Why are Cost Avoidance Different for 6 Sigma versus Business Continuity?

In this article, you will learn what is cost avoidance and why are cost avoidance different for lean manufacturing versus preventive maintenance and business continuity.

As you may suspect, cost avoidance may have different and controversial definitions depending on which person you are talking to and what point of view they are looking for.

The Most Common Mistakes Determining Cost Avoidances.

Some companies estimate and establish cost avoidance based on a biased definition without considering all differents factors and risks.

In fact, one (1) definition is for a lean manufacturing perspective and the second definition is in terms of preventive maintenance & business continuity. Historically, these two (2) approaches are antagonistic and promote big mistakes.  Here are both definitions for cost avoidance explained.

Cost Avoidance Definition in Terms of Lean Manufacturing.

One definition of cost avoidance is “savings action is taken to reduce actual costs.”

For example, such as having a low number of spare parts on inventory and wait until a breakdown to buy it and replace the parts.

This cost avoidance approach may incur lower (or additional) costs in the short-run but the potential higher costs in the long-run of the life cycle may reduce the business continuity level.

Cost Avoidance Definition in Terms of Preventive Maintenance and Business Continuity.

The other definition of cost avoidance is “a savings action is taken to reduce future costs.”

For example, having enough spare parts to replace them before they fail and cause damage to other parts or stop the production line.

This cost avoidance approach may incur higher (or additional) costs in the short-run but potentially lower costs in the long-run of the life cycle while increasing the business continuity level.

Conclusion

We are not saying that one is better than the other.  Either we are saying that one is correct and the other is wrong since all extreme decision are bad.

Like many things in life, it a matter of balance, how much risk you can afford based on your inventory levels, historical process data, and common sense against other factors.

CIQA is a quality and regulatory consultant with 25 years of experience developing products and managing projects in the medical device supply chain, and pharmaceutical industries. Rest assured of the safety or being in the right hands.

Our Lean Manufacturing team could provide you a broad range of professional expertise implementing these techniques and tools.

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REFERENCES: What is cost avoidance.

httpss://en.wikipedia.org/wiki/Lean_Six_Sigma

httpss://www.greycampus.com/blog/quality-management/a-brief-introduction-to-lean-and-six-sigma-and-lean-six-sigma