Applying Six Sigma in SMEs: What you need to know

12 July 2019

As businesses attempt to improve processes and approaches within their organisation, they look to new management methodologies in order to do so. From Kanban to Lean, there are a whole host of business models that can be leveraged when business performance plateaus and starts to cause problems for a company.

A branch of the Lean approach, Six Sigma expands on that model by focusing on increasing the effectiveness of management while simultaneously serving to reduce errors along the way. By providing a structured method for resolving problems, it can vastly improve an organisation's performance – as long as it's implemented properly.

Here, we'll define the features of the Six Sigma process, the kinds of benefits it can achieve, and the principles and methodology associated with the model itself.

defining business strategy

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What is Six Sigma?

We've already talked about the Lean business model, a process that achieves its aims by altering ineffective practices, disposing of unprofitable products and improving the productivity of teams. Six Sigma, closely linked to Lean, is a system of statistical tools and techniques focused on eliminating defects. While many different definitions for Six Sigma have been suggested, they all share some common threads:

  • The use of teams assigned to well-defined projects that impact the organisation's bottom line.
  • Training in "statistical thinking" at all levels and providing key people with extensive training in advanced statistics and project management.
  • Emphasis on problem-solving – define, measure, analyse, improve, and control.
  • A management environment that supports these initiatives as a business strategy.

Ultimately, the goal of Six Sigma is a defect-free process that decreases process variation and boosts profits, employee morale, and quality of products or services.

The benefits of Six Sigma

Used by a diverse array of businesses across the globe, Six Sigma’s fact-based, data-driven philosophy has a whole host of benefits. However big your business is and whatever sector it’s in, Six Sigma provides a standard approach to problem-solving that allows you to reap several highly-effective advantages, including the below:

  • Reduced operational costs

Operational cost is always a factor when running a business. The Six Sigma methodology can provide a path that significantly reduces an organisation’s exposure to risks, while also serving to increase efficiency when it comes to delivering a product or service.

Reducing the cost of a project involves a decrease in process cycle time, turnaround or LEAD time, i.e. the delay between initiation and execution of a task. Six Sigma aims to produce a standardised end result with fewer touchpoints, hand-offs, non-value-adding activities, reworks and failures.

Operations meeting in progress
Taken together, this reduction in stages cuts the costs for the company in terms of hard and soft savings. Lower budgets, fewer employees and reduction of prices paid on purchasing contracts all fall under the hard savings bracket, while soft savings come in the form of results from the project, like less inventory, lower cycle times and reduced scrap.

  • Improved efficiency and timeliness

By streamlining the process output, the methodology can improve the on-time delivery of products or service each time. Six Sigma projects can be targeted towards a reduction in the number of machine setups or hours involved in the manufacturing process. Additionally, the production of assembly lines, where applicable, can be improved, while processes can be fully or partially automated wherever manual intervention is higher than required.

Difficult areas can be eased using the methodology. Before you begin any Six Sigma project, it’s important to quantify or define all aspects of efficiency or timeliness; analyse the defect with the help of data, facts, figures and information.

  • Improved accuracy

On the more technical side of things, Six Sigma can improve accuracy by reducing Defects-Per-Million-Opportunities (DPMO) across the value stream in the process. DPMO is a probabilistic measure of error rate or capability of a business or manufacturing process, taking into account both actual defects and the number of probable defects in every opportunity. Six Sigma offers a systematic way to measure process accuracy as it aims to prevent the occurrence of defects.

Improved business process

  • Improved customer service

Stabilising the relationships you have with your customers is a massively valuable element of running a business; after all, they can be your most vocal critics should things go wrong. Six Sigma projects can identify the number of variations customers are experiencing, the reasons behind these variations and, ultimately, how the number of unhappy customers can be reduced.

  • Improved cash flow

When you improve the DSO (Days Sales Outstanding) in the business, the cash flow increases concurrently. The higher the DSO, the lesser the ability of the company to convert credit sales into cash. Invoicing processes, accounts payable and account receivable processes all add to increase process variation, which Six Sigma aims to reduce, allowing for a smoother overall process that narrows down the elements associated with cash generation.

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Principles and methodology

The five steps of the Six Sigma process form the acronym DMAIC, which is defined as:

  • Define: The team initiates a high-level view of company processes, defining problems, areas for improvement and gauging client needs.
  • Measurement: Data is accumulated and current processes are determined to create a baseline
  • Analysis: The data is analysed in order to identify the root cause of the problems.
  • Improvement: The team implements a solution, verifying that it performs to expectations.
  • Control: The solution put in place, as well as the progress the team has made, is maintained as best it can.

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