In any business, there are crucial decisions to be made about pricing, product, sales, accounting, marketing and hiring. Larger organisations rely on teams of employees and consultants who pool experience, knowledge and resources to make the business decisions that impact the company’s operation and growth.
Small business owners rarely have that luxury. Entrepreneurs are typically the sole decision-makers, wearing many hats and solving problems through trial and error. Their personal investment in the business makes it challenging to base decisions exclusively on facts and data, rather than emotion.
Taking a page from the corporate playbook, however, small business owners can use a proven, problem-solving methodology that results in greater efficiency and profitably. Six Sigma for small business can reduce mistakes and waste, uncover hidden costs, streamline processes, improve overall quality of products and services, and increase customer satisfaction.
Why Six Sigma is Important
Small business owners often discount Six Sigma because they think it isn’t applicable to their business. In reality, the methodology can be applied to nearly any chronic problem or “defect.”
One example: The owner of a seafood restaurant often advertises an all-you-can-eat special on crab legs. Half the time, however, he runs out of crab legs before the end of the evening. That same owner regularly throws out pounds of spoiled food. Both incidents represent defects that can be eliminated or significantly reduced using Six Sigma to define and measure the problem. The solution is buried in the receipts and sales data over time. We know how many people are coming to eat, we know how much inventory is consumed, but the owner does not numerically associate the inventory input to the output over time.
The list of potential problems is endless and different for each business. What all have in common, however, is the negative impact on a company’s bottom line. Every mistake or problem results in waste, a loss in terms of time, customer satisfaction or money and, ultimately, profit. Time is perhaps a small business owner’s most precious commodity. Exerting time and energy to address recurring problems is inefficient and compromises profit. Likewise, unhappy customers can cripple or close a business, since small businesses typically lack the variety, resources or volume to overcome a dearth in customer satisfaction. Six Sigma shows small business owners how to ask the right questions and uncover and eliminate waste and defects that may be erroneously accepted as part of the processes and considered a normal “cost of doing business.”
Implementing Six Sigma
The heart of the Six Sigma methodology is DMAIC: define, measure, analyse, improve and control. The best project is the one that will provide the maximum payback. To find it, business owners must consider the probability of success and the effort required in terms of resources and time in relation to the return on investment. A good rule of thumb is to select a project with a low ratio of effort to impact.
Let’s use our seafood restaurant and its spoiled food as an example. (Running out of crab legs during the all-you-can-eat buffet is a different problem, also solvable using Six Sigma.)
During the past six months, the cost of spoiled food was R115 127, an average of more than R18 000 per month. The objective of this Six Sigma project is to reduce this “defect” by 50%, achieving a cost savings of R9 000 per month.
Using receipts, stock levels and purchasing records, we ensure that these records accurately represent the continuous level of waste. We perform a “measure system analysis,” which compares what was ordered by the owner to what was purchased by the customer, and repeat this comparison for the past two months. You may find that some records were recorded in error, but now we have a measurement system that is repeatable. We have our problem definition, the defect being the cost of food not consumed by the customer that spoiled per week; and we have our business metric: wasted money on inventory.
We define a metric by analysing the data, from which it can be determined that 75% of the wasted rands is coming from two sources: beef and high-end fish products. We further determine that of that 75%, the fish products accounted for 80% of the problem. We verify that the source of information is repeatable for the past eight weeks, and the receipts confirm that is, in fact, the case. During the analysis phase, additional defects may be uncovered, such as order delivery times being longer than they should or a short supply of crab legs, thus accounting for the shortage of crab legs during the all-you-can-eat specials.
We have determined that for three foods – beef, high-end fish and crab legs – the amount ordered doesn’t match the consumption rate. Therefore, an 80% reduction in the ordering of the slow-consumption foods – the beef and the fish – will yield a savings of R9 000 per month. Increasing the amount of crab legs ordered lowers opportunity costs by having a supply of crab legs that meets demand during all-you-can-eat specials.
To prevent recurrence of defects, we track our shortages and overages and place “threshold spending amounts” – maximum amounts spent based on inventory – on each major food category. A graph of the previous day’s orders and shortages or overages is created daily, with results reviewed weekly. Based on end consumption rates, an action plan is put into place, including such components as a more accurate buying guide and menu adjustments. The “test” of the action plan are the customers voting with their wallets.
Key to consistent growth and success for any business is the ability to monitor changes, spot problems and opportunities first, then act accordingly. It’s tempting to react impulsively or emotionally when faced with a business decision. However, maintaining long-term, reliable growth requires well-developed methods of tracking business goals related to factual income, expenses, growth and quality. Just as entrepreneurs don’t stop tending to their businesses once they are established, neither does Six Sigma stop with the completion of a project. It is vital that small business owners maintain momentum by picking new projects, creating new deployment teams, committing additional and new resources, and continually improving businesses.