The Financial Benefits of Lean Six Sigma
OK--here is the reality--when we, as managers, permit waste to remain in our value streams, we are literally throwing hard-earned money out the doors, vents, windows, cracks, and crevasses of our companies. Think about it. The following financial categories improve when we use the Lean philosophy and tool kit to improve value stream processes:
- Revenues increase
- Labor costs decrease
- Benefit costs decrease
- Supply costs decrease
- Facility costs decrease
- Profit or contribution margins improve
- Cash tied up in inventory decreases
- Cash asset increases
So what's the rationale for the improvements in each of these financial categories? The answers, in the table below, account for the financial improvements. They form the basis of a Lean business case that your C-suite executives will want to see!
|
Financial Category |
Lean Driver 1 |
Lean Driver 2 |
Lean Driver 3 |
Lean Driver 4 |
|
Revenues |
Improved customer satisfaction-Voice of the Customer focus |
Improved competitive stance |
Improved billing & AR processes |
Improved customer retention |
|
Labor and Benefit costs |
Less wasteful work is required |
Productivity leap-frogs all benchmarks |
Improved processes throughout the value stream |
Overtime rate significantly decreases |
|
Supply costs |
Quality is improved-less defects & repeats |
Less obsolesce |
Improved materials management |
Improved vendor relationships |
|
Decreased facility cost |
Tight coupling of sequential process steps |
Lean facility design |
Lower utilities and maintenance cost |
Elimination of excess inventory & motion frees up space |
|
Profits |
Increased revenue from more customers |
Improved customer retention |
Low cost provider status |
War on waste removal |
|
Inventory |
Lean kanban materials management |
Just in time materials management |
Less inventory obsolesce |
Improved business relationships with vendors |
|
Cash |
Less $$ spent on inventory |
More cash on hand from profitable operations |
Less cost of goods sold |
Improved business processes |
You may have additional thoughts or experiences with accounting results associated with Lean. I invite you to share them with the readership community and me.
Sue Stegall
