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Quality and 6 sigma

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  • #34688

    mand
    Member

    Hi,
    I have just started learning about 6 sigma & my Q is : if 6sigma quality is 3.4 defects per million opps, then how different is achieving 99% quality from the 6 sigma quality.
    Hope I get a reply soon.
    Thanks

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    #95959

    mman
    Participant

    Hi Sam
     I hope to be able to answer your question:3.4 DPMO means 99.999660% gain,that means 99.9997% things will be perfect.For example  if the airline moves to Six Sigma in luggage handling,it means it will clearly pay off in term of lower  costs and happy passengers,who are then  more likely want to fly with  that airline again.I hope that helps.
                                                 MMAN

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    #95965

    sweettalker
    Member

    Here’s another way to think about the difference.
    If your customer uses your part to make something that requires 10 of your parts, and you’re running at 99% quality, your customer will experience a 10% defect rate just because of your defects. At some point, they’re going to find a better supplier. If you’re running at 6 sigma, you’ll only create 34 defects per million for your customer, giving you a much better chance of keeping your job. To calculate the total quality rate, take your “quality rate” (yield) raised to the power of the number of opportunities that go into the final end product or service.
    The more a defect costs or the more complicated the end product or service, the more important it is to meet or achieve 6 sigma. The right sigma level for your business is a function of what type of customer you have, how they use your product or service, and the impact of a defect on them. If you’re selling to a business, your defect rate is likely to be amplified before whatever product or service gets to the end consumer. If your customer is the end consumer, and the impact of defects is minimal, you may not need to achieve the same level of quality. If 1 in 100 pizzas is short one pepperoni slice, that’s probably not going to justify an expensive process improvement.

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    #96036

    Diaconu
    Participant

    Hi Sweettalker,
    I’m interested in the ‘defects at a customer’ approach to costing a project. I find this a common dilemna in my SS work.
    If the the customer does not threaten to take their business elsewhere you have no clear case that there is a financial benefit in doing an improvement project.
    Even if you have that threat the bottom line does not see any improvement (except maybe a lack of deterioration if you can count that). Overall the SS process seems to dictate that you do not try and improve a process unless there is a known threat to your business or there is an opportunity to remove waste with a high enough value in your in house process.
    In conjunction with another thread on this forum of the cost of defects the in house defect may cost 10 times less than the customer defect and 1000 times less than a full product recall.
    As a practical example I make a small amount of a product every year at a 3 sigma quality level (99% in specification). The volume produced is so small that any savings in waste recovery in house are in the 1000’s dollars. Internally costed projects therefore receive no priority. My customer makes this into a critical part for automotive use. Only 2 very small parts per car but they make 50,000 cars a year. The 1% defect rate can therefore affect up to 500 cars. Those 500 cars are recalled due to a failure traced to a property of my product. I get a huge bill that I cannot defend.
    I have been struggling with this concept for a while. How do you quantify and cost the risk of failure. That is what should be driving process improvement in many cases. The bottom line is never affected because all you would have is an avoidance of a significant cost that only has a statistical chance of occurring. The only way I see this happening in a practical way is that customers establish the criticality of the product in their FMEA and then demand a certain quality level from their suppliers…or their business goes elsewhere.
    Does anyone have any thoughts on how to calculate a value for  ‘risk’ and use this to justify projects.
    Thanks
    Mia

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    #96040

    sweettalker
    Member

    Hi Mia,
    Six Sigma is largely about bottom line improvement, but it’s not just about that. It also has value for top line growth, safety, and cost avoidance. These are real benefits to a company. The reason companies generally won’t count these benefits as hard SS savings is that it’s much harder to prove the benefit is due to Six Sigma. SS helps you avoid $1 million cost – maybe management would have said no even without SS.
    You said: “Only 2 very small parts per car but they make 50,000 cars a year. The 1% defect rate can therefore affect up to 500 cars. Those 500 cars are recalled due to a failure traced to a property of my product. I get a huge bill that I cannot defend.” Because they won’t know which 500 are defective, they may recall all 50,000.
    There are a few ways to look at risk.

