Six Sigma Case Study: Defect Reduction in the Service Sector

by Chris Bott

This case study discusses the effective use of Six Sigma tools to improve our plastic issuance processes. It will take you through a project American Express completed, “Eliminate Non-received Renewal Credit Cards.?This analysis demonstrates how we applied Six Sigma techniques to reduce the defect rate with ongoing dollar savings.

Define and Measure the Problem
(Data has been masked to protect confidentiality.)

• On average (in 1999), American Express received 1,000 returned renewal cards each month.
• 65% (650) were due to the fact that the card members changed their addresses and did not tell us.
• The U.S. Post Office calls these forwardable addresses. Please note: Amex does not currently notify a card member when we receive a returned plastic card.

Analyze the Data

We applied various Six Sigma tools to identify Vital Xs, or the root causes of the defect. The use of Chi Square indicated the following:

• By type of card/plastic: We isolated significant differences in the causes of returned plastics among product types. Optima, our revolving card product, had the highest incident of defects but was not significantly different in the percentage of defects from the other card types.
• Issuance reason: Renewals had far and away the highest defect rate in the three areas in which we issue plastic—replacement, renewal, and new accounts.
• Validated reason for returned: Because we suffered scope creep early in the project, it was important to confirm what our initial data was telling us. After testing the five reasons for returns, returns with “forwardable?addresses were overwhelmingly the largest percentage and quantity of returns.

Improve the Process

An experimental pilot was run on all renewal files issued. This “bumping?against the “National Change of Address?service was implemented on all renewal cards in mid August. Due to the strict file matching criteria, this solution will impact 33% of the remaining population (or 333 cards monthly).

As a result of a successful pilot, we were able to reduce the defect rate by 44.5%, from 13,500 to 6,036 defects per million, reflecting annual savings of $1,228. Figure 1 outlines the combined test results.

Fig. 1 Combined Test Results

Non-Received Renewal Credit Cards	Baseline	Test Results
Defect rate	1.35%	.6%
DPMO	13552	6036
COPQ		$3,360
Total annual savings		$1,228
Sigma level	3.71	4.01

Control the Process

To ensure that we perform within the acceptable limits on an ongoing basis, it is important to monitor the new process. To achieve “control?status, we will be using the p chart, a tool that tracks proportions of returns over time.

In addition, our vendor has constructed reporting, which gives us the ability to monitor the defect rate on a monthly basis. The report will tell us if any credit cards that were “bumped?against the "National Change of Address" database were returned back to our warehouse.

Impact on Customer Satisfaction

Using the "National Change of Address" will enable over 1,200 card members to get their credit cards. Prior to this implementation, these card members would have never received their cards automatically. Revenue and customer satisfaction will undoubtedly increase.