The nature of business has changed dramatically since the late 1980s when the United States' lead in productivity was subjected to increasingly direct foreign competition from Asian and European industries. The American response to these challenges has been twofold. First, industries in the United States have moved production of less-complex standardized goods to foreign plants or, in many cases, seceded such low-profit manufacturing to developing nations. The net effect of such actions has been an unprecedented increase in the size of the service sector and a concentration on high-value-added manufactured products. Currently, the service sector, defined as private nongoods-producing industries, accounts for approximately 70% of total economic activity in the United States. Services can include warehousing, transportation, distribution, and sale (rather than production) of a good, or they may involve the provision of a service such as medical care or the preparation and serving of restaurant meals. Second, American industries have found that they must maintain a sustained focus on quality in the production of goods and services in order to be globally competitive. The American Society for Quality Control defines quality as "the total features and characteristics of a product or a service made or performed according to specifications to satisfy customers at the time of purchase and during use." (1)
These two continuing trends--the rise of the service sector and the increased focus on quality--challenge the traditional role of the cost accountant, who historically was trained to track and cost out mass-produced standardized items. In addition to expertise on production and costing methods, today's successful management accountant must have in-depth understanding of service quality. To ensure maximum productivity, profitability, and quality of complex tangible goods and intangible services, companies are using the sophisticated Six Sigma business management strategy.
Much has been written about the Six Sigma methodology and its contribution to improving business processes. For example, Michael L. George discusses how to select projects that can be improved to deliver the maximum value with the least effort. (2) Jay Arthur focuses on methods to dramatically improve speed and quality in manufacturing as well as service organizations. (3) Unfortunately, most authors fail to discuss the crucial role that management accountants and accounting consultants can play in the successful adoption and use of Six Sigma methods. These require a team effort utilizing experts from a variety of disciplines, and we believe that management accountants, with their expertise in problem solving, should be key players on any Six Sigma team. To demonstrate these possibilities, this article will consider how management accountants can become involved in the five phases of the Six Sigma process as applied to service industries in particular.
To aid in understanding how management accountants might contribute to a Six Sigma team, we will first discuss how service providers can use Six Sigma methods to improve their operations. As a case study, we will present research on the potential use of such techniques to improve the U.S. Army supply warehouse system. We will then consider how management accountants can become involved in the five phases of the Six Sigma process in the service industry as either team leaders or key team players.
BACKGROUND ON THE U.S. ARMY SUPPLY SYSTEM AND SIX SIGMA
The current missions in Iraq, Afghanistan, and Kosovo, as well as other humanitarian logistics operations in which the U.S. military has an increasing role, require highly efficient distribution, warehousing, and business processes. To maximize the readiness of tactical units, Supply Support Activities (i.e., the activities of direct support supply units, missile support elements, and maintenance support units) must be highly effective, ever reducing customer wait times and improving quality. …