    Probability * Cost (dollars): Economically speaking, this is the “ideal” calculation. In reality, it’s usually not practical to determine because there are so many possible things that can go wrong and each of those things can cost a range of dollars. Historical data lets you quantify a range (average +/- 3s) for “common” failures, is inadequate for uncommon failures.
    Economic catastrophe avoidance: Beyond the relatively predictable costs, there is the possibility of something happening that’s so bad, we’re willing to take extra protective steps. Overall, insurance costs more than it returns. In simple risk vs reward terms, it’s a bad deal. However, we pay for insurance to protect against the unpredictable, catastrophic losses.
    Human cost: Is there a risk of someone getting seriously injured or killed? If so, you probably need to look past the dollar risk. When Ford defended itself using the economic risk method, the jury hit them with a $4 billion verdict (greatly reduced by the judge.) In this day and age, complacency seems to equal negligence, and goes back to the economic equation in #1.
    Finally, management must have a vision for staying ahead of the competition – even if you can’t put a dollar value on it. While 80% or 90% of SS projects are done to achieve an immediate hard dollar bottom line benefit, you should have some projects with only “soft” benefits. If you don’t use Six Sigma to avoid unnecessary costs, you’re going to have to come back and eliminate the costs later. For the good of the company you should use SS proactively to avoid those unnecessary costs in the first place. If you don’t use SS to stay ahead of the competition curve on quality, you’ll be using SS to try to catch up.
    If you’re having trouble selling management on the projects, you may need to appeal to their vanity. If all we look at is dollar benefits, who needs management to make decisions? There are some things SS can’t do. SS can’t replace management vision. SS can help turn that vision into reality, much more profitably than it otherwise would have been. Put it to management to decide if proactive quality improvement is important for long-term success.
    If you wait until the customer threatens to take their business elsewhere, it will cost you (assuming there is a viable competitor.) At that point, even if you keep their business, you’re going to pay for it in reduced margins or service requirements. Put it to management in such a way that they’re forced to decide whether they want to wait until the customer threatens to go elsewhere, or if they would rather be able to sit down and show the customer how proactive you’re being and why that justifies paying a little more.
    Our SS trainers recommended 20% of projects to be done just for the “soft” benefits.

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    #96041

    Jeff the MBB
    Participant

    Mia–
    These are good questions we deal with a lot– And it’s important that we find a way to rationally value this kind of work.
    I believe that there is value in understanding what a product failure costs your customers. Along the lines of the case you cite– if you know what’s important to them, you may be able to reach some kind of win-win solution.  That’s what we are usually looking for where we can rationally split the benefit.  So they would (for instance) pay more of guarantee an order quantity if you can produce a certain quality, that kind of thing.
    You must feel that there is a chance of a product recall, etc.  Is there historical data on how often the product fails?? 
    There’s danger in some of this– I get things like “If we miss a certain deadline, we’ll be out of compliance and that can cost us $4 Bazillion.”  But we’ve never missed the deadline before.  Some will try to sell the project as worth $4 Bazillion.  So take a good cut at what the actual odds of failure are, mulitply by the odds you’ll get caught, and the cost.  You’ll have a decent value of the project.
    Someone in the aircraft industry does this routinely.  They estimate the chance of engine failure, understand the costs of a crash to the company, and set maintenance schedules, etc. based on the cost and frequency of a potential failure.
    Individuals do it on their taxes.  If I inflate my deductions, what’s the benefit vs. 1) the % chance of getting caught and 2) the penalty. 
    That’s the method I try to apply– take historical data if you have it.  Find out the prevalence of failure.  Find out the severity.  Then, the Six Sigma problem turns into a business problem, and you sit down with the customer if you have to, talk about the improvement potential and how you should split the funding and benefit….
    Did that help??  Hope so.
    Jeff
     

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    #96043

    Jeff the MBB
    Participant

    Nice Post–
    I didn’t want to get into the full game theory right away, but you do end up looking at something hugely severe with a low occurrence somewhat differently….. And human cost- well depending on the industry, the way you look at those things can be different, but a good consideration.
    I think we are thinking along the same lines
    Jeff

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    #96044

    Agrawal
    Member

    here is something I used or my thesis to illustrate the difference between the two, though I have used a different ‘quality’ level than that in the discussion here
    At a 99.9% defect free level, we would have

