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Cost of a Process with Poor Quality Can Be Very High

The definition of quality can differ depending on whether it is associated with products and services or with the processes used to generate them. The quality of a product or service is measured in terms of the satisfaction that the customer derives from using it. The quality of a process depends on its ability to consistently deliver products or services within customer-specified limits. While it is possible for a company to deliver a good quality product made using an inefficient process, the company does so at a very high cost. An inefficient process will generate an unacceptably high number of defects and produce them with a level of variation that hinders the ability to predict process performance.

One Fortune 500 company experienced this situation when it decided to change its culture and implement Lean and Six Sigma. The company, which subcontracts for major computer manufacturers, sought the assistance of a Six Sigma consulting firm for the training of its employees. At the end of the training, everything in the company changed except the production process.

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Slogans about total quality, Six Sigma, continuous improvement and “five S” were everywhere. The quality assurance department was separated from production and numerous employees were hired to perform 100 percent inspection on 100 percent of the units produced. About 30 percent of the units produced were defective, but the inspection process kept 97 percent of the defective units from reaching the customer. As a result, the customer satisfaction index reached 98 percent – a statistic which pleased the company, as well as the companies for whom it subcontracted.

Three years after the Six Sigma team was created, the company lost four of the seven subcontracts it had due to the high cost of production. As a result, half of the Six Sigma team members were laid off and the team was dismantled.

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What was wrong with this situation in which the customers were very satisfied with the product? The answer lies in process, productivity and cost.

The Quality of the Process

A process is defined as a sequence of events that are contingent and work in tandem with the objective of producing goods or services. Each task operates as a customer for the previous task and a supplier for the next. In the sequence of events, every employee should expect a defect-free product from the previous step in the process, and should in turn, supply a product at the same quality level to the next step. When analyzing the quality of a process, it is essential to view not only how the particular tasks are singularly performed, but also how they are linked to one another.

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A process performing at a sigma level of 6, is defined as one that generates no more than 3.4 defects per million opportunities. It is not a process that delivers no more than 3.4 defective products to customers at any cost. If the quality of the process in place is at a Six Sigma level, by the time the product reaches the audit process, it should contain very little to no defect. This renders a 100 percent audit of 100 percent of the output unnecessary.

Quality and Productivity

Productivity is a business metric that reflects resource efficiency. The productivity of employees is calculated as the ratio of the output to the number of employee hours used to produce it, or as the number of items generated for each dollar invested. Expressed as a formula, where P = productivity, O = output and C = the cost incurred to produce O, it is:

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P = O/C

There is a positive correlation between productivity and good quality. In a defect-free process, the cost of production is the cost of producing all the goods that are actually used by the customer. In a process that generates defects, the cost of production includes the cost of the defects (inspection costs, returns from customers, rework in the process flow, etc.).

The advantage of using a Six Sigma approach is that it addresses the process rather than the repair aspect of the business. It is a proactive, preventative and innovative approach rather than a reactive and conforming one. When Six Sigma is successfully implemented, products are produced within specified limits before they reach the end of the process, so the probability of rework is small.

While it is a good practice to conduct an audit of a process or product, it is unnecessary to inspect every item produced because that is redundant and expensive. The quality assurance department should inspect a sample, analyze the statistical process control (SPC) and keep the process variation under control.

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