Looking at the impact of the current coronavirus pandemic, we can anticipate another global economic recession in larger magnitude in near future. During struggling economic conditions we have seen many organizations finding it extremely difficult to survive as their profits are shrinking irrespective of the scale and the type of business they operate. In these tough situations we have seen lots of companies quickly switching to panic mode and start making certain decisions for short term gains which might negatively impact in long run; Laying off the employees (their most valuable asset) or cutting down investments on Projects, Marketing, Training & Development etc. Is it the right decision to make?? Can companies survive and start making profits in a different way? Can Lean Six Sigma come to your rescue? Lets discuss this in detail.
There are 2 ways you can grow your bottom-line. The common way is by increasing the top line (revenue). But when there is a recession, the demand for your product goes down and so does the revenue. The next avenue is less popular but very effective; and it is to focus on cost reduction side of the organization! When it comes to cost reduction, Lean Six Sigma can be considered as a very effective tool which is been proved with results by many organizations around the world in both manufacturing and service industries.
Now lets have a quick look at Lean Six Sigma methodology.
What is Lean Six Sigma?
Lean & Six Sigma are 2 different approaches, where Lean is concentrated on cost reduction through waste elimination/reduction while Six Sigma is focused on preventing defects through problem solving. Therefore both approaches will help any organization to bring down the cost & eventually improve profits.
In lean, waste is explained as non-value adding activities to the business process which the customer is not willing to pay. On the other hand there are value adding activities in the business process which the customer is willing to pay. It is highly important to differentiate these non-value adding activities from value adding activities and eliminate/reduce them. Lean tools will help you to do this. As a result the business process will start making profit to the organization. That is because now your cost of production has drastically come down! Also this will open the doors for you to sell the goods at a lower price compared to your competitors which will automatically create customer demand to increase your turnover as well (capturing market share)!
Six Sigma will help the organization to reduce the number of defects produced in the process. Defects are products and services which do not meet customer specifications. More defects means more rework or reprocessing which will add more cost to the organization. In other words defects will always reduce your profit margins. We call this ‘Hidden Factory’. Generally this Cost of Poor Quality (Repair cost, Reverse logistics, Inspection cost etc.) contributes up to 25% of your sales revenue and sadly most of the organizations put less focus onto it!
Six Sigma will help the organization to significantly reduce defects or in other words improve the product quality and put back those quality related cost leakages to your profit.
When you are working at 6 Sigma level of quality, you will be producing only 3 (3.4 to be precise) defective items per Million products!
(I’m sure at the first glance you will not believe, but that is true and there are companies who have done that!) Six Sigma is the success story behind Motorola and General Electricals (GE) in late 80s and 90s.
Top Management Commitment
Though you apply these methodologies from the ground level of the business, the direction and the commitment should always come from the top management to realize the expected growth results; Specially to allocate required resources, train and empower employees to make decisions and to sustain the results etc.
Managing cost has become the biggest challenge for any organization in economic crisis situations and the actions they take to overcome is highly critical to the business in both short term and long term. Rather than been defensive and taking unnecessary cost reductions, it is always advisable to identify sources of non-value adding activities to the business process and try to eliminate them. Lean Six Sigma is the best approach for this and companies have a very good chance of thriving even in absolutely difficult conditions!