    4000 wrong medical prescriptions per year
    3000 babies accidentally falling from the hands of nurses or doctors per year
    2 long or short landings at US airports per day
    400 letters/hr which never arrive at their destination
     
    At 99.99966% defect free, we would have

    13 wrong medical prescriptions per year
    10 babies accidentally falling from the hands of nurses or doctors per year
    2 long or short landings at US airports per year
    1 lost article per hour which does not arrive at its destination

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    #96045

    Qui Gon Jinn
    Participant

    Mia-
    I think you are very close to answering your question. If you have a 1% risk of defect that will (or could) result in failure of substantial $$, you have the info you need to assess the risk and cost, and, therefore justify or drive the need to improve.
    For instance, if you look at your FMEA and there is a failure mode that will cost you, say, $100/year, I’m willing to take a high risk of, say 10%, of having that failure mode. If another failure mode will cost, say, $100,000,000, I’d want the risk to be extremely low; perhaps 1/10,000,000, i.e., 6 sigma (3.4 ppm) is not good enough.
    So, look at the categories of failure mode; for each mode, estimate the effects (in $$); then estimate the effectiveness of the Control system to prevent the customer from getting the defect, i.e., estimate a probability of this risk of outcome (it’s nice if  you have actual data, like mean & S.D. vs a spec limit to calculate prob of >spec; or you may have to simply use an educated guess).
    Another though taking it to a higher level: Consider more than how defects will cause loss of customers. Consider how removing defects and adding characteristics that are of added value to the customer will add to your customer base. Sometimes this is product characteristics. But also consider service characteristics, e.g., getting your customers what they want, when they need it, defect free, on time, packaged for ease of use, delivered to a pin-point location, 24×7, etc. — what ever will enhance the value to the customer.
    Of course, there must be cost/return considerations for these value enhancements as well. If I add a feature, what does it cost vs. what is the expectation of added customer satisfaction and, therefore, added sales and revenue. In fact, you can often even add a premium fee for the premium service. Consider, for example, the various fees and premiums for various levels of service and value for credit cards.
    We all deal with risk and cost in our personal life.
    Home loans: want a low interest rate? OK, but expect to pay points on the front end and/or expect to have interest rates adjusted from time to time. You are sharing the risk with the bank. Don’t want to risk variation in rates? OK, pay a higher rate for the 30 years.
    How about insurance: Want a lower premium? Have a larger deductible. Want to reduce your risk? Pay more for lower deductibles. Perhaps you want to really reduce your immediate cost. Are you willing to take the big risk and not purchase insurance? (Not me!)
    We simply look at the risk and cost. Estimate, perhaps in our mind, the balance and best options. Just go do the same thing with SS.

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    #96047

    Diaconu
    Participant

    Thanks to all of you,
    I think we do think along the same lines. One still has to rationally select projects based on risk and work on those with the highest risk to the company. I equally think that working on ‘risk’ type projects is something of an enlightened view that maybe we don’t all work under yet.
    I like the idea of the other side of the coin in finding ideas that add value for the customer. I think that is an easier thing for senior management to buy into. It sounds good, generates extra revenue etc etc. and we should be able to get some idea of what adds value to our customers by asking them. I read a previous post somewhere about making sure that the ‘Must Have’ items are in place and then seek for the others.
    How established is the idea of having 20% of BB projects working on ‘soft benefit’ projects? I haven’t heard of that one before. I guess the level one chooses could be based on the maturity of your SS implementation or type of business that you are in.
    Somewhere in the link between balanced scorecards and SS all of this falls into place somehow (as long as the scorecard is correctly constructed). Perspective/focus have a large part to play and I guess it’s part of being a Black Belt to work on raising the profile of some of the less obvious opportunities.
    Thanks again
    Mia
     
     

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    #96086

    DaveG
    Participant

    Mia,
    You just answered your own question:  it’s impossible to equate money to risk beyond a limiting confidence level.  People pay for outcomes, but they also pay for perception.  A strict bottom-line focus ignores this fact.
    Using SS only on “Waste with a high enough value” may cause you to ignore some great opportunities because it assumes you are “costing” your Black Belts – a very Non-Lean approach to continual improvement.
    Contact me if you want more insight.

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