report capability 8/1/03 – current)

Previously - quotes captured in comments (unreliable) C1 = $ collected on Y1 to provide a “run rate” (C1/Y1) to be measured

weekly (Since no collection activity C1 expected to be very low) Both reports due 10/20/03 (may have some conclusions that weren’t in

time for this presentation

Estimation of Big Y = (average $ / Y1) x total # TMDCRs and / or

Estimation of Big Y = ( Y1 / Now Due Y1) x $16 m

8

Measure Phase Measurement System Analysis

Term Code Accuracy

30 samples tested for accuracy by a process expert and resulted in a 10% error rate

Learned that if Marketplace sends a TMDUP or TMDPU then there is no way to distinguish between TMDCR

160 more samples ( 5.6% error rate)

“New contract” report within 60 days of term being run on these customers to indicate a possible mistake on term code. Further research with the marketplace then required to validate. Initial data shows that 7.1% are coded incorrectly. (new data – 30.6% in question)

9

Measure Phase

Measurement System Analysis

Buyout / Payoff Quote Accuracy

30 past scenarios to be quoted by an expert. Then 3 current process employees to quote the samples two times.

To be measured against the expert, against each other, and against themselves

To be completed week of 10/27/03

10

Measure Phase Defects per Million Opportunities (DPMO)

Customer expectation is to have less than 50% AR balance > 90 days. Our current process doesn’t come close so DPMO is 1,000,000.

Run Rate = C1 / Y1 (t) t = weekly measurement

DPMO = (1 – C1 / Y1 (t)) x 1,000,000

Current data and process knowledge indicates DPMO will be very high

Z Score

To be determined after data collection is complete

11

Measure Phase Project Benefits

No “real” dollars available until Y1 is collected.

However……..

Project benefit of $250,000 or more to continue is required:

So…… If we’re conservative and

18,000 TMDCRs coded annually and 70% actual TMDCRs = 12,600 and $100 per TMDCR = $1,260,000 and 75% aren’t currently collected = $945,000 Collect 50% = $472,500 potential benefit

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Analyze Phase

22 20 19 18 16 15 13 10 8 5 4 4 614 13 12 11 10 9 8 6 5 3 3 3 4

14 26 38 49 59 69 77 83 88 91 94 96 100

0

50

100

150

0

20

40

60

80

100

Defect

CountPercentCum %

Per

cent

Cou

ntPareto Chart for TMDCR by Team

5E 5A 5B 5D

½ of Terms Are from Team 5

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Analyze Phase

Email (C)

Cash App Sys (C)

Trucks (C)

IKONICS (C)

Collection Activity (C)

Centralize (C)

Collect Before P/U (C)

Quote Buyout (C)

Notification (N)

Financial Status (N)

Pay Habits (N)

Importance (N)

Schedule (N)

Workload (N)

Experience (N)

Training (C)

$ of Quote (C)

$ Collected (C)

Days to P/U (C)

Term Codes (C)

Location (N)

Type to be P/U (N)

Save the Customer (C)

Delivery Load (N)

Logistics (C)

Time

Measurement

Personnel

Customer

Methods

Machines

Cause & Effect Diagram (C&E)

Inability to Collect “Now Due” after TMDCR

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Analyze Phase

% o

f Dol

lars

col

lect

ed o

f to

tal o

ppor

tuni

tyle

ngth

of t

ime

to p

ick

up

equi

pmen

tCu

stom

er S

atis

fact

ion

Total

PROCESS INPUTS1 Equipment is Terminated (Term code applied by LEO Specialist) 9 4.5 8 143.52 Time from when customer notifies us and when it is keyed in 6.6 7.4 8.2 137.43 OC inputs termination into IKONICS for LEO Specialist review 9 3 6.67 129.354 Order Coordinators process RMA 6.25 6.67 6.67 122.955 Communication after the sales effort 5.75 6 8 121.756 Once Terminated, not pursued by collections 8 2.25 6.33 114.97 "Buyout" quoted to customer ($ owed + P/U fee) 5.8 5 7.4 114.28 Logistics confirms P/U was made to OC 7 2.25 6.75 108

C&E Matrix Results

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Analyze Phase

Process Step Key Process Input Potential Failure Mode Potential Failure Effects

SEV

Potential CausesOCC

Current ControlsDET

RPN

EOC

Collections collectors call customer

customer not contacted regarding "Now Due Terms"

we don't collect the money owed 10

Once terminated, doesn't go to collector's ques 10

none10 1000 2

Retention of Customer (attempt)

sales process never get in touch with customer

Delay / Frustration8

customer avoiding sales6

none10 480 1

Customer Notification

Notify Salesperson

lack of action Process doesn't start9

low priority / forget5

18 month expired report10 450 2

Retention of Customer (attempt)

communication to sales

never get message no effort to retain8

No real method for having a customer list 5

none9 360 3

Buyout Quote communication to customer

customer rejects / shocked

stalls process and billing continues 9

customer upset about pick up fees 4

terms in contract8 288 3

Buyout Quote communication to customer

customer rejects / shocked

stalls process and billing continues 9

customer upset about Property taxes and Ins 4

terms in contract8 288 3

Logistics makes pick up

communication after pick-up

OC nevers follows up with logistics to see if completed

stalls process and billing continues 7

sloppy / poor organization4

none10 280 5

Failure Mode & Effects Analysis (FMEA)

