There have been many debates and discussions among Six Sigma experts regarding the transactional costs and how Six Sigma strategies can be implemented to reduce the transactional losses. But before that, let’s discuss transactional costs. To know in detail about transaction costs let’s check out a section on Transaction costs from Larry Downs and Chunka Mui’s book ‘Unleashing the Killer App’. The book states that in all there are six types of transactional costs but for a more comprehensive approach another cost can be added to this list. The costs are:
Search Costs: Which tells a business how much searching for new suppliers and customers cost in time and money.
The costs that you have to incur for informing buyers about your product and quality and to know for yourself the potential customers and later customer details.
Bargaining Costs: The cost incurred for negotiating the terms of the sale. It depends a lot on the type of product or service that is being negotiated like for a multimedia CD the cost will be low but it will escalate when you are negotiating for a latest car model.
Decision Costs: There are considerable costs involved in the decision making process, such as the time and money spent to decide on buying a product.
Policing Costs: Again, there are substantial costs involved to ensure that the terms and conditions of sales and services are met.
And there are costs for resolving the unmet terms of sales and service as well.
And the last cost that is not mentioned but should be invariably added in the list is the information technology cost. Information technology is something without which no company can carry out its day to day transactions of ordering, invoicing, purchasing, and payment processing. Therefore, the cost incurred on IT should also be taken into consideration while making a list of transactional costs.
Different Products And Services But Same Transactions For All Business Organizations:
Each business organization is unique in terms of the product or services that it offers but when it comes to internal operational and administrative transactions they are on same platform. All companies, whether they are categorized as manufacturing or service, have to take care of orders, issue invoices or bills, purchase supplies, write checks, apply payments and handle all its financial transactions like any other business organization. And even if the core of your business is a product or service, the key to making a profit lies in effective administration of transaction processing.
Accuracy: in quantities, pricing, taxing etc and your cash flow will definitely suffer even if you made the perfect product but the customer demanded something else.
Speed: Speed matters when it comes to increasing the cash flow. And it does not matter if you offer the best product of the world but if it takes unnecessarily long to get it ordered, delivered and installed, then customers won’t wait for your product with bated breath. The transactions must be created and processed with quick precision and accuracy, along with having an extra team to fix an incorrect transaction on the spot if one arises.
Always keep an eye on the cost for creating and processing a transaction and the scrap and rework costs as well that occurs when an incorrect transaction is done.
– for finding and fixing errors on bills, orders etc make use of line, fishbone, and Pareto Six Sigma strategies. For monitoring the transactional error and cash flow, a p chart or XmR chart can be used.
– Lean Six Sigma will help you to find out and eliminate the delays in any transactional process that will additionally aggrandize your cash flow as well.
The conclusion that can be drawn from the above two points is that if you are only implementing Lean Six Sigma, then you will not be able to reduce defects in all processes. However, a combined effort can easily point out and rectify the errors in a transactional process.