Six Sigma
is rarely thought of as a method to cut costs.
This article shows you how Six Sigma has evolved into an effective
cost-cutting tool.
On the cost front, most industries such as the
manufacturing industry, service industry, health care industry and even the educational
industry are all experiencing a great amount of pressure. As an example,
hospitals are facing ever-decreasing compensation from insurance companies,
which is a serious concern to many. Hospitals also experience the pressure of
high labor costs and low productivity.
This decline in revenue has come about due to the increase in costs and
the ever-increasing competition. Six Sigma has always been construed as a
quality improvement tool, and quality has always been linked with high costs
and expenditures. However, the efforts by the black belts and the master black
belts to help save on costs have helped companies view Six Sigma favorably.
Six Sigma was never intended to be used as a cost cutting
tool; nevertheless it has made great contributions towards that end. The
methodology of Six Sigma employs unique ways to help cut costs in all aspects
of business. Firstly, Six Sigma contributes towards customer servicing. The
opinions of the customer alone help define the quality of the products and
services provided by any business. By figuring out the customer’s needs; Six
Sigma can help by cutting down on any wastage like over-utilization and
under-utilization of capacity. Six Sigma also helps stabilize process
variation, which helps save on material conversion. Not only does this result
in an increase and improvement in productivity and quality, but it also results
in the reduced cost of rejection and re-working.
The reduction in Cost of Poor Quality (COPQ) is massive
considering the overall tremendous savings coming from practically no
rejections. This has come about due to the graduation from three or four sigma
to Six Sigma. For example, in the case of a hospital, after utilizing the Six
Sigma methods in it’s cardiology department, the hospital can cut down the
average process time that is necessary for admission. This produces a
dual-advantage. The first one being that the reduction of almost 45 minutes of
the process time will lead to a decrease in labor costs. Secondly, the hospital
department can now accommodate a larger number of patients because of the
increase in the productivity.
The doctrines of total customer satisfaction and returns
on investment are the main areas of focus. The Six Sigma team helps generate
innovative and creative ideas that are aimed at controlling costs. The team
then helps employ risk management schemes and devises that lead to the early
detection of various risk factors. An increase in yield from project portfolios
will lead to an increase in resources resolving matters of risk.
The biggest challenge faced by Six Sigma is from the
outsourcing or off shoring of business processes. The developing third world
countries have a lower cost structure and are attracting the large corporations
offering them a chance to increase their overall return on investment. This is
a process that is being engaged by medium and small-sized businesses, as the
larger corporations have experienced significant success using outsourcing.