Lean Six Sigma Tools: How Can A Method From 1870 Improve Your Profits?

During the Lean Six Sigma Green Belt Certification program you learn how to combine time-tested, powerful methods in order to solve efficiency and quality issues.

Because those methods are based on universal truth and laws of nature you are going to be successful  with them whether you work in manufacturing, IT, financial services, government, energy, healthcare and the army.

One of the most important method I teach managers, board of directors, operators, etc. everybody in any organization is the Pareto-law.

Pareto-law

Do you know this law?

Also known as 80/20 rule, meaning: 80 percent of the effects are caused by 20 percent of the causes. Like 80 percent of you sales is due to 20 percent of your customers.

Many people know this law but do not know how to use it in their daily work.

Like the Lean Six Sigma project team from a Sales and Customer Service Department of a big service company ($30 million annual sales). They knew the 80/20 rule but had no idea what it meant for them.

I was asked to help with my method and improve the profitability of this company.

The Problem…but what is it?

The company was doing OK but they did not know which customer are profitable and which is not.

The sales people were very busy but were not sure at all if their efforts and long working hours were spent with the highest return.

Don’t you have sometimes the question, whether you spend your precious time efficiently? I do.

After several attempts to describe our base line (the current situation of the profitability per customer), we could apply the Pareto-law as shown below.

Pareto-law in Action

First, we identified which customers are not profitable and we displayed the loss per customer in declining order. So on the left side of the graph you can see the customer with the highest loss. (the names of customers are hidden to protect their privacy.)

After this clear picture – and the “ah haa..” effect of the Sales managers. We continued to focus and make the project even smaller scoped – this is one of the success factors of Lean Six Sigma projects.

So now we continued with those customers where the company made losses – the left part of the graph.

In our specific case, applying Pareto-law, 7 of the customers (30%) caused 80% of the loss for the company.

This information helped us even further to focus on the reduction of the loss at these 7 customers.

Results after 4 month

To cut the story short, with our Lean Six Sigma project team we were able to reduce the loss by 40% at these 7 customers and increased the sales by $140,750 per year.

If you want to achieve such a great improvement at your organization using Pareto-law and a few other time-tested method, you can join the online Lean Six Sigma program at

http://www.LeanSixSigmaBelts.com

Warm regards,

Peter

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