Six Sigma–Towards a New Cost of Quality Metric

In the third chapter of the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.D., and Richard Schroeder talk about how being better is cheaper.

There is old dictum about trade-offs on a project:  “Faster, Cheaper, or Better:  Pick Two”.   This means that of the three constraints on a project–time, cost, and quality–you cannot demand improvement on all three at the same time.   If you want a project done in less time, you may have to add more people to it, because if you don’t, they may rush and be more prone to mistakes, which will lower the quality.   Likewise, if you want to raise the quality, you will have to raise the cost to achieve that, correct?

Well, here’s where the authors challenge that conventional wisdom.   In the traditional view of the cost of quality, if you improve the quality, up to a certain point the costs you spend on those improvements will “pay for themselves” in terms of the lowered cost of poor quality, i.e., the cost the company will have to pay because of defects.    But the idea was that at some point there would be diminished returns, as each level of Sigma that you improve costs more and more to implement.    It was generally thought that this would occur around the 4 Sigma level, above which point Six Sigma techniques are said to be effective.

However, the authors say there are three problems with conventional wisdom.

1)  First of all, these notions of the “cost of quality”, meaning the cost of implementing quality improvements, usually come from considering improvements along the lines of detecting and fixing defects, not preventing them as far back as the design stage.  If you prevent defects in the first place, then you end up saving money by not having to create inspection (detection) systems later on in the manufacturing process.

2)  Many costs of poor quality are not captured adequately by most types of accounting systems, which include not just warranty claims, but product liability claims, for example.

3)  The conventional thinking of cost of quality usually centers around inefficiencies in the manufacturing process, but Six Sigma also can deal with inefficiencies in other parts of the business, such as the engineering, accounting and service sectors of companies.  What happens if the product is defect-free, but is delivered late to the customer?  The customer won’t be satisfied by getting a product after the time it is needed.

All three of these reasons are why the actual picture is that the cost of quality decreases as you increase the level of quality as measured in terms of Sigma levels.   Although this has the aura of a revelation about it, it’s not too different from Deming’s original thoughts on quality that increased quality results in lowered overall costs of manufacture.

In the next post, I go into more detail about what the newer cost-of-quality metric entails.  Understanding these details helps one understand why Six Sigma should be considered a business initiative and not just a quality initiative.


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