Six Sigma–Application to Commercial Processes

Of course, the authors of the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations come from the manufacturing sector, but in the twelfth chapter of their book, they talk about the application of Six Sigma to the service industry.

In retrospect, the suitability of Six Sigma for the service industry should have been obvious, because 90 percent of those employed in manufacturing are actually doing service work:   finance, marketing, sales, distribution, and purchasing.   In this post, I review the authors discussion of commercial as opposed to industrial processes, and how Six Sigma applies to them as well.

In the case of an industrial process, the unit of manufacturing is the “part”, but in a commercial process, the unit is the “transaction.”   However, just like with a part in a manufacturing process, there are many ways for things to possibly go wrong, which are called “opportunities for defect.”   To show how the Six Sigma process works with a commercial process, the authors talk about the company Foxboro, a process automation control company.   For fifteen months, the company found that its domestic delinquent accounts were costing the company over $7 million each month.   This defect rate for the commercial process involved was the equivalent of operating at roughly two sigma.

A Black Belt team identified the metrics that should be used and designed graphs to track their process.  That $7 million loss per month quoted earlier was their baseline.   The defect rate, defined by delinquent accounts against the total accounts receivable balances, was 15%, meaning that the accounts receivable yield was 85%.

In analyzing the root causes of the disputed invoices, it turned out that commercial delinquencies were responsible for 65% of all the defects.  Out of these commercial delinquencies, there were several root causes revealed by their analyses.   One Black Belt, supported by nine team members from a range of departments across the company, took three months to execute a Six Sigma project which improved the root causes of the problem.   Although the Sigma level was only raised to 2.5, the delinquent account receivables were reduced by $3.6 million.

As a result, new corporate policies were implemented and funds were made available for better computer systems that would lock in the gains made during the project to make them permanent.

This is a good example how the same Six Sigma methods used in manufacturing can also be used on commercial processes using the same Six Sigma Breakthrough Strategy outlined by the authors, with similar positive results for the bottom line of the company.   That’s what’s great about Six Sigma:   it’s an equal opportunity tool!

So your company is eager to use Six Sigma to improve its bottom line.   Once you’ve identified a number of areas to improve upon, how do you choose which Six Sigma projects to do first?   That is the subject of the thirteenth chapter of the book, which I will cover starting with the next post.


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