What is Lean Six Sigma, and how will it help you and your company?
- rick1889
- 12 minutes ago
- 9 min read
What is Lean Six Sigma?
This is a question we are repeatedly asked, and it’s probably the most difficult question to answer. We know what it is, for sure, but to wrap it all up in one brief sentence or two that encapsulates Lean Six Sigma, is next to impossible.
We’re here to answer it for you in full here, and while there are quite a few aspects that we won’t cover here, we will touch on the broader topics. To fully understand Lean Six Sigma, you need two things: 1) Lean Six Sigma Training, and 2) Decades of experience in real world application.
Let’s start out with Lean. Lean is about creating more value with fewer resources by optimizing workflows and processes, eliminating non-value-added activities, and empowering teams to solve problems at the source.
The key principles of Lean (from Lean Thinking by Womack & Jones) are to:
Identify Value: Understand what the customer values and is willing to pay for.
Map the Value Stream: Visualizing all the steps in the process and identifying waste.
Create Flow: Ensure that the process steps move smoothly without delays or interruptions.
Establish Pull: Produce only what is needed, when it’s needed (Just-In-Time (JIT))
Pursue Perfection: Continuously improve processes by eliminating waste and solving root problems.
We identify the 8 wastes using an acronym called “TIMWOODS”. It’s easy to remember, and very useful when walking through processes in real time. Here’s what it stands for:
Transportation – Unnecessary movement of materials/products
Inventory: Excess stock not being processed
Motion: Excess movement by people
Waiting: Idle time for people or machines
Overproduction: Making more than is needed
Overprocessing: Doing more work than is required
Defects: Errors that require rework or scrap
Skills: Underutilization of employee talent and creativity
Some of the more common Lean tools we use are as follows:
6S (Sort, Set in Order, Shine, Standardize, Sustain, Safety)
Kaizen (2hr. to 5-day Quick Improvement)
Value Stream Mapping (VSM)
Kanban (Visual Workflow Management)
Standard Work
Root Cause Analysis (Such as 5-Why Root Cause Analysis)
Where Lean is typically used is in manufacturing, healthcare, logistics, software development, finance, HR, and service industries.
Now, on the flip side, we have Six Sigma. What is it? It is a data-driven methodology used to improve processes by identifying and eliminating defects, rework, reducing variability and enhancing quality. It focuses on making processes predictable and efficient through statistical analysis and structured problem-solving.
The core goal of Six Sigma is to achieve near-perfect performance by reducing defects to fewer than 3.4 defects per million opportunities (DPMO). To help you out with that in other terms, that is a 99.99966% yield. Some of the key concepts are defects, which is any outcome that falls outside customer specifications, variation, which is the enemy of quality and Six Sigma seeks to minimize it, and process capability, which is the ability of a process to produce outputs within specification limits.
There are many methodologies in Six Sigma. Here are a few:
DMAIC (for improving existing processes)
Define the problem and project goals
Measure the current performance
Analyze root causes or defects or variation
Improve the process by addressing root causes
Control the improved process to maintain the gains
DMADV (for designing new processes/products)
Define design goals aligned with customer needs
Measure critical aspects of product/process
Analyze design alternatives
Design the best option
Verify that design meets customer and business needs.
But our preference goes to the DMADOV.
Define the problem and project goals
Measure current performance
Analyze root causes of defects or variation
Design the most optimal design
Optimize the design prior to the use of pilots
Verify that design meets customer and business needs
Although each project requires its own flavor of methodology, we find that the DMADOV is by far the best option. If the unique need arises, we will determine the most suitable methodology and utilize it. If not, we will likely utilize the DMADOV.
There are many tools in Six Sigma to use, each with its own defined purpose and goal, and we will most certainly utilize the correct tools to aid the goals, but here are a few:
Statistical Process Control (SPC)
Pareto Charts
Fishbone Diagrams (Ishikawa Diagrams)
Visual Failure Mode and Effects Analysis (VFMEA)
Hypothesis Testing
Control Charts
Process Mapping
Linear & Multiple Linear Regression Analysis
Design of Experiments (DOE)
You may hear us talk like we are in Martial Arts. We are not and would likely get beaten to a pulp if encountered by one, but it’s how we rank our training levels. For instance:
White Belts: This is the most basic training and provides a basic understanding.
Yellow Belts: Typically supports projects and data collection.
