Inflationary pressures continue to wreak havoc for many businesses, squeezing them between the twin realities of higher material costs and consumer demand for a stop to the price increases of the past year. Without the ability to pass on increased expenses to customers, businesses need to put continuous process improvement into action to remain profitable.
This is one of the reasons that some are projecting that Lean Six Sigma will make a “comeback” in 2023, driving efficiencies across many industries and improving efforts in supply chains, sustainability and Industry 4.0.
No one knows where inflation may go next. It could rise or fall over the course of the next year. With inflationary pressures easing somewhat since late 2022, global inflation rates are expected to fall over 2023 and 2024 – but still remain above pre-pandemic levels, according to the International Monetary Fund.
The Benefits of Continuous Process Improvement
The rise of inflation, as well as war in Europe and deteriorating relations between China and the United States, have made guiding a business more challenging than ever. Many executives are now refreshing their efforts in continuous process improvement. Lean Six Sigma offers organizations a chance to solidify the bottom line and get an edge in an increasingly competitive market.
Inflationary pressures have added extra urgency to these efforts. For example, a recent survey from small business lender Kabbage reported that while small business owners reported an 87% increase in revenue between July 2021 and July 2022, they also reported that profits dropped 4% due to price increases for raw materials and a competitive labor market that is leading to businesses paying more to retain talented staff.
Inflation increases costs for every business, including higher utility costs, higher equipment costs, rent and leasing increases, and greater transportation costs, as noted by Forbes. It also impacts indirect costs, such as spending on marketing, repairing vs. replacing older equipment, delaying product launches and the overall willingness to take financial risks.
In this climate, businesses gain an edge when they foster a company culture focused on continuous process improvement, including the reduction of waste, increasing value, creating customer-focused products and eliminating costly errors. Lean Six Sigma offers tools that lead to improvements in these areas.
How Lean Sigma Helps Business Money Management
By putting a continuous improvement mindset into place, businesses can battle inflationary pressures by using proven tools and techniques to cut operational costs. This doesn’t mean cutting a huge number of jobs, as has happened in the tech industry in the past year. Rather than a hammer, Lean Six Sigma tools offer entrepreneurs a scalpel to find ways of trimming costs, especially when it comes to spending and earning money.
Some ways organizations can apply Lean Six Sigma business money management include the following.
Identify waste: Lean focuses on eight areas of waste. Assessing where a company stands in these areas can lead to quick cost reductions, such as taking steps to cut duplicate work and other unnecessary steps in a process.
Measure financial performance: Lean Six Sigma tools can help businesses establish key performance indicators (KPIs) that help businesses see areas where they can improve (for example, the prices on material contracts). It also can alert managers where to dig deeper and find the root causes in problem areas.
Implement process improvements: Lean Six Sigma emphasizes implementation of process improvements to reduce waste and improve efficiency. This can include automating processes, reducing paperwork, and eliminating unnecessary steps in the financial processes.
Monitor and sustain improvements: A central tenet of Lean Six Sigma is that it is continuous. It calls for assessing the impact of changes and making adjustments going forward.
Dealing With Inflationary Pressures on a Business
In the more specific area of inflation, Lean Six Sigma can help businesses more quickly assess the business in areas that experts recommend focusing on during times of high inflation. Keep in mind that all these ideas are instead of simply raising prices, which at this point could cause businesses to lose customers.
For example, Deloitte recommends that businesses consider shoring up capital structure, addressing supply chain issues proactively, building for continuity in operations, and also consider areas to make a “smart hedge” (such as buying supplies for products where an increase in sales is predicted).
Increasing productivity is another key area, which typically requires investing in a new approach such as Lean Six Sigma. Before racing to buy advanced technology to enhance productivity, it’s helpful to first create projects teams that can break down business operations using Value Stream Mapping or a Fishbone Diagram. These tools help businesses cut the time it takes to evaluate processes and make changes.
