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Six Sigma Costs And Savings

Jul 15, 2008
Spend On Six Sigma Training

To earn money, you have to spend some. The same holds true for Six Sigma projects. Only when you spend on Six Sigma online training, classroom training, organizational infrastructure and the cultural evolution, will you find the returns and savings due to reduction in defects. The financial gains are the inspiration to spend some good amounts in the various phases of the project.

Will you be able to sustain the Six Sigma initiative by hiring a Black Belt for your project? Your costs of training will reduce and the sales will increase in a specific area for a short period by hiring these Black Belts.

But when they are promoted or decide to move on for better prospects, will you be able to manage the Six Sigma project? Probably not.

Adopt the Work Culture

Unless you have properly trained your staff, the initiative and the savings of hiring a trained person will all be wasted. The work culture of Six Sigma should be adopted throughout the organization to really make an impact on the work processes and methods.

There can be no benchmarks on costs or savings. Neither can you decide the financial benefit you expect to receive. The figures of companies like Motorola, GE, Honeywell and Ford, who are the biggest, the most mature in their deployment and have shown good results from their Six Sigma initiatives, suggest a few things.

The savings as a percentage of revenue vary from 1.2% to 4.5%.

Break Even In the First Year

You cannot expect more than to break even in the first year of implementation; Six Sigma is not a "get rich quick" methodology.

A 1.2 to 4.5% of revenue is significant enough to translate from between $360,000 and $1,350,000 in the bottom line.

Monitor Costs

Companies should check the costs involved, the same way they view market expansion and revenue generation by enterprise cost reductions. The key cost areas that are of concern are the business configuration, the organizational structure and design, process complexity, the external expenses and the benefits.

Cost reduction allows the opportunity to examine all the business areas and identify savings.

Most companies tend to ignore the large and small costs incurred by the business, other than on sales. The savings on the purchase of raw material and the business trips add up to make larger amounts. This could be utilized on other promotional things.

The concern should not be only about getting a greater unit price with the buyer. It should be about giving value to the customer and earning better sustainable profits from it.

Even the purchase of raw material should be considered to ensure quality and timely availability. Savings by way of readiness and timely supply to the cost is beneficial.

Reduce Cycle Time and Increase Productivity

Six Sigma helps reduce the cycle time of production process, process steps and per-person hours. This helps increase the productivity of both the employee and the process. The cost on removal of defects is high. It helps save by eliminating non-value added activities.

The best saving is by way of improvement in quality given to the customers by reduction in defects. Productivity and efficiency is improved with the help of support activities and automation in new areas. This helps strengthen the processes and earn better revenues.

You have to decide if it is worth investing in Six Sigma. The study of the costs and savings involved for you company has to be determined by your own study and analysis of the scenario in your organization.
About the Author
Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solution's Six Sigma Online offers online six sigma training and certification classes for six sigma professionals including, lean six sigma, black belts, green belts, and yellow belts.
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