Saving Money with Lean Six Sigma Pt 1
Last Updated January 17, 2020
Countless organizations are operating more efficiently than ever, thanks to Lean Six Sigma methodologies. These strategies allow for continuous improvement and successful competition on a global scale.
Emerging markets and fast-changing technology offer new opportunities for innovative products, as well as new ways to deliver them – but innovations can stress existing processes, causing waste and driving up costs.
Staying profitable now and into the future typically requires saving money and improving quality. Lean manufacturing is one of the best ways to achieve both.
Lean Manufacturing and Six Sigma Can Save Organizations Money
Often management and governing boards are required to prove Lean Six Sigma will have a positive financial impact before processes can begin. Here are several ways continuous improvement can impact the bottom line.
Choose Your Projects Carefully
While a single Kaizen event won’t always result in immediate cost savings, daily improvements tied to Lean Six Sigma can add up significantly. Consider three things:
- Be sure to link any cost savings to Lean methods
- Before pursuing a project, analyze it for its financial benefits
- Use Pareto analysis to chip away first at bigger, higher-return opportunities that yield savings quickly
In Lean manufacturing, long-term cost savings are typically driven by continuous improvement focusing on both supply chain management and design for manufacturability/testability (DFM/DFT). Cost savings depend upon the supply base and the customer’s response.
Accountants are Your Friends
Accountants can help determine exactly how and where Lean methods are impacting budgets. Whether labor rates, inventory spending, gross margins, overhead or fixed costs are rising, declining or remaining stagnant; the accounting department will be the first to know.
Define Project Selection Criteria
Defining, verifying and adhering to financial guidelines early in the Lean process will help establish expectations about what makes a project appropriate for improvement. Resources can then be appropriated to top priorities.
For example, a major electronics manufacturer chose to use financial guidelines when one of their low-cost parts became unavailable. The discontinuation of these parts created a problem: they were unable to deliver a high-profit product without first replacing the supply of the low-cost part.
The manufacturer’s financial guidelines stated that an alternative source was required as soon as possible – and an improvement project was launched. By applying the financial guidelines in the beginning and again mid-project the Lean team was able to determine the distance from the U.S. border a new parts source could be without negatively effecting lead time and gross margins.
