This is the final article in our six part blog series on how manufacturers and distributors can apply Six Sigma methodology to the pricing function to generate repeatable margin gains. This blog covers the importance of setting and enforcing pricing authority levels and repeat previous steps as continuous improvement never stops.
As a quick review, here is the Six Sigma Process as described by Wikipedia:
“Six Sigma seeks to improve the quality output of process by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of quality management methods, mainly empirical, statistical methods, and creates a special infrastructure of people within the organization (“Champions”, “Black Belts”, “Green Belts”, “Yellow Belts”, etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified value targets, for example: reduce process cycle time, reduce pollution, reduce costs, increase customer satisfaction, and increase profits.”
As we covered in our last article on this topic, it is crucial that you build processes, systems and tools to assist teams and create reporting tools to track improvements and implement real-time visibility into business processes defects to ensure you are focusing your improvement efforts in the right areas.
In the Control phase, our job is to make sure the improvements we have put in place – stay in place. To achieve this you want to chart performance against upper and lower control limits. Run charts show single values plotted over time and indicate trends of process & shifts in process performance.
The key to success it to continuously monitor performance and measure against the control limits via Control Charts which allows you to:
- Study process variation over time
- Monitor and improve process performance
- Maintain “In-Control” processes
Additional benefits of The Six Sigma Pricing Control phase include:
- Developing an effective “Control Plan Audit Process”
- Identifying opportunities for improvement in processes, tools, and or behavior
- Establish a “Pricing Authority Matrix”
- Develop “Profitability Improvement Plans” for every customer
- Developing Change Management strategies and plans
The following are the five areas we covered in this blog series that will helped demonstrate a proven pa to Six Sigma Pricing Excellence and links to additional blogs and other content.
- Define: set roles, responsibilities, and goals for the team in alignment within the business
- Measure: build correct measurements and incentives for each person
- Analyze: use reporting tools to find opportunities to grow or challenges to fix
- Improve: build processes, systems and tools to assist teams and create reporting tools to track improvements
- Control: set and enforce pricing authority levels and repeat previous steps as continuous improvement never stops
Six Sigma Pricing related articles:
- Inside SPA: A Chat With a Six Sigma Master Black Belt on Pricing
- How to Leverage Six Sigma Methodology to Drive Continuous Margin Improvements
- Pricing Professional – The time has come
- SPA Six Sigma Pricing Program
Six Sigma Program Overview
Six Sigma Master Blackbelt Greg Preuer, of SPA has created the first course designed to apply time tested Six Sigma methodology to pricing. Those who study with Greg will learn not only how to drive the pricing process but how to sustain the gains and automate the process. They will become Six Sigma experts (Blackbelt) in business process with a focus placed squarely on price management.
“Over time we discovered the most critical part of moving the pricing process forward came in helping people deal with change. Establishing a plan for the human reaction to all change is incredibly important.”
– Greg Preuer
Graduates from this course will learn to chart a clear path to pricing improvement. They will learn each of the following steps:
- How to design and design goals which are consistent with their company’s pricing strategy.
- How to measure and identify characteristics critical for pricing success.
- How to analyze the current situation and steps along the way.
- How to design an improved alternative which moves closer to the desired result.
- How to verify that actions taken create the right results.
A Pricing Process founded on SPA’s Six Sigma Program includes the following:
- Negotiating strategy and tactics
- Value-based pricing
- Automated decision making tools
- Customer Profitability improvement plans
- Sales team selling value
- Pricing strategy and leadership
- Consistent and fair pricing architecture
- 2 to 4% growth in GM%
- Pricing based on customer sensitivity
- Continuous improvement focus
To learn how you can realize the benefits of SixSigma Pricing, contact SPA today at firstname.lastname@example.org or 216.455.1545.
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