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Cutting Costs With Six Sigma

Aug 17, 2007
Problems Faced By Companies On The Cost Front

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. 6 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.

6 Sigma And It's Contribution Towards Cost Cutting

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 6 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; 6 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 6 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 6 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

The biggest challenge faced by 6 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.
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 lean six sigma, black belts, green belts, and yellow belts.
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