Managing Costs with Six Sigma

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The formula for calculating profit is really quite simple; the total earnings of the business minus the expenditures of the business (employee wages, materials, office space, etc.) equals the total profit for the year.

Obviously, there are several ways in which that profit margin can increase. One way is by increasing the amount of revenue that the business brings in. This is nice and it's also the goal of steps such as advertising; bring in more sales and the profits go up.

Unfortunately, generating extra business and sales will not always mean an increase in profit. Think about this; the more business that comes in, the more product needs to be created in order to be sold. The more product being manufactured, the greater the chance of defects. This chain of events is what is at the heart of the Six Sigma business plan; costs are managed by decreasing defects within the production system.

What Exactly Is Six Sigma?

As stated above, the fundamental underpinnings of the Six Sigma system is increasing profit by eliminating defects. It's a system that was created by the Motorola company back in the 1980s, built on proven processes that had been developed in other industries.

The Six Sigma system is specifically applied to the goods produced by a company. In Motorola's case, electronic goods were the product wherein the manufacturing process was analyzed through six different steps, with the idea being to reduce defects within the products to 3.5 per one million units produced. Obviously achieving this goal would help greatly in managing the overhead costs of many different businesses, as each unit that came out perfect was a unit perfectly suited for sale.

Six Sigma in Motion

One of the most important parts of the Six Sigma program is its implementation, specifically through different roles. Like many modern business ideas. Six Sigma has some well defined roles that come with titles that may sound unusual to the unindoctrinated. Let's take a very brief look at the titles and their roles within the implementation process.

-Executive leadership. These people are the power players within the company; CEOs and others with the power to put a vision into motion for the entire company. In addition to getting the ball rolling, they also empower other roles in their implementation process.

-Champions. Upper management makes up the majority of the champion roles, and it is here that the Six Sigma program begins to truly be implemented across a company. The champions will integrate Six Sigma planning across the company and will also serve to train black belts.

-Master Black Belts. These people are essentially the coaches of the Six Sigma system, the people who understand the process inside and out. They train the other "belts" and their sole role within the company is the implementation of Six Sigma processes.

-Black Belts. These individuals are responsible for executing the programs which are part of Six Sigma. Like the Master Black Belts, they devote all of their time to the Six Sigma process.

-Green Belts. At this level, individuals are responsible both for Sigma Six implementation and their usual job roles.

-Yellow Belts. These employees have been exposed and trained to some degree in Six Sigma but have not yet completed a program. They are not expected to actively engage in improvement of quality activities that are part of the process.

The key to a successful Six Sigma integration within a company is a well defined plan with personnel that are on board. The successful implementation of the process will help to manage costs through the elimination of defects.

About the Author

Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solution's Six Sigma Online offers online six sigma training and certification classes for lean six sigma, black belts, green belts, and yellow belts.

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