Page 77 - Six Sigma Demystified

58 Six SigMa DemystifieD

rent process is operating at its full output volume (capacity)] and there is
market demand for the increased capacity.

• Increased sales owing to improved customer loyalty.
• Decreased labor costs. Labor savings come from either a reduction in total
l
task time and/or a diversion of tasks to ower- paid staff (or automated
systems). In either case, this benefit is realized only if the labor is reas-
signed or eliminated (such as through attrition). If the process is
capacity- constrained, then reduced task time increases capacity and may
provide additional sales, as noted earlier.
• Decreased carrying costs for work- in- process (WIP) inventory, including
reworked parts and other parts in common assembly.
• Decreased accidents associated with WIP storage.
• Decreased incidental material usage. This includes the use of glues, paper,
office equipment, coolants, and so on that decreases when the process
runs more efficiently.
• Decreased maintenance costs and/or capital expenditure based on de-
creased material usage. When the process runs more efficiently, new
equipment is not needed, additional offices or plants are not needed, and
the cost for maintaining the existing infrastructure is reduced.

• Decreased time to deliver to customers, including decreased penalties for
late shipment and/or expediting, decreased costs for communicating ship-
ment status to customer, and decreased costs associated with customer
dissatisfaction.
• Increased employee morale, with a subsequent decreased employee turn-

over and training expense.
As a general rule, most companies expect minimum annualized savings of
$50,000 to $100,000 from each Six Sigma project. Many projects will yield
much higher savings. What may seem surprising is that the per- project savings
do not necessarily depend on the size of the business, so even a $100 million
company can save $1.5 million on a project. Recall that a 3s company is spend-
ing approximately 25 percent of its revenue on cost of quality, so a 3s company
with $100 million in sales is spending approximately $25 million per year on
poor quality. Using a rule- of- thumb measure of 0.5 to 1 percent of employees
as black belts, however, the number of projects can effectively scale the total
financial return from the Six Sigma deployment for each business.
The PPIs for a group of potential projects are shown in Table 3.1. Although