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Quantifying Potential Increase in Revenue

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  • #33342

    HUGH
    Participant

    I wonder if someone could help me. The outcome of my green belt project will be that an ordering lead time is reduced. My sales department tell me this is wonderful and will create a competitive advantage for them to sell more and make more revenue. The problem is how do I measure this? Apart from sending a questionaire to customers I am stuck for ideas.Thanks

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    #90558

    John Hargreaves
    Participant

    Hugh – some thoughts…
    (1) Customer satisfaction (always the one to start with) – will they buy more often and/or in greater quantity?  You are probably right here, a customer survey.
    (2) Your peoples’ time – how much time is spent in chasing-up delivery of orders?  This data will require input from those who do the chasing.  A pre-condition to getting this data will be the commitment of those who can give it to you to the value of your project – i.e. what’s in it for them.  You have already indicated that they believe it is “…wonderful and will create a competitive advantage for them to sell more and make more revenue [for the company, and by the way will increase our commissions]” with the latter bracketed comment my input.
    (3) Inventory turnover – reduced lead-time should translate into higher inventory turns, and the higher the turnover the more money the company saves.
    John

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    #90562

    Steven Bonacorsi
    Member

    Hello Hugh,
    Senior MGMT are usually looking at a few numbers you can roll up under your GB project.
    1. Using your baseline data – try the following calc. Indirect (Soft $ labor productivity savings) = Average qty of leads per quarter (??) * 4 Quarters (Quality uses a 12 month savings timeline for a GB project) *(baseline (??) – Improve (??) labor cycle time used in ordering lead) * average loaded pay rate ($??) (* ask your HR rate for the average pay of a sales rep + all benefits) = $0.0 (this is one savings you can count)
    2. Direct Revenue = (Monthly Baseline (Analyze phase) Qty (??) of lead $’s generatated – Qty (??) of lead $’s closed) – (Monthly Improve Qty (??) of lead $ generatated – Qty (??) of lead $ closed) * 12 months = $0.0 (This is the increase in revenue from the leads over 12 months expected from the faster cycle time)
    3. Direct Margin = The annual Baseline revenue generated in leads (??)(see second point) – The annual baseline annual cost in labor (??) (see first point) = the baseline margin $0.0; then The annual improve revenue generated in leads (??)(see second point) – The annual improve annual cost in labor (??) (see first point) = the improve margin $0.0; the difference between these two numbers is the improvement in margin to your business.
    Hope that helps,
    Steven Bonacorsi
    GE Quality Black Belt

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    #90604

    ALEK DE
    Participant

    Well , first you need to decide on your process metric. It looks time you take from receipt of an inquiry to receipt of a formal order can be the cycle time. In these projects focussing on process metric is more advantageous than focussing on business metric.Because business metric may get influenced by lot of other inputs which are noise to you.
    Another process metric could be time you take to respond against a new inquiry , or time you take to respond on standard products .. like that.
    In my opinion , business metric could be No. of offers are converted to order , well again lot of other noise is likely to act on this.
    Since your charter is to reduce lead order time , possibly you need to concentrate more on this rather than generating more revenue. If process metric improves , rest assured business metric will surely show a positive trend.
    Like to have more iteractions , if reqd. by you.
    Thnaks
    Alek

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    #151478

    Dibyajyoti
    Participant

    Hi,
    You can use “Funnel Conversion” % to measure the revenue growth. By funnel, I mean identification of Potential Order an org. expect to get within a particular time period e.g month. For example: your total funnel for month of jan’07 20 potential orders amounting 10Mn. At the end of Jan you got 12 orders amounting to 6 Mn. So interms of # your funnel conversion % is 12/20*100 and in terms of revenue it is 6/10*100.
    Hope this will give some idea for mesuring the benefit from your GB project.

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    #151479

    Yadav
    Participant

    Hugh,
    First of all, let us understand, why you would like to reduce ordering lead time. Obviously because of the impact it has on the business. You need to figure out – what is the impact on your business?
    If I were in your position, I would have looked for :
    1. No. of instances of orders being cancelled because of delay in processing     2. No. of instances of orders getting postponed leading to delay in revenue generation.
    Your project metric should be ‘No. of orders placed ‘. Obviously you are doing this project because you want to get more orders and at the end of the day how is the reduction in lead time impacting your order quantity. What you measure can make or fail your project?
    The business benefit can be tracked by monitoing the impact of the increase in the orders getting placed due to reduction in lead time.
    All the best!
     

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    #151492

    TVI
    Member

    There are two things to consider here:  What is your project metric and  how are you going to make your business case.  You need to determine your projet metric (Y) before you can calculate the BC.  Reducing lead time is huge for a GB project unless your process is incredibly simple….I would map the process from customer order to delivery, gather cycle times for each process step, pareto them out, and select the biggest bar for my project….ordering, scheduling, material handling – storage, fabrication, assembly, delivery, etc.  
    Number or orders placed is not a process metric and is a bad idea.  
    Previous posts offered you calculations and methods to determine the business case..my advice at a green belt level is to discuss with marketing and finance jointly your ideas for the business case and let them determine how to calculate….you need their perspective and validation for your project savings, so get it up front and documented in the charter. You should also point out that a GB is not qualified or responsible for building the business case for the project charter…..BB-MBB or finance should be responsible for this part of the project.  Good luck.

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