The Six Sigma quality improvement process was first adopted by companies such as Motorola, Allied Signal, and General Electric. Because these companies are known for manufacturing, the misconception began that Six Sigma can only benefit industrial companies with manufacturing processes.
The reality is that companies in the service sector can experience the same improvements from Six Sigma principles as manufacturing concerns. A company’s business model doesn’t have to be centered on an assembly line to be a good candidate. Any organization that uses repeatable processes can reap the benefits of the Six Sigma methodology.
Non-value-add Services
The common ground for manufacturing and service industries, and the largest opportunity for the use of Six Sigma are in non-value-added-services, which is the work that adds no value in the eyes of the customer. In the service industry, these activities include obtaining approvals, filing documents and tracking work in progress. Estimates indicate that up to 50% of a service provider’s costs add no value to the customer. It is in this area that Six Sigma has the potential to make an important impact on the productivity and profitability of service sector companies.
The bad news is that service industries are more inclined to incur costs which provide no value to the customer. The good news is that the root causes of these problems can be addressed with Six Sigma techniques. The reasons for high non-value-added-costs in the service industry include:
Services Tend to Be Slow – Service processes move slowly and slow processes have increased costs and lower customer satisfaction.
Too Much Work In Progress – When processes are needlessly complex, work in progress tends to accumulate while waiting to be completed. This delay doesn’t benefit the customer and can create significant waste costs.
In keeping with Six Sigma principles, the reduction of non-value-added services is not simply a matter of cutting wasteful processes, its application helps efficiently redesign the process to better affect the outputs. Six Sigma doesn’t just help organizations identify waste, it helps them identify and implement more efficient processes to replace the wasteful ones.
The Service Industry’s Advantage
While the service industry may be burdened by higher no-value-added costs and a greater degree of waste because of the nature of the industry, it also has the advantage of being able to leverage intellectual capital to decrease costs. Manufacturing businesses tend to carry a significant amount of property, plant and equipment assets and may need to incur significant capital costs to improve their processes. Service companies tend to have more intellectual capital. The employee knowledge, business training and information resources that a service company has at its disposal can be made more efficient with a far smaller capital expenditure. Therefore, service industries that invest in Six Sigma can realize even greater efficiency and cost reduction than manufacturing operations.
The Six Sigma methodology is far from being allocated to the domain of the manufacturing industry. The service sector has the unique challenges of non-value-added costs that require Six Sigma and the unique opportunities of leveraging its intellectual capital to realize sizeable cost savings. These factors could cause the demand for Six Sigma to grow as fast as the businesses that are implementing it and the service sector itself.
