Six Sigma Implementation at IBM to Drive Behaviour Change

Six Sigma Implementation at IBM

In organizations and industries, a significant amount of cash flow may get blocked on inventory. Technology products undergo rapid deterioration and obsolescence. Also, stocked machines and equipment lose their worth as they age. Quality practitioners at IBM were assigned to combat these kinds of losses in value.

These practitioners conducted a Six Sigma project to help the company reduce its hardware inventory in the warehouse. At the end of the project, the key learning was that patterns and behaviors can be changed by implementing and maintaining a system of measurement.

Issue of Inventory at IBM

At IBM, it is a general practice that the sales personnel informs the customer fulfillment team whenever there is a deal closure or anticipation of deal closure. It is done so that they may place the order for the required product in the deal on their behalf.

On receipt of the order, the production plant carries out the steps to fulfill the given orders and then ships the product to the country from where the order was received. The product then gets stored in the bordering country’s warehouse till the time it is shipped to the end customer.

Since the customer fulfillment department carries out inventory management functions; the customer fulfillment team initiated a black belt project to investigate and analyze the issues related to inventory management.

Root Cause Analysis of the Problem

Inventory may stay in the warehouse for a variety of reasons. However, most of these reasons may not be under the direct control of the customer fulfillment team. Some of these factors may be:

• Delays in delivery dates from the customer end.
  
  
• The disparity in the actual date of deal closure and the date anticipated by the salesperson.
  
  
• A machine may be brought by a salesperson into the country early to ensure immediate supply.
  
  
• Changes in the configuration requirements of a customer thus rendering the existing machine in the warehouse non-usable.
  
  
• Inventory stocking by a salesperson with the expectation of sale to another potential customer.

The customer .fulfilment team here in this process is merely an execution arm relying on the decisions of the sales team for inventory management of that location. As can be seen, many of the root causes for an unduly high inventory can be attributed to the sales team.

The Black Belt project leaders hence completed a deep dive into the behavior patterns of the sales team personnel and the impact of such kind of behaviors on the inventory. One vital root cause identified by the Six Sigma team was a lack of motivation amongst the sales staff in making any effort toward lowering the inventory of a country’s warehouse.

Behavior Patterns and Attitudes of Sales Staff

The relationship between the behavior pattern and attitude of sales staff and its impact on inventory is described as follows:

• Apprehension of losing supply order or missing the set delivery date post-deal closure in case hardware isn’t ordered beforehand
  
  
• Being over-optimistic about deal closures
  
  
• Lack of awareness about inventory carrying costs
  
  
• Lack of motivation in making any effort toward lowering the inventory
  
  
• Lack of familiarity with customer fulfillment processes
  
  
• Prioritization of sales over inventory management

Six Sigma Black Belt Team’s Plan

Before this root cause analysis was carried out, the customer fulfillment team seemingly had regular meetings with both the finance as well as sales teams to review the inventory status. It was also disclosed that during these meetings, discussions were made as to how should the existing inventory in the warehouse be managed.

These discussions served as a planning base for the following month. However, when the black belts carried out the data analysis, it was observed that there was a large amount of inventory that was not managed as per the plan. As a result, there was still unused inventory remaining in the warehouse at the end of the month.

Based on their analysis, the Black Belt team developed the following improvement plan:

• Obtain Consensus on the Importance
  
• Maintain Records
  
• Rigorous Follow-up
  
• Reporting Metrics
  
• Prioritising Low-Performance Areas
  
• Rewarding Superior Performance

Obtain Consensus on the Importance

The sales managers, Chief Financial Officer (CFO), and customer fulfillment teams realized the importance of lowering inventory and agreed on the financial impact of lowering inventory during the review meeting. A key role was played by the CFO who was highly concerned about the financial impact of the inventory carrying costs on the organization.

When implementing a solution, all key stakeholders must share the same vision and objective. In the case of IBM, even though the customer fulfillment team did not have any direct influence over the sales team, the CFO’s authority was leveraged to get commitment from the sales manager. Once a high-level management commitment is obtained, the rest of the plan can be carried out with relative ease.

Maintain Records

The commitment records of the sales team were decided to be maintained by the customer fulfillment team for inventory management. The CFO directed that the sales team should make efforts to either ensure the delivery of products to customers within 30 days or if undelivered, the products should be returned to the plant for re-utilization. This would prevent the sales team from stocking inventory for a long in the bordering country.

To ensure that the sales team was serious about their commitment to customers, it was made mandatory that product information was documented. Documentation made it possible to trace and review records at any point in time. The 30-day window period for delivery discouraged the sales team to bring machines into the country much earlier than the expected deal closure date. Therefore, any early arrival of a machine required an explanation in the subsequent review.

Rigorous Follow-up

With the new norms in place, the customer fulfillment team now closely follows up with the sales team on the execution of orders and sales throughout the month. As a result of this effort, inventory management remains on the priority list of the sales team.

A close working relationship between the sales team and the customer fulfillment team helps create a better understanding of each other’s processes and their effects on inventory. Further, cordial relationships usually result in effective communication and a positive impact on business results in general.

Reporting Metrics

As a protocol, now the customer fulfillment team publishes a report on the quality of execution of the plan at month’s end. The performance of each member of the sales team is measured giving rise to benchmarks and future goals.

Data is an effective tool to convince and catch the management’s attention effectively. The performance metrics reported by the customer fulfillment team, make it easy for the senior management to see how well the inventory management is carried out.

Assigning individual responsibility to performance measurement whether good or bad is the key to driving behavioral changes. Performance benchmarking helps in the creation of a competitive environment as people avoid being labeled as low-performing employees during a review meeting.

Prioritising Low-Performance Areas

The performance measurement reports can help management in the prioritization of corrective actions concerning low-performing areas and teams. This is considered to be an effective approach since a majority of the inventory is often stocked by a smaller section of people.

Rewarding Superior Performance

Teams that outperform need to be recognized and credit must be given to the team that demonstrates the highest rate of execution. Such practices encourage employees to keep up the good work and inspire other employees. Recognition is a powerful tool that managers can use. It helps not only to maintain motivation but also to build relationships.

Before the application of Six Sigma, two countries had the highest inventory management issues. The first had a failure rate of 50% while the other had an 80% failure rate. However, after the application of Six Sigma, the failure rates dropped drastically below 20%

Key Insights from a Six Sigma Project

The Black Belts after the implementation of the Six Sigma project concluded that some simple interventions can encourage positive human behavioral changes and bring significant business results. Improvement teams should consider these factors to make measurements useful.

• The proposed metrics should be aligned with business objectives
  
  
• The measurement system should be easy to understand
  
  
• There should be a positive correlation between measurement and people’s accountability
  
  
• There needs to be a good management system around the new measurement.