The role of Six Sigma in cost reduction

The hospitals, manufacturing industries, and services industries are all experiencing tremendous pressure on the cost front. All the companies should conduct a thorough check of the costs involved, in the same way, that they view revenue generation and market expansion.

Enterprise cost reduction is a wider approach towards controlling the company’s expenses and leading the organization towards improvement. It does not only imply focusing on specific operational processes. Enterprise cost reduction addresses a number of key cost-aspects that span the enterprise, such as the business configuration, organizational structure and design, business and process complexity, external expenses and the benefits.

It is essential to identify the large and small costs incurred by the business. The savings on the purchase of the raw material and on the business trips add up to a considerable amount of money. This could be utilized for the promotional campaigns of the product. This, in turn, affects the sales and again the business turnover. Improved product sourcing and the controlled expenses can generate dramatic cost reduction.

It pays to investigate the raw materials being purchased and the source. The company must indulge in the products of more than one supplier, to ensure the availability of reasonably priced and quality goods, whenever required. Most companies spend a lot of time focusing on improvements in sales only. Their most common indulgence is to negotiate with buyers for a greater unit price.

How Does Six Sigma Contribute To Cost Cutting

Although Six Sigma was never perceived as a cost-cutting tool, it nevertheless contributed to that end. Six Sigma went about cutting cost in unique ways in all aspects of business operation.

  1. First, the voice of the customer helps in defining not just the appropriate quality but also quantity, which cuts down on wastage such as over and under-utilization of capacity.
  2. Stabilization of process variation saves a lot on the material conversion which results as improved productivity and quality and reduced cost of reworking and rejection.
  3. In graduating from 3 or 4 Sigma to Six Sigma, the overall reduction in COPQ is tremendous taking into consideration the huge saving originating from almost no rejection.

Take for example the case of a hospital, which after implementing Six Sigma in its cardiology department, could effectively cut down the overall process time required for admission. This produced a double-edged advantage; one, the reduction of 45 minutes meant fewer labour costs and two, the department could accommodate more patients due to increased productivity.

The enterprise cost reduction concept ensures fundamental and sustainable improvement to the company. Six Sigma helps the enterprise and its employees equally and can be understood as a vision, a philosophy, a symbol, a metric, a goal and a profitable methodology.