By : Totok Sugiharto
What is process improvement? A glossary of management defines process improvement as a management technique for improving business results. It applies a systematic method to business activities. The process depends on carefully defining terms (such as inputs, work activities, outputs, etc.) and particular measurements to identify cause and effect of its inter-relationships. Understanding them will lead to better decision-making in what to change to get better results. One of the processes of improvement as noted in the world of corporate strategies is the legendary Six Sigma initiative at General Electric (GE) Company. Supporters of Six Sigma point to the impressive results and how it continues to improve efficiency to lower process costs. Nowadays, Six Sigma strongly focuses on discrete process improvement, the essential requirement for sustaining competitiveness in today's marketplace.
What is Six Sigma?
The word sigma is a mathematical term for measuring variation. One Sigma represents a high degree of variability (seven defects out of 10 opportunities) and Six Sigma represents a very low degree of variability (3.4 mistakes out of a million). Six Sigma is the name of a rigorous form of process improvement that grew out of the total quality management movement of the late 1980s. It is credited with hundreds of millions of dollars in bottom-line savings in many large corporations, such as GE.
Presently, Six Sigma continues to play a strategic role in operational improvement, at a time when many companies face the need for a more encompassing approach to cost reduction.
Cost reduction to process effectiveness in the business environment, even as economic and business conditions improve, they rigorously focus on cost structure, like working capital and cash flow, which are essential. Companies need an approach that is tangible and practical, enough to catch cost reduction opportunities and give solutions such as Six Sigma. Such an approach focuses on strategic cost drivers that are typically addressed through specific-process disciplines. These drivers determine how far an organization can go in reducing costs without creating negative impacts on the organization's culture and strategy.
Even enterprise cost reduction begins by the changing of business configuration and is applied in the process and organizational structure. These challenges are not meant to suggest that there is a single solution or a most efficient organization structure. They are meant to provide alternatives to instilled business practices that have evolved over time.
As an example, a group of milk producers recently established a wholly owned procurement division that specializes in purchasing raw materials. By combining the purchasing power of the entire group, lower prices can be negotiated based on higher volume guarantees.
Complexity in business process
Enterprises face numerous issues in their quest to improve process efficiency. In most companies, business processes have evolved from time to time based on technology and human capital constraints. While Six Sigma is designed to improve the existing business processes, it is often narrowly focused and does not contemplate improvement throughout an entire enterprise. Improvements are usually confined to one or two process areas owned by a particular process owner, often not addressing the complexity of the end-to-end process.
For example, recently a leading retailer experienced a decline in sales and sought to reduce costs to maintain current profitability. It launched a series of Six Sigma improvement initiatives. In store operations, the company lowered its overall labor costs by reducing the number of hours worked in each store. The store manager determined which activities could be eliminated to accommodate the reduction in labor costs. At the same time, marketing decided to increase the number of in-store promotions in an effort to increase the sales volume.
The two activities were in conflict, despite being independently developed efforts to improve the profitability of the organization. By identifying the impact of cost management strategies in each process within the organization, and working side-by-side collaboratively with respective management teams in those areas, enterprise cost reduction would achieve the lowest overall process cost to the organization.
Focus on significant costs
From the purchase of raw materials to the expense of a business trip, the dollars that go out of an organizations never return. Improvements in product sourcing and tightening expense controls could be combined to produce significant cost reductions. Many companies spend considerable time focusing on improvements in procurement. The most common activity is negotiating with vendors for greater unit price savings by competitively bidding for goods and services.
The process improvement methodologies will not capture this type of savings because they focus on ways to make activities more efficient, such as for purchase order execution, product supply completion, item receiving and invoice payment. Rarely do they challenge the "what", but rather focus on the "how" in the process. In contrast, a more comprehensive solution such as enterprise cost reduction typically focuses on yielding greater return.
Value creation method
The steps of Six Sigma are deceptively simple: define, measure, analyze, improve and control. Define the defect or the problem you are trying to solve. Define the suppliers, inputs, process, outputs and customers, and define the process itself as best as you can. Measure starts with data collection and then setting up the measurements of each process. Analyze means try to figure out what the data is telling you, and it then becomes your hypothesis. It is essentially the expression of a theory of cause-effect for your organization process. Improve means you construct an experiment to prove the hypothesis. If your experiment is on target, you will have reduced the instances of defects. End with control. It does no good to learn how a process can be improved if the improvement is not institutionalized in some way so that the problems do not recur.
In the struggle of the global economy, it is very important for an organization to develop and to implement the transformational cost reduction approach that flushes out structural costs throughout an enterprise and provides sustainable improvement through proven methods such as Six Sigma. Just viewing cost reduction as an incremental of tactical activity is not enough. A strategic approach is needed to truly transform an enterprise. The Six Sigma model along with all processes in the supply chain may still be a part of the solution. Such efforts can make important contributions, particularly in helping an organization adapt to and monitor the effects of changes necessary to achieve cost savings identified by the approach. Ultimately, an encompassing view of an enterprise's cost reduction can serve as a path to fundamental, sustainable improvements that companies need today.
1 komentar:
In my opinion, this article is a very important article to read, particularly for industrial engineering. This article discusses six sigma role in creating value. In this article does not solely explain how the role of six sigma in creating value, but also describes in detail and clearly what is six sigma, complexity in business process, focus on the significant costs, and finally explain how the methods of value creation. Complete explanation and this sequence make the reader more easily understand the intent of the author. Especially for me who are still in semester one in industrial engineering, who do not really know the six sigma and a variety of uses, so that by reading this article I can be add my knowledge. Authors also add a variety of examples to illustrate the problems that exist, so as the reader can come to feel as though the problem of what is going on, and eventually guided to jointly solve the problem. I agree with the methods of value creation is described by the author in this article, as well as how six sigma as a supporting role in it. I think using the six sigma is the best option for improving existing processes in the company, and can make important contributions. Conclusions of this article can be found at the bottom, this is very helpful reader to truly understand the subject of this article.
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