Green Belts: Typically leads small projects and uses tools under guidance from a Lean Six Sigma Black Belt or Lean Six Sigma Master Black Belt.
Black Belts: Leads large projects and has a deep statistical expertise
Master Black Belt: Trains others, provides strategic oversight, and leads multiple very large projects.
Now, with all this information, you may be asking, where can this be used? Typically, anywhere, but some of the more common are Manufacturing, Healthcare, Finance, Supply Chain, Government, IT and Software Development, Retail, Everyday Human Life, Strategic & Critical Problem Resolution. Let’s not forget business processes, they are typically the most overlooked processes that we deal with.
So, what are the benefits of Six Sigma?
- Increased quality and customer satisfaction
- Lower costs from reduced waste and rework
- Data-based decision making
- Stronger process control and consistency
- Enhanced competitive advantage.
And how do they work together?
Lean and Six Sigma work together as a powerful, complementary approach known as Lean Six Sigma (LSS). Together they combine Lean’s focus on speed and efficiency with Six Sigma’s focus on quality and precision, creating a unified system to optimize business performance end-to-end.
The benefits of combining Lean & Six Sigma:
- Faster process improvements (Lean)
- Fewer defects and errors (Six Sigma)
- Higher customer satisfaction
- Lower costs and cycle times
- Smarter use of data and employee insights
- Cultural transformation toward continuous improvement
You may be asking how they are used. In manufacturing, Lean Six Sigma is widely used to improve quality, reduce costs, speed up production, and increase customer satisfaction. It combines Lean’s efficiency, with Six Sigma’s precision to eliminate waste and variation in processes resulting in streamlined operations and better products.
Results Manufacturing Companies Often See:
20-50% reduction in production lead times
30-60% reduction in defects
Up to 25% increase in equipment uptime
10-40% cost savings on materials and labor
In business processes, Lean Six Sigma is used to improve performance by eliminating waste, reducing variation and optimizing workflows/processes, which leads to faster service, higher quality, lower costs and better customer satisfaction. While Lean Six Sigma originated in manufacturing, it is now widely applied in office-based service and administrative functions such as finance, HR, IT, sales, marketing and customer service. This results in faster service delivery, lower costs, fewer errors and customer complaints, better compliance and auditability and higher employee productivity and satisfaction.
A large insurance company used Lean Six Sigma to reduce the claims processing cycle time from 22 days to 6 days, resulting in better customer satisfaction and a 30% reduction in processing costs.
In the Supply Chain, Lean Six Sigma can significantly improve supply chain management by enhancing efficiency, reducing waste and variation, improving on-time delivery and lowering overall costs. In a field where timing, quality, and coordination are crucial, Lean Six Sigma helps companies build agile, resilient and customer-focused supply chains. Typical results companies see from Lean Six Sigma in Supply Chains:
- Lead Time: 20-60% reduction
- Inventory Turnover: 25-75% improvement
- Order Accuracy: 30-90% improvement
- Logistics Costs: 10-40% reduction
- Supplier Defect Rates: up to 80% decrease
In logistics, Lean Six Sigma is a powerful methodology for improving logistics operations by combining Lean’s focus on speed and waste elimination with Six Sigma’s focus on accuracy and variation reduction. In logistics, where timing, accuracy, cost and customer satisfaction are critical, Lean Six Sigma can significantly enhance performance across the entire supply and distribution network. In a real-world example, FedEx applied Lean Six Sigma to improve its delivery processes, reduce package routing errors by over 60%, cutting delivery delays, and improving customer satisfaction scores across multiple markets.
For problem solving, Lean Six Sigma is one of the most effective methodologies for structured, data-driven problem solving. It’s used to identify the root causes of the issues, reduce waste and variation and implement sustainable solutions that improve performance. A real-world example would be a very large company that we worked with in the past, where their largest distribution center was shut down during a 3PL transition. The shutdown was caused by significant errors, which were not able to be brought under control by management, sr. management, and executives. We utilized control charts, 5-Why Root Cause Analysis and our Visual Failure Mode Effects Analysis to resolve the issue quickly and ramp up operations at the new 3PL. By the time we left, the variation was 50% less than even the original 3PL was operating under.
So how can Lean Six Sigma help your company?
- Your Effectiveness
o Lean Six Sigma (LSS) helps your company become significantly more effective by streamlining operations, reducing waste and variation, improving quality, and boosting customer satisfaction while lowering costs. Its core goal is to align your processes with what matters most to customers and stakeholders.
