Before we try to understand the 6sigma concept, we need to define the term “quality”.
What is Quality?
The term “quality” has many interpretations, but this by the ISO definition, quality is defined as: “The totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs”.
If we read between the lines, then the definition varies with the reference frame we use to define the “quality”. The reference frame that we are using here are the manufacturers (who is supplying the product) and the customer (who is using the product). Hence the definition of quality with respect to above two reference frame can be defined as
This “goal post” approach to quality is graphically presented below, where a product is deemed pass or fail. It didn’t matter even if the quality is on the borderline (football just missed the goalpost and luckily a goal was scored).
This definition was applicable till the time there was a monopoly for the manufacturers or having a limited competition in the market. The manufacturers were not worried about the failures as they can easily pass on the cost to the customer. Having no choice, customer has to bear the cost. This is because of the traditional definition of profit shown below.
Coming to current business scenario, the manufacturers doesn’t have luxury to define the selling price, now the market is very competitive and the price of goods and services are dictated by the market, hence it is called as market price instead of selling price. This lead to the change in the perception of quality, now quality was defined as producing goods and services meeting customer’s specification at the right price. The manufacturers are now forced to sell their goods and services at the market rate. As a result the profit is now defined as the difference of market rate and cost of goods sold (COGS).
In current scenario if a manufacturer wants to make a profit, the only option he has is to reduce COGS. In order to do so, one has to understand the components that makes up COGS. The COGS in has many components as shown below. The COGS consist of genuine cost of COGS and the cost of quality. The genuine COGS will always be same (nearly) for all manufacturers, but the real differentiator would be the cost of quality. The manufacturer with lowest cost of quality would enjoy highest profit and can influence the market price to keep the competition at bay. But in order to keep cost of quality at its lowest possible level, the manufacturer has to hit the football, right at the center of the goalpost every time!
The cost of quality involves the cost incurred to monitor and ensure the quality (cost of conformance) and the cost of non-conformance or cost of poor quality (COPQ). The cost of conformance is a necessary evil whereas the COPQ is a waste or opportunity lost.
Coming to the present scenario, with increasing demand of goods and services, manufacturers required to fulfill their delivery commitment on time otherwise their customers would lose market share to the competitors. The manufacturers has realized that their business depends on the business prospects of their customers hence, timely supply of products and services is very important. This can be understood in a much better way using pharmaceutical industry
Sole responsibility of any Regulator (say FDA) towards its country is to ensure not only the acceptable (quality, safety and efficacy) and affordable medicines but they also need to ensure its availability (no shortage) in their country all the time. Even that is not enough for them; those medicines must be easily accessible to patients at their local pharmacies. These may be called as 4A’s and are the KRA of any Regulatory body. If they miss any one of the above ‘4As’, they will be held accountable by their Government for endangering the life of the patients. The point that need to be emphasized here is the importance of TIMELY SUPPLY of the medicines besides other parameters like quality and price.
Hence, the definition of quality again got modified as “producing goods and services in desired quantity which is delivered on time meeting all customer’s specification of quality and price.” A term used in operational excellence called as OTIF is acronym for “on time in full” meaning delivering goods and services meeting customer’s specification on time and in full quantity.
Coming once again to the definition of profit in present day scenario
We have seen that the selling price is driven by the market and hence manufacturer can’t control it beyond an extent. So what he can do to increase his margin or profit? The only option he has is to reduce his COGS. We have seen that COGS has two components, genuine GOGS and COPQ. The manufacturers have little scope to reduce the genuine COGS as it is a necessary evil to produce goods and services. We will see latter in LEAN manufacturing how this genuine COGS can be reduced to some extent (wait till then!) e.g. if we can increase the throughput, we can bring down genuine COGS (if throughput or the yield of the process is improved, which results in less scrap would decrease the RM cost per unit of the goods produced).
But the real culprit for the high COGS is the unwarranted high COPQ.
The main reasons for high COPQ are
- Low throughput or yield
- More out of specifications (OOS) products which required to be either
- Reworked or
- Has to be scraped
- Inconsistent quality leading to more after sales& service and warranty costs
- Biggest of all loses would be the customer’s confidence in you, which is intangible.
