What cost savings are available using Six Sigma?

What cost savings are available using Six Sigma?

The Six Sigma method, among other things, is an effort to reduce variation and the resulting loss of resources. In the manufacturing process this means attention to the business process including measuring, analyzing and improving output as it is necessary. Key words: cost savings, Six Sigma, variation, defects, materials, waste, time, companies, method Tags: cost_savings, Six_Sigma, variation, defects, materials, waste, time, companies, method

Six Sigma is a program the successful businesses are using to systematically improve their process of consistently producing a product to the customer that is free of defects. The Six Sigma method has many similar traits to the method of lean manufacturing in that the appeal of incorporating such a method will lower costs by reducing waste.

The use of Six Sigma benefits all parties involved. The manufacturer saves money and can produce a higher quality product. The customer is happy because he receives a higher quality product on a consistent basis and often times the savings in costs are passed down from the manufacturer to the consumer.

The Six Sigma method, among other things, is an effort to reduce variation and the resulting loss of resources. In the manufacturing process this means attention to the business process including measuring, analyzing and improving output as it is necessary. Specifically, the many different cost savings that are possible when using the Six Sigma method include the following:

• Material waste - When a product has a defect there are generally two ways to correct the problem. The first is to simply throw away the defective product and start the manufacturing process over from step one. Another option is to try to repair the defect by replacing or repairing parts. Either way, a defect costs money for materials. And spending more money than is absolutely necessary for a single product is like taking money right out of your company profits.
• Efficient use of time - As was mentioned above, in order to correct a defect you have to repair the product or start the production process over again. This process takes time, especially considering that it is usually a whole batch of products that has defects rather than a single product. Usually in the time it takes to correct a problem, you could have created more good products and increased profits by selling more products. The point is that time is money and if you can save yourself time then you can also save some money.
• Reduce labor costs - Assigning value to the time it takes to fix a default can result in a significant illustration on just how real cost savings can be if even the smallest of imperfections can be avoided. Many times defaults are corrected by employees who therefore increase labor costs. Even if you have a manufacturing process that is highly computerized, overusing your machines for default corrections is still costing you money as the machines will wear out more quickly or may be poor judges of defaults if the monitoring computers themselves fall into disrepair. If a company is able to be successful at sustaining a high quality of production, not only are costs reduced for that company but the cost savings combined with the increase in perceived quality by the consumer lead to significant earnings. To use a specific example of a company that experienced significant cost savings as a result of using the Six Sigma method, we will look at the Motorola Company. Motorola, Inc. has reported over $17 billion dollars in savings as of 2006 from using the Six Sigma method. Motorola is not the only company that realized the potential of the Six Sigma method early on in its introduction. Other successful companies such as Bank of America, Caterpillar, Raytheon, Merrill Lynch and General Electric can also attribute their success to the cost savings that they enjoyed while using Six Sigma. The cost savings of using Six Sigma are just waiting to be had. However it is important to keep in mind that a unique Six Sigma method must be developed for each company. Principles of Six Sigma that are working for a manufacturing company may not work well for a service industry. In fact many popular companies have struggled with achieving cost savings through Six Sigma because of poor choices. With trial and error there are improvements to be made and cost savings just waiting to be had.