Working Capital - > 90 Day Delinquency Project – Heath Peacock Finance Tempe, AZ - CCC

2 Background – Current Process n Within Business Unit, the opportunity exists to improve collector and manager effectiveness through enhanced system utilization and reporting n Average delinquency, 11.7% Customer A/R > 90 days delinquent n OMD / ARMS n 11.7% = $5.14 Million (June data) n Since June, Delinquency has increased to 14.0% or $6.1MM n Defect reduction goal from June was 70.0% or $3.6 Million n Savings based on 8.0% Cost of Capital Conversion to IOSC Collections – April 2004

3 Project Definition n Problem Statement: There is an opportunity to reduce delinquency for Trade Collection accounts with > 90 day delinquency in Tempe, AZ CCC. Excess delinquency leads to increased borrowing costs, reduced cash collected and additional reserve requirements. n Project Definition: Implement a series of improvements designed to increase collector and management effectiveness, enhance system utilization and reporting to reduce 90 day delinquency. n Project Benefits Reduce borrowing costs, increase cash and reduce reserves $288,000 in reduced borrowing costs

4 Project Team n Champion – Tom Sheehan / John Bartuska n Financial Analyst – Renate McLeod n Black Belt – Heath Peacock n Team Members: n Front Line Collector – Paula Smith n Front Line Collector – Sherry Van Luven n Collection Supervisor – Antoinette McDonald n Collection Supervisor – Rick Langston n Senior Manager of Collections – Greg Walston n Collection Manager – Mary Whitmer n Master Black Belt – Laura Wells Added team member to align with organizational structure

5 DPMO Recalculation Former DPMO calculated on just month end data

6 DPMO Recalculation n Former DPMO – 999,570 n It’s not that bad!!! n New DPMO based on 6.5% goal for April going forward n Avg %over goal of 6.5% was 3.5% Recalculated DPMO – 350,000

7 Measurement System Analysis n Data type – Normal, continuous based on P =.536 n Data Source – Data pulled directly from ARMS n Goal – Verify Month end reported data is accurate n Procedure – Pulled random sample of delinquency bucket data and audited n Sample – 135 random accounts, 15 in each delinquency bucket n Result – 100% accurate Measurement System is Accurate!

8 DPMO and Sigma Level n Initial Capability Analysis Outcome n Upper Specification Limit - 6.5% n Sigma is short term based on 11 data points at month end n DPMO – 350,000 based on delinquency in excess of Upper Spec Limit n Sigma Level – 1.88 n Average delinquency – 10.28%

9 Data Collection Plan n Obtain calls by Collector – # of Calls, both incoming and outgoing n Delinquency Bucket by Collector n Number of Accounts and invoices by Collector n Time employed by IKON by Collector n Sample data from IOSC collections history – number of calls, Promise to Pay percentage and Percent Current Leveraging IOSC Collection Experience

10 C&E Diagram & Matrix Results n Timeframe for marketplace follow-up (190) n Account listing - frequency, procedure and priority (190) n Aging Report (190) n Workload (190) n Department Structure (180) n Training (170) n Estimated Meter Reads (160) n Customer Service (160) n Productivity Report (150) n Marketplace Escalation (150) Top 10 Sources of variation and score

11 Tempe Data Correlation Correlation Some Correlation Minimal Correlation between Key Process Input Variables

12 Tempe Data Regression Analysis n Months with IKON – R-Sq (adj) – 0.4% n Customers Assigned – R-Sq (adj) – 0.0% n Total Invoices – R-Sq (adj) – 1.2% n Incoming Calls – R-Sq (adj) – 0.0% n But… We know, I know, the one thing that will most definitely affect over 90% is the number of external calls by collector…

13 Tempe Data Regression Analysis !!!!!!

14 Tempe compared to IOSC n Compared Collector Activity to IOSC Collector Activity n Ho = Call volume is same n Sample Size 175 and 168 over same time frame n Mean – 32 and 45 n Standard Deviation – 14 and 10 n 2 Sample – T test, P Value – 0.00 Reject the null Hypothesis

15 Next Steps n Data is pointing out that the collectors may be on the phone but are not resolving the customers issues. n Establish new data collections n Who are the collectors calling n What issues are keeping them from collecting

16 Results of Analysis n Avg number of customers for Tempe Collector =

17 Project DMAIC Checklist/Status

Questions?