If we look at the outcomes of COPQ (discussed above), we can conclude one thing and that is “the process is not robust enough to meet customer’s specifications” and because of this manufacturers faces the problem of COPQ. All these wastages are called as “mudas” in Lean terminology hence, would be dealt in detail latter. But the important
What causes COPQ?
Before we can answer this important question, we need to understand the concept of variance. Let’s take a simple example, say you start from the home for office on exactly the same time every day, do you reach the office daily on exactly same time? Answer will be a big no or a better answer would be, it will take anywhere between 40-45 minutes to react the office if I start exactly at 7:30 AM. This variation in office arrival time can be attributed to many reasons like variation in starting time itself (I just can start exactly at 7:30 every day), variation in traffic conditions etc. There will always be a variation in any process and we need to control that variation. Even in the manufacturing atmosphere there are sources of variation like wear and tear of machine, change of operators etc. Because of this variation, there will always be a variation in the output (goods and services produced by the process). Hence, we will not get a product with a fixed quality attributes, but that quality attribute will have a range (called as process control limits) which need to be compared with the customer’s specification limits (goal post).
If my process control limits are towards the goal post (boundaries of the customer’s specification limits) represented by the goal post, then my failure rate would be quite high resulting in more failures, scrap, rework, warranty cost. This is nothing but COPQ.
Alternatively if my aim (process limits) are well within the goal posts (case-2), my success rate are much higher and I would be have less, scrap and rework thereby decreasing my COPQ.
Taguchi Loss Function
A paradigm shift in the definition of quality was given by Taguchi, where he gave the concept of producing products with quality targeted at the center of the customer’s specifications (a mutually agreed target). He stated that as we move away from the center of the specification, we incur cost either at the producer’s end or at the consumer’s end in the form of re-work and re-processing. Holistically, it’s a loss to the society. It states that even producing goods and services beyond customer’s specification is a loss to the society as customer will not be willing to pay for it. There is a sharp increase in the COGS as we try to improve the quality of goods and services beyond the specification.
The purity of medicine I am producing is > 99.5 (say specification) and if I try to improve it to 99.8, it will decrease my throughput as we need to perform one extra purification that will result in yield loss and increased COGS.
Buying a readymade suit, it is very difficult to find a suit that perfectly matches your body’s contour, hence you end up going for alterations. This incurs cost. Whereas, if you get a suit stitched by a tailor that fits your body contour (specification), it would not incur any extra cost in rework.
Six Sigma and COPQ
It is apparent from the above discussion that “variability in the process” is the single most culprit for the failures resulting in high cost of goods produced. This variability is the single most important concept in six sigma that required to be comprehended very well. We will encounter this monster (variability) everywhere when we will be dealing with six sigma tools like histogram, normal distribution, sampling distribution of mean, ANOVA, DoE, Regression analysis and most importantly the statistical process control (SPC).
Hence, a tool was required by the industry to study the variability and to find the ways to reduce it. The six sigma methodology was developed to fulfill this requirement. We will look into the detail why it is called as six sigma and not five or seven sigma latter on.
Before we go any further, we must understand one very important thing and must always remember this “any goods and services produced is an outcome of a process” also “there are many input that goes into the process, like raw materials, technical procedures, men etc”.
Hence, any variation in the input (x) to a given process will cause a variation in the output (y) quality.
Another important aspect is that the variance has an additive property i.e. the variance from all input is added to give the variance in the output.
How Six Sigma works?
Six sigma works by decreasing the variation coming from the different sources to reduce the overall variance in the system as shown below. It is a continuous improvement journey.
- Definition of Quality has changed drastically over the time, it’s no more “fit for purpose” but also include on time and in full (OTIF).
- In this world of globalization, market place determines the selling price and manufacturers either have to reduce their COPQ or perish.
- There is a customer specification and a process capability. The aim is to bring the process capability well within the customer’s specifications.
- Main culprit of out of specification product is the unstable process which in turn is because of variability in the process coming from different sources.
- Variance has an additive property.
- Lean is tool to eliminate the wastages in the system and six sigma is a tool to reduce the defects from the process.
- In order to understand the consequences of a bad process, see red bead experiment designed by Deming on Youtube https://www.youtube.com/watch?v=JeWTD-0BRS4
- For different definition of quality see http://www.qualitydigest.com/magazine/2001/nov/article/definition-quality.html#