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American Accounting Association2006 Midwest Region MeetingMarch 30 – April 1
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Saturday, April 1, 11:00 a.m. to 12:50 p.m.
Concurrent session 6A - Information, Cost Control and Performance (Management Accounting)Title: How Six Sigma Can Cut Cost and Increase Competition in the Service Industry: A Case Study
Brian L. McGuire
University of Southern IndianaMichael Barley
University of Southern Indiana
Mehmet C. Kocakulah
University of Southern Indiana
ABSTRACT:Six Sigma is a revolutionary, fact-based, data-driven strategy, which has traditionally been associated with increasing quality in manufacturing operations. The basic idea of six sigma is to reduce the number of defects per certain number of units produced. It has become the next ideal for companies striving to lower costs and increase profits. Companies such as General Electric, Caterpillar, Sony, Honda, Maytag, Texas Instruments, Lockheed Martin, and Polaroid have adopted Six Sigma and further proved its’ effectiveness in creating superior financial results.
While six sigma is a great tool that can help increase a company’s bottom line, to date its advantages have primarily been limited to the manufacturing industry. However, every business function entails a series of processes, and the heart of six sigma methodology is the effort to improve the efficiency of processes. Therefore, these two facts imply that six sigma could be used in both the manufacturing and service industry.
To better see how six sigma can benefit service companies, this study will examine how Midwest Supply (name changed for confidential reasons), a Caterpillar dealership, can benefit through each of its revenue producing departments: sales, service, and parts. This study will also demonstrate how the sales department can benefit from improving the machine transportation process, the service department can benefit by improving the owning & operating costs of service trucks, and the parts department can benefit by improving the process of handling core part exchanges. Midwest Supply set a minimum savings of $150,000 per project, which will be taken into consideration in each of the detailed sections in this study.
By improving process efficiencies, Midwest should see: (1) increased customer satisfaction and loyalty; (2) better market positions; and (3) improved profitability. In order to obtain these benefits, Midwest’s employees will be required to adjust their individual and corporate mindset. In return for their combined effort, employees should see better wages, benefits, perks, and increased employment stability.
Organizationally, Midwest Supply has promised to “supply confidence” to its various stakeholders (customers, employees, investors, and suppliers) that their needs, goals and aspirations will be best served via continued association with its company. However, broad, fundamental changes in Midwest’s business environment have conspired to challenge its ability to deliver on that promise. These changes have provided challenges not only to Midwest Supply but to the industry as a whole. The organization that responds most effectively to these challenges will be tomorrow’s leader. The fate of those organizations which fail to respond will be at best “stagnation,” and at worst “extinction.”