Financial Benefits of Lean Six Sigma

lean six sigma

In order to analyze the financial benefits of Six Sigma projects, Net present Value i.e. NPV of the project is measured. After measuring the NPV, the following gains are accrued to an organization.

1.   Increased Revenue

Increased revenue is the most common and obvious benefit of any Six Sigma Project. With processes going more efficient and optimized, the organization is able to produce quality driven products at much cheaper rates and hence are able to generate more revenue and profit. By improving the quality of the products, customer loyalty is boosted which in turn again adds to the revenue.      

Read Also: Big Data or Six Sigma?

2.    Avoided Costs

The Six Sigma helps to eliminate the unnecessary costs which are incurred in the form of rework, expansion or regulatory penalties. For example: Suppose a factory manufactures 100 bikes in a year. By using Six Sigma tools and methodologies, the efficiency of the processes is boosted which makes the factory produce 120 bikes in a year.  This means that the additional cost of those 20 bikes can be avoided.

Example 2: Governments of many nations penalize the organizations following inefficient behavior. Suppose, if an organization does not pay the taxes on time, then it has to pay penalties. By embedding SixSigma methodologies, these processes can be made more efficient and thus, extra costs can be avoided by the management.  

3.    Reduced Costs

Six Sigma projects significantly reduce the operational costs of the firm. What could be a better example than Motorola? In the era of pagers, Motorola ruled the market as it was able to offer pagers with additional features and at a much lower price as compared to its competitors. That was the power of Six Sigma.   

4.    Non-Monetary Benefits

Apart from cost reduction, there are several non-monetary benefits which are also associated with firms.  In most of the cases, these benefits get converted into indirect monetary benefits. But, as these benefits cannot be measured precisely, these are classified into non-monetary.  Some of the examples are:

  • Increase in customer satisfaction
  • Increase in employee satisfaction and retention
  • Lowered attrition rate
  • Improved customer loyalty
  • Increase in brand value and reputation of the organization

As per quality management trends 2018, following figures say the success story itself:

  1. Allied Signal- Cost savings exceeded $800M past 12 years. The company was later merged with Honeywell in1999.
  2. General Electric (GE) – The company has been delivering exceptional performance with increasing profit and growth every year. The cost savings exceeded $2 M.
  3.  US Army- The Lean Six Sigma techniques implemented throughout the US Army have proved to be brilliant and continue to stay successful. The cost savings as anticipated by the leaders is expected to touch $2B this year.

The Lean Six Sigma Green Belt and Black belters are trained in analyzing the data which will help the top management and the strategic decision makers in understanding the root cause of the problem and in developing solutions.   

The belters attain full confidence after Six Sigma training which enables them to challenge the traditional approach with new and innovative ideas and solutions. These professionals aim for lean six sigma workflow optimization and act as change agents for the business. With everything going streamlined, the organization can offer better service, better quality and better delivery of products and services.

Read Also: Six Sigma and Improving Healthcare

Winding Up

The Six Sigma boosts a company performance in all the dimensions such as financial, strategic, planning etc which is clearly visible after applying the Six Sigma methodologies. These benefits can be used by the organizations to pitch their marketing and sales strategies. If the organizations won’t start implementing Six Sigma, then they can’t be sure that the competitors won’t implement too. And if Six Sigma is implemented by the competitors first, then it may cost the organizations- their business and ultimately will leave the organizations trailing long behind. 

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