Lean Six Sigma Project Improves Purchasing Process by 40%

Posted by on Mar 14, 2012 in Lean Six Sigma | 0 comments

As I have said in prior blog posts, Lean Six Sigma can be used to improve any process.  Here is an example of a project conducted in a purchasing department that was experiencing purchasing errors.
The team defined the problem as:  Receipt of purchased goods against existing Purchase Orders (POs) initiates an electronic authorization to pay the supplier based on the documented price on the PO.  If the PO contains inaccuracies such as incorrect price, unit of measure, or currency, the Supplier is not paid the correct amount.
Data was collected over several weeks and an overall error rate of 2.63% was found.  The PO error types revealed that pricing errors represented the largest category of error by a factor of three.  Drilling down further it was determined that 58% of the pricing errors were made due to price revision omissions.  Other significant categories included 15% due to decimal place/UOM errors, 12% due to wrong data provided, and 8% due to keypunch errors.  The remaining 7% were miscellaneous errors.
The team brainstormed and implemented the following improvements:
            To detect missed price revisions, a discrepancy report was developed to compare sourcing decision pricing to actual PO pricing.
            System changes were made to better check and enhance the PO generation and revision process.
On-going PO audits conducted after the improvements were made showed a 40% reduction in errors.

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