By Larry Pearlman
US Fuels is responsible for the wholesale fuels operations in the United States for its parent company, BP, one of the world's largest energy companies. US Fuels supplies branded gasoline to company-owned gas stations and branded fuel jobbers, and diesel fuel to commercial accounts such as railroads, trucking companies, transit authorities and truck stops. The company also sells some unbranded gasoline to hypermarkets and grocers ("big box" retailers with gasoline offerings) and high volume retailers.
US Fuels has a customer-focused strategy aimed at making it easier to do business with BP. So, when its 96.9-percent invoice accuracy was not meeting customer expectations, US Fuels needed to act. Upon examination, it was found that in some strategic segments, accuracy was consistently below 95 percent, and was impeding sales growth. Problem identification and solution generation had varying degrees of success, because efforts were fragmented across business groups and functions.
Make It Right the First Time
The leadership of US Fuels issued a challenge: "Invoice our customers right the first time!" Thus began the company's journey of operational excellence using the Six Sigma methodology. An accuracy target of 99.1 percent was set, based on external benchmarking. A governance structure was established to maintain focus on goals and to ensure support for projects. The governance structure consisted of the company's customer service leadership and the process improvement organization. It was used as a "gatekeeper" for projects and to ensure that resources were used appropriately. Cross-functional teams were engaged for root cause investigation and implementation of solutions. These teams included sales, customer service, logistics, credit and the company's trading organization.
The US Fuels project used "data books" BP had developed to ensure that decisions are fact based and not grounded in opinion. BP, which refines, transports, sells and trades crude oil and petroleum products in more than 100 countries worldwide and has experienced rapid growth in recent years, began its Six Sigma journey in 2004. Faced with multiple acquisitions and multiple business processes, senior leadership looked to Six Sigma as a way to focus on business process and unlock growth and cost opportunities. The BP data books include many Six Sigma tools, including analysis of defects by type, location and frequency, as well as fishbone diagrams, process maps and voice-of-the-customer data.
In the US Fuels project, once a significant defect was confirmed, a team was formed to look at root causes, validate assumptions, collect data and suggest interventions. Data was then pulled to further identify setup issues and process breakdowns. Interventions were agreed upon by the relevant parties and then measured to assure compliance and progress.
In collaboration, BP developed a standard process and a set of automated tools to capture and categorize invoice errors, measure accuracy and report results consistently.
Using Work-Out to Solve Problems
US Fuels piloted Work-Out as a problem-solving tool for BP. The teams on the invoicing project utilized Work-Out sessions to identify potential root causes. One session developed into several others to bring experts into the room. Two Six Sigma teams were chartered to develop longer-term, sustainable process solutions. Improved invoicing capabilities enabled US Fuels to deliver on the strategy, and to gain a larger share of fuel spending from targeted customers. These key customers required improved accuracy as a "license to operate" for them to purchase incremental volumes. Without improvement, growth for these accounts would have been in jeopardy.
As a result of the collaborative efforts, the invoice accuracy of certain key business segments increased from 77.4 percent in June of 2004 to 98.5 percent in April of 2005. For other segments, the company realized a 72-percent reduction in pricing errors. In addition, reducing by 72,000 the number of defective invoices produced and printed annually is saving 144 reams of paper, or about five trees.
Positive Results in Customer Satisfaction
After one year, customer satisfaction is up by 10 percent, based upon recent survey data. Overall invoice accuracy is now at 98.5 percent. Two Work-Out sessions identified opportunities that lowered "days sales outstanding" by 0.5 days and reduced working capital. Work-Out was extremely successful in identifying gaps in current performance and then determining accountability and corrective actions. For example, by bringing the right parties together, it was determined that some segments of the business were not being billed on a seven-day-a-week basis. A change in procedure was able to improve cash collection time. US Fuels redirected 1,900 employee hours previously spent on invoice errors toward proactive customer support. Performance improvement was enabled by a cultural change that embraced new tools, processes, fact-based decision making and cross-functional teamwork.
Benefiting from enhanced communication and relationship building, members of the cross-functional teams improved understanding of each other's roles and responsibilities, and how their actions affect the actions of the others. Behaviors became more proactive, instead of reactive.
About the Author: Larry Pearlman is the manager of process improvement for US Fuels. He joined this group in April 2004 and is responsible for improving business results through Six Sigma, Work-Out and other process improvement methods. He previously served as global change manager in BP's information technology organization. Mr. Pearlman also has worked in management positions for BP Chemicals, Elemica, Amoco, The Pillsbury Company and Warner-Lambert. He has been a part-time management instructor at Rock Valley College in Rockford, Illinois, USA. He can be reached at larry.pearlman@bp.com.