- Your Efficiency
o Lean Six Sigma (LSS) improves your company’s efficiency by systematically removing waste, reducing variation, and streamlining processes—allowing your team to do more, faster, with fewer resources and fewer errors. The result is higher productivity, lower costs, and better use of time and assets.
- Your Profitability
o Lean Six Sigma (LSS) increases your company’s profitability by systematically improving performance across operations—cutting costs, reducing errors, enhancing productivity, and boosting customer satisfaction. Profits grow not just by selling more, but by operating smarter and more efficiently.
- Your Employees
o Lean Six Sigma (LSS) helps employees by empowering them to solve problems, improve their work environment, reduce frustration, and grow professionally. It fosters a culture where people are encouraged to improve processes, not just follow them—leading to higher job satisfaction, engagement, and performance.
Lean Six Sigma (LSS) can significantly improve your company’s financial and operational ratios by increasing efficiency, reducing costs, enhancing quality, and optimizing resource utilization. These improvements translate into stronger profitability, productivity, liquidity, and asset management ratios, which are critical for business performance, investment appeal, and long-term sustainability.
It Improves Profitability Ratios by cutting waste, reducing rework, and improving process efficiency, LSS directly increases profit margins and return metrics.
Ratio | LSS Impact |
Gross Profit Margin | Lower defect rates and operational waste reduce COGS. |
Net Profit Margin | Streamlined processes cut unnecessary overhead costs. |
Return on Assets (ROA) | Optimized use of equipment and resources boosts output per asset. |
Return on Equity (ROE) | Improved profitability with the same equity base lifts returns. |
Example: Reducing production defects by 50% can save millions in warranty and scrap costs—raising both net margin and ROA.
Strengthens Efficiency and Productivity Ratios
LSS improves the output-to-input ratio by maximizing throughput and minimizing delays and non-value-added steps.
Ratio | LSS Impact |
Asset Turnover | Higher output from the same fixed assets increases turnover. |
Inventory Turnover | Lean inventory techniques reduce stock and free up cash. |
Labor Productivity | Eliminating redundant tasks increases output per employee. |
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Example: Implementing Lean flow in a plant may reduce cycle time by 30%, increasing asset turnover and labor efficiency.
Boosts Liquidity Ratios (Indirectly)
While not a direct accounting tool, LSS helps speed up collections, reduce tied-up inventory, and optimize working capital—supporting better liquidity.
Ratio | LSS Impact |
Current Ratio | Lower inventory and quicker AR collection strengthen current assets. |
Quick Ratio | Process improvements speed up cash flow and reduce reliance on inventory. |
Example: A Lean Six Sigma project to reduce invoice errors shortens the average days sales outstanding (DSO), increasing cash on hand.
Improves Cost Efficiency Ratios
LSS cuts unnecessary spending across production, administration, and supply chain operations—driving leaner cost structures.
Ratio | LSS Impact |
Operating Expense Ratio | Lower overhead and more streamlined workflows reduce the percentage of sales spent on operating costs. |
Cost of Quality (CoQ) | Six Sigma tools reduce the cost of internal/external failures, boosting profitability. |
Example: A service company uses DMAIC to reduce rework in client onboarding, cutting operating costs by 20%.
Enhances Sustainability and Long-Term Ratios
By fostering continuous improvement and long-term discipline, LSS helps companies maintain a stronger ratio performance over time—even as they scale.
Ratio | LSS Impact |
Sustainable Growth Rate | Higher profit retention and ROE drive better long-term growth. |
Debt-to-Equity (D/E) | Operational improvements reduce the need for borrowing to fund growth. |
Example: A Lean Six Sigma program increases cash flow and profitability, reducing the need for external financing.
Summary: LSS and Ratio Impact
Ratio Type | Examples of Impact |
Profitability | ↑ Net Margin, ↑ ROA, ↑ ROE |
Efficiency/Productivity | ↑ Asset Turnover, ↑ Labor Productivity, ↑ Inventory Turns |
Liquidity | ↓ DSO, ↑ Quick Ratio |
Cost Control | ↓ Operating Expense Ratio, ↓ CoQ |
Long-Term Health | ↑ Sustainable Growth, ↓ Debt Dependency |
In short, if your company does not utilize Lean Six Sigma, you are likely losing a significant amount of money, employee and customer satisfaction. If you are an individual that would like to learn, or a company that would like to employ Lean Six Sigma, reach out to us.
We are here to help.