Six-Sigma Methodologies Can be a Fit for ARM Firms

Ever worsening economic indicators, a consumer-centric regulatory climate and historic unemployment levels have created a formidable gauntlet for receivable management concerns to navigate.  Operational heads are turning to nontraditional sources for help.

For some innovative accounts receivable management firms, these sources include tearing a page from the manuals of high profile manufacturing businesses by implementing Six Sigma methodologies.  Developed by Motorola during the 1980s and made famous by General Electric, Six Sigma represents a widely accepted methodology for driving continuous improvement.  Six Sigma requires the analysis of data to understand business processes, including process variation and capabilities.  The methodology follows a consistent approach to Define, Measure, Analyze, Improve and Control (DMAIC).  Service industries, including accounts receivable management, generally have been late to adopt Six Sigma due to the perception that these concepts may not translate from manufacturing to people-intensive processes.

Why Collections? Why Now?

The global recession has been a game changer for the collections industry.  Spiraling unemployment, evaporating retirement plans and declining residential equity levels no longer provide debt options that were available just a few months ago.  Additionally, consumers’ abandonment of land lines for cell phones creates new challenges for reaching debtors. These factors combined exert a great deal of pressure on organizations to maximize performance at every transaction while reducing costs.

Balance these conditions against a collections environment that is data rich nearly beyond comprehension.  Managers are challenged to harness the outputs of numerous, often unlinked systems.  Consumer credit card collections is rarely a linear process, rather a collection of complex sub-processes, riddled with external dependencies.  Engaging Six Sigma and utilizing the DMAIC approach helps managers convert a veritable galaxy of data points into upgraded processes and exceptional results.  Six Sigma empowers managers to challenge the status quo, make decisions and create strategies based on data rather than intuition.

Deployment Approach

Stabilizing the data is the first step.  Before Six Sigma projects can be launched, data must be organized in a meaningful way.  Establishing reliability and integrity are critical to provide adequate structure to support process improvement.  Dashboards are created to which operational needs are mapped.  Performance metric information is compiled and shared at all operational levels.  This data serves as the cornerstone for planning and forecasting sessions.

Role of collection supervisors.  Front line collection supervisors are trained in the use of fundamental quality control tools including fish bone diagrams, control charts, histograms and Pareto charts.  These supervisors are then able to apply learnings to real problems on the operations floor to bolster team results.

<!–PAGEBREAK–>

Role of managers.  What are Green Belts and Black Belts?  Managers with decision-making responsibilities participate in comprehensive Six Sigma green belt training.   These managers transition from making intuitive decisions to leading data based strategies.  Six Sigma black belts are dedicated process excellence resources who lead projects, provide training, mentor others and contribute analytical support throughout the organization.  The command of Six Sigma methodology and mastery of quality control tools allows the black belt to operate effectively across functions, bridging the gap between ideas and business opportunity.

Selecting the Projects. Role of the Senior Leaders.  The Six Sigma project pipeline can have numerous feeders.  Audit reports, budget reviews, monthly performance results and client feedback highlight our pain areas and suggest opportunities for improvement.  The roles of the different levels of the organization can be simplified. For example:  Senior leaders serve as project sponsors, functionally deployed operations managers lead green belt projects and Six Sigma black belts lead complex, large scale and cross functional projects.

Governance Structure.  Successful Six Sigma deployment requires C-level buy-in.  The most effective governance structure centers on frequent forums attended by all operations leaders and process excellence resources.  Collection executives are conspicuously present and engaged.  Project statuses are reviewed, road blocks removed, milestones celebrated and future projects discussed and selected.

Case Study:  Improving Quality – Prime Scheduling Time

Right party contacts (RPC) are the currency of the collections floor.  Increasing the number of direct contacts with customers means more promises, PDC’s on file, settlement arrangements and payments.  Scheduling collectors to call customers during peak contact periods is essential to maximizing RPC’s.  A recent Six Sigma project sought to increase revenue by validating the best hours to reach debtors.  Transactional data was analyzed across multiple factors.  The initial findings challenged the conventional wisdom and long held staffing strategies.   Collection managers conducted pilot tests to confirm that the findings would stand up under practical application. The results of the project (currently in control phase) indicate contact rate improvement approaching 10%.

Six Sigma and the Bottom Line

Clearly, the profound economic downturn has compelled accounts receivable management firms to innovate or risk obsolescence.  Six Sigma methodologies are founded on the science of realizing operational excellence through consistent, continuous improvement.  Although they are only now beginning to seize the full competitive advantages of doing so, accounts receivable management firms are coming to see the crucial role Six Sigma can play in optimizing liquidation rates which translate into valuable cost savings for clients and in driving internal efficiencies that can help debt collection agencies improve profitability in a difficult economic environment.

Jeff Markley, Director, Compliance & Process Excellence at Firstsource, a global provider of business process outsourcing services headquartered in India.