Inventory Planning – Basic Concepts
Every organization that is engaged in production, sale or trading of Products holds inventory in one or the other form. While production and manufacturing organizations hold raw material inventories, finished goods and spare parts inventories, trading companies might hold only finished goods inventories depending upon the business model. When in case of raw material inventory […]
The Interconnectedness between the American Economy and the World Economy
It is often said that when America sneezes, the entire world catches a cold. This is because of the high degree of integration between the American economy and other economies of the world. Ever since World War 2 ended, America became a dominant economic power. This led to increased integration between the American economy and […]
Risk Mitigation Team and their Role in Business Continuity Management
In previous articles, we have seen how Business Continuity Programs are formulated and how they are executed in times of crisis. In this article, we look at the role of the Risk Management and Risk Mitigation Team in aiding the organization towards formulating contingency planning. The risk management team is responsible for identifying risks, coming […]
Total Quality Management – Meaning & Important Concepts
To understand the meaning of “Total quality management”, let us first know what does Quality mean? Quality refers to a parameter which decides the superiority or inferiority of a product or service. Quality can be defined as an attribute which differentiates a product or service from its competitors. Quality plays an essential role in every […]
Finished Goods Supply Chain
Buying a Desktop computer for your home or a Laptop for your use is very easy. You browse the internet to see the latest models and configurations, decide on your specific requirement and click to place an order. At times, of course, you might go into an electronic supermarket and check out the physical product […]
The final step in the metrics is to measure the financial benefits that are accruing to the firm because of the Six Sigma project being undertaken. This is important and is also an area of concern. Most criticisms of Six Sigma say that the benefits that are presented in such analysis are incorrect and actually do not accrue to the firm. They claim that the true picture of the projects is often different.
However, to get the resources sanctioned from the finance department, it is essential that the Net Present Value (NPV) of the project be presented to them. The most common category of gains that accrue to an organization because of six sigma projects is as follows:
Increased Revenue: The most obvious benefits of the six sigma project would be an increase in revenue. This could be driven by many factors.
With more efficient processes, the firm may be able to produce goods more cheaply than others and hence sell more increasing revenues. Or with the help of six sigma projects, the firm could increase the quality of its products increasing customer loyalty and adding to revenues.
Avoided Costs: The firm can avoid many costs in the form of regulatory penalties, expansion costs etc, if its processes are efficient.
Let’s assume that a factory manufactures 100 cars. If by efficiently redesigning the processes, the factory can now manufacture 120 cars, then the fixed costs of manufacturing those 20 cars have been avoided. Governments sometimes penalise inefficient behaviour in companies.
For instance if the company does not pay its taxes on time, it has to pay penalties. Six sigma projects can make these processes efficient and avoid such costs for the management.
Reduced Costs: The operational costs of the firm can be drastically reduced with the help of six sigma projects. With the help of Six Sigma, Motorola was able to offer pagers which were much better in features than the competitors at a price which was much less than that of the competitors.
Non-Monetary Benefits: There are several non-monetary benefits that accrue to the firms as well. In many cases these translate into indirect monetary benefits. However since they cannot be precisely measured they must be called non-monetary. Common examples of such benefits are as follows:
Critics of six sigma say that analysts use fuzzy numbers and double counting to increase the NPV of the projects in question. However there is no doubt about the fact that efficiency has never harmed an organization.
Undertaking six sigma projects and completing them efficiently will only make the organization better off.
Your email address will not be published. Required fields are marked *
