DMAIC Project: Improving the Pricing Process
Baseline (Define)
The client is a company engaged in the long-term rental of residential property. The project looked at the profitability of rental transactions and identified how to improve their value creation using Lean and Six Sigma tools. The process chosen was the pricing process and its systematisation and statistical analysis. Previously, it was found to be challenging because it requires a lot of subjective valuation and reconciling many different factors, such as the price of the dwelling, the customer, the price per day, the total price, the time of day, and the occupancy rate.
Process performance at the beginning (Measure)
From the data, it was possible to identify the factors that contributed to profitability. Hypothesis testing revealed that undesirable combinations of housing, rental period and price were easily created inadvertently and that there was a large variation in profitability between events. The impact of different factors on the final profitability was also clarified.
Improvement measures (Analyze & Improve)
The root cause was not so much a single factor, but the combinations of key factors that should be made easy enough to avoid - and similar through a reformed pricing process. Hypothesis testing, graphical analysis, and regression analyses were the most useful in demonstrating how different combinations of factors in profitability rental transactions worked. On this basis, a control limit for the floor price was defined through the business objective, followed by an analysis of all factors that had contributed to rental transactions below the control limit.
The improvement was implemented as a new pricing tool in excel, which simultaneously instructs on the interdependencies between different factors and simulates the desired daily yield.
Results (Control)
After the implemented change, the daily return in the selected target segment was increased by 18.4% and the standard deviation was reduced by 39%. The annual value of the project is approximately €75k.
It is noteworthy that, as a method, the elimination of rental transactions below the control limit proved to be a major factor in the increase in average daily yield and is a business-safe way to target the improvement measure without any potential change in occupancy.
Staff have been particularly pleased with the project tool because it removes the fear of making subjective poor choices in pricing and provides a quick way to compare two different bids, even when their parameters are significantly different.
The monitoring of anomalous events is carried out by the whole pricing team through a weekly meeting on the bulletin board. This will record the factors and identifiers that led to a rental event that deviates from the pricing tool recommendation.
This project was a Black Belt training project, which the participant did as part of the training and received a Black Belt certificate at the end of the project.
Ifyou are interested in learning how to streamline your processes with Lean Six Sigma and obtaining a certificate, check out the different options at the link : Lean Six Sigma trainings.