Decreasing Costs Through the Six Sigma Process

By Tony Jacowski

Just how did six sigma manage to gain a reputation as a cost cutting tool? After all, the process was meant to eliminate defects, not increase the bottom line.

As it turns out, however, the two goals are complementary. In the first place, six sigma places an emphasis on the voice of the customer. The customer determines not just quality but quantity as well; knowing what the demands are will save money in terms of over and under utilization of capacity.

No rejection means much less costs, so graduating from 3 or 4 to Six sigma means huge corporate savings. In addition, stabilizing the process variation saves money in terms of material conversion, which in turn leads to improved productivity.

Let's use our example of a hospital once again. Once six sigma has been implemented in a cardio department, process times should be cut down effectively.

The cut in time means less costs incurred both in labor and an increased capacity for more patients during the day. In effect, the hospital is doubling its cardio department income and then doubling it again.

Six sigma is often mistaken as a purely quality control process, and therefore miscast as a high expenditure tool (good quality equals more money). However, this is far from the truth.

A rational approach used by black belts and master black belts means that cost saving efforts are an integral part of six sigma implementation.

So how does an implementation team approach the issue of cost cutting? Let's take a look below.

• The team takes a look at calculated implementation of the program, aimed at the market as well as safer cost control.

• Risk management becomes better as factors which contribute to risk are identified early on the in process and are mitigated.

• There will be a higher yield in the project portfolios as resource use is optimized through the pursuit of low intensity risk/gain combination's.

The big problem with Six Sigma in terms of cost cutting occurs when one looks at the increased disposition of companies to move operations off shore.

Developing countries have a market that is determined solely by the low costs of labor, a fact which many companies find appealing. Big corporations can significantly improve their ROI as labor costs are not nearly as high as those in developed countries.

Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solutions - Six Sigma Online (http://www.sixsigmaonline.org) offers online 6 sigma training and certification classes for lean six sigma, black belts, green belts, and yellow belts.

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Decreasing Costs Through the Six Sigma Process