Why Implement Six Sigma?


In the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Mikel Harry, Ph.D., and Richard Schroeder, the first chapter asks the basic question of “Why Six Sigma?”, in other words, why are companies adopting Six Sigma.

When you start a project, there are three basic questions to be asked, what, why, and why.   The first “what’ question is “what are we trying to produce?”, whether that turns out to be a physical product, a service, or even an internal or organizational result.  The second question is “why are we trying to produce it?”, and this question is answered from the standpoint of the customer.   In other words, the product of the project is something that customers will want.   And if we produce that product, and customers are happy with it, that will benefit the company by … making money.   This is the other answer to the question “why are we trying to produce it?”, but this time it is answered from the standpoint of the company.   You are trying to produce the product in order to make money.

Where does Six Sigma fit it?   Defects in a product cause customers to be unhappy, and repairing those defects can cost the company money, so defects can negatively impact the reason why you are making the product from both the standpoint of the customer AND the company.   Six Sigma helps reduce those defects, and the “sigma”, which stands for standard deviation, is a measure of the defect rate.

If you were to produce a million widgets, how many defects would correspond to each level of Sigma?   Here’s a chart from the website http://www.isixsigma.com.

Sigma Performance Levels – One to Six Sigma
Sigma Level Defects Per Million Opportunities (DPMO)
1 690,000
2 308,537
3 66,807
4 6,210
5 233
6 3.4

The goal is to decrease your defects by increasing your Sigma level.   The companies for whom the authors were consultants were able to report that every company that went up one level of Sigma showed an increase of 20% in their profit margin up to about the 5 Sigma level.   If you are in competition with other companies, you cannot afford to reduce your prices to increase your market share, but you can do so by improving your quality.   So increasing your Sigma level gives you a bigger slice of the market “pie”, and makes each slice richer in calories, I mean, profit.

Most companies start out at about 3 Sigma, which according to the above chart, corresponds to about a 6.7% defect rate.  By implementing Six Sigma techniques, most companies can improve about 1 Sigma level per year up until about the 5 Sigma level (4.7 to 4.8 to be exact).

What happens then?  Well, it’s not a brick wall, but it is a wall nonetheless.  What happens is that the “low-hanging fruit” that was picked at the earlier stages of improvement are no longer available.   Further improvements require redesigning processes, and this is where a company has to begin being selective about what to improve, because this redesigning process takes quite a lot of time and effort.    Since the cost of improving the Sigma level goes up, the profit margin is not as dramatic as in the earlier stages.   But for those companies with the vision and patience to carry the process forward, there is reward in terms of increased market share.

Achieving actually Six Sigma level, corresponding to a minuscule level of defect (0.00034%), is not necessary for most products, although in some areas like aircraft production, since the financial consequences of a defect can be great, such levels are not only attainable but desirable.

For most companies, even going from 3 to 5 Sigma, which is the easier part of the uphill climb on Mount Quality, the results can be a 40% increase in profit margins.   And if you take that and add the increased customer satisfaction which translates into higher market share, you get the two answers to the question of “Why Six Sigma”–because it benefits the customer AND the company.

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