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Analyze Phase Failure Mode & Effects Analysis (FMEA)

Possible Corrective Actions

Online termination request Initiate pick up immediately Customer lists updated and accurate Train sales to educate the customer before purchase Terms to be more clear Logistics enters pick up into system, it sends flag to OC Training flowchart / cheat sheet for CITs HR/IT - change voicemail when employee terminates “Stop-gap" - IOSC absolutely needs fax before creating PRS Monthly update on bill with buyout quote (after lease end) RAP sessions (ensure reps are organized) Get "right fax"

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Next Steps Data Collection “Big Y” & DPMO

Collection to be completed week of 10/20/03

Measurement System Analysis To be completed week of 10/27/03

Analyze Phase Data collection on X’s Conduct Hypothesis Testing Graphical Analysis

Improve Phase Pick Up Fee Variable Relationships Alternative Solutions Determine “Best Fit” Solution

Control Phase

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Summary

Questions?

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Appendix

Focusing only on Term Code TMDCR – “Contract has reached end of term (or gone into auto-renewal) or has less than 2 months left to be paid. Machine is being returned.”

3022848 174415 146208 93503 8289885.9 5.0 4.2 2.7 2.4

85.9 90.8 95.0 97.6 100.0

0

1 mil

2 mil

3 mil

0

20

40

60

80

100

Defect

CountPercentCum %

Perc

ent

Dol

lars

Pareto Chart for TERM CODE (2002)

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Appendix

Lease Begins

- Buyout to own- IKON to pick up- Renew for 12-24 mos- Upgrade to new model

Automatic Renewal

- Keep as month to month

Terminate

- Notify IKON via:IOSCSales

CCC (CIT)Contracts

Order CoordinatorLogistics

Marketplace (Receptionist)IKON.com

Meter Read FaxesLeasing Specialist

DFO / LeasingSpecialist

- Sends IOSC total of what customer owes- Pick up fee (usually $150-250 per piece)

Order Coordinatorto Process Pick Up

- Return material authorization (RMA)- Sends to IOSC to enter Term Code

Logistics

- Schedule pick up- Ticket signed by customer- Confirm in system pick up complete ?- Scan signed ticket to public folder- Overages recorded and billed?

IOSC

- Send final invoice- Receives final invoice and applies it- Contacts Leasing Specialist to validate termination- Enters in system as termed and applies Term Code- End of Lease Term Sheet goes to Order Coordinator

Red line indicates defect inGa or current process in

some regions

Lease Ends Month to monthTerminate

Collections

- Due to termination status info falls off collector's pipeline

Collections Accountability for Terminated ContractsFollowing Automatic Renewal

Process Map

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Appendix

CT Diagram 8/19/03

Critical To Tree

Collections Accountability for TerminatedContracts

Following Automatic Renewal

Critical to Satisfaction

Collect on past due amounts forterminated contracts after auto-

renewal

Critical to Cost Critical to Quality Critical to Delivery

Lost Receivables- Monthly charge- Overages- Pick up fee

Negative CustomerPerception

- Willingness to pay- Future sales

Money For Old Gear- Wholesaled- Refurbished

Collection Expense- Maintain headcount- Outside collector's fees

Customer NotfiesIKON

- Gets to right person- In writing

Customer Notified ofAmount Due

- Accurate- Notified of pick up fees- Sales opportunity

Order CoordinatorsProcess RMA

- Some Markets only after receipt of final check

Equipment Picked Up- Signed RMA scanned to Public Folder

CustomerCommunication

- Timely notification to customer of their responsibility

Communication toLogistics

- RMA processed timely

Equipment Picked Up- Pick up made timely- Termination made in system immediately

Collections- Timely follow up on outstanding monies

Termination- Prior to continued billing- Proper Term code entered

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Appendix

SIPOC Diagram10/19/2003 Collections Accountability for Terminated Contracts

Following Automatic Renewal

High Level SIPOC

OrderCoordinators

FSSemployees

Logistics Customer

billing

Terminationrequest

Equipmentpick uprequest

Customercontacted forpotentialupgrade

Equipmentremoved

Balancestransferred tocollections

Statementssent tocustomers

Collections tofollow up withcustomers

Paymentsreceivedfromcustomer

Requirements Requirements

Outputs CustomerProcessInputBoundary

OutputBoundarySupplier Inputs

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Appendix

Original Project Benefits:

Current data shows that IOS Capital does not pursue approximately $14M of charges (including equipment lease charges, late payment charges, overage volume charges, and related taxes).

Using a conservative collections rate of 3%*, and assuming no material incremental fixed collection costs, the project benefits are estimated at $420,000.

* 3% was used based on Financial Analysts understanding that most of the dollars are unable to be pursued (as much as 90%) and the rest would flow thru at approximately 50% (current IOSC run rate on similar collections).