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Cutting Costs With Six Sigma

Six Sigma’s Contribution to Cutting Costs

Six Sigma has never been a cost cutting tool; however, a proper implementation of the various tools and techniques of Six Sigma can help businesses reduce the costs of operations.

Reduction of Defects and Rejections

A major factor in cutting costs is the reduction of defects. By listening to the appropriate voice of the customer (VOC), the customer requirements can be well understood.

The quality of a product is not perceived from the point of view of the person designing, manufacturing or selling it. Rather, it is determined according by the customer. By making product and process improvements from this point of view, it will lead to reductions in cost incurred due to customer rejection.

This in turn will help cut costs on certain processes that may add a feature to the product that is actually not necessary, or on the absence of a process that is leading to rejection of the product.

Process Stabilization

Six Sigma brings about stability in processes (i.e., it aims at reducing variations). In a manufacturing unit, reduction in variations saves a lot of costs incurred on the incorrect conversion of raw material. Variations lead to rejection. Rejection leads to rework on the material or scrapping of the same.

These costs would be saved when there is a standard process and controls in place to ensure that the variations are minimal. In spite of personnel changes in manufacturing the product, the standard process will ensure continuity in production.

This is true for the service industry as well. Additionally, moving on to achieve a sigma level of 3 to 4 or higher means even more savings by achieving almost zero rejections.

Risk Management

Six Sigma teams can devise better risk management plans through early identification of risk factors. Using FMEA and other tools, the risk of failures can be identified on time and plans can be prepared to mitigate such risk before they become causes for higher cost levels.

This helps prioritize processes that need action to improve a given situation. The teams work towards achievement of the intended quality in processes and product designs.
For example, in a healthcare scenario, by combining FMEA and Six Sigma, safer environments are ensured for patients. Improvement in efficiency is also achieved, and this leads to reduction in costs.

Cost cutting is not achieved immediately after implementing a Six Sigma initiative. It takes some time to bring about a change in organizational culture. The efficient utilization of the tools and techniques of Six Sigma means the businesses can realize a good return on investment.

Investments will be costs incurred on the entire change process, teams and so on. However, over a period of time and with the utilization of appropriate controls, significant cost savings can be achieved.