Quality performance is often associated with defect rates. However, the impacts on the company's operations are often neglected or misunderstood. Here are some figures...
It is widely shared today that quality is a key factor in business performance. It is one of the key elements and principles of Lean Management to improve the quality performance through Built-in-Quality and Zero Defects principles.
Contrary to what was practiced only a few years ago, quality is no longer a product or service criterion for which the customer pays an additional cost in order to obtain a so-called "quality" product or service. Indeed, quality is now integrated into the price of products as a reference and at no additional cost to the customer.
Quality has now become a competitive differentiation asset. For the same price, the customer will prefer to choose a better-quality product or service. For companies, and with a view to competitiveness, this translates into a permanent questioning of practices and a continuous improvement of quality.
Impacts of Customer dissatisfaction :
- A satisfied customer tells 3 other people to buy your products or services
- A dissatisfied customer tells 9 other people NOT to buy your products or services (IBM, Coca-Cola, Sear, TARP)
- It costs twice as much to keep a dissatisfied customer, 5 times as much to win a new customer and 12 times as much to win a new customer (IBM, TARP).
- You can't maintain or grow your business if you erode your existing customer base.
- Customer complaints are opportunities for improvement
- The tendency for dissatisfied customers to buy back your products or services if you have resolved their complaints of dissatisfaction is improving by 25 to 75%. If you are unable to resolve their complaints, their tendency to buy back from you drops below 30%. (IBM, Coca Cola, Sears, TARP)
"Eighty-five per cent of the reasons for failure to meet customer expectations are related to failures in systems and processes ... rather than employees.
The role of management is to improve processes rather than trying to push people to do better. »
W. Edwards Deming
Defects and probabilities :
Quality has evolved significantly in recent years, particularly in terms of the ways of thinking and understanding quality, in relation to the systems and practices that many companies have evolved and put in place to repeatedly ensure world-class product and service quality. Today and for many years now, quality defects are no longer measured on a percentage scale but on a ppm (parts per million) scale, even for complex and high-tech products.
The 6 Sigma movement, which appeared at the dawn of the 1990s, highlighted the relationship between process variation and its impact on the defect rate in terms of probabilities. Indeed, the majority of company processes, whatever they are, mostly follow a normal law (or gauss curve or bell curve). To put it simply, the more this curve is "tightened" towards the average, the less likely it is that defects will be generated outside the limits of the process. This range is calculated using statistical elements, in this case sigma-rated standard deviations. Hence the name 6 sigma which represents a defect rate of 3.4 (Defects Per Millions Opportunities) of 3.4 .
Probabilities at Sigma levels :
Impacts on company operations :
The overall functioning of the company, whatever its sector of activity, can be modelled by processes. A process is a sequence or set of activities, steps or operations that are linked (in parallel or in sequence over time) and that produce a result. This result is often the input of another process, and so on until the final product or service is delivered to the customer.
As an example, a simple process model can be described with an operational step, a quality control or inspection step, and a repair step for defects found during inspection. Almost everything we do can be described by this process:
So once we understand that the process has a variation, and as we know the processes sigma capability level, we know we can work out the probability of defects being found during ‘inspection’
How do defects affect cycle time :
Taking into consideration the above example let’s say :
- Time to process 1 item is 2.0 hours
- Time to inspect 1 item is 1.0 hour
- Time to rework 1 item (if defect found) is 5.0 hours
This ratio of times approximates well to research findings
What is the average rework time ?
- The probability of a defect is called P(d)
- Using the times for each activity on the previous graph
- What is the equation for average rework time per item?
Average Rework Time : 5.0 x P(d)
What is the average Inspection time per item?
- Again using the same times for activities and calling the probability of defect P(d),
Average Inspection time = 1.0 + (1.0 x P(d)) = (1.0 + P(d))
PS. All rework must be re-inspected
A Lean company operating at 6 sigma level or close can produce a good unit in half the time it takes a 1.5 sigma company with the same resources !
How do defects affect output capacity ? :
Capacity = Good units / Time taken = 1 / Cycle time
A Lean company operating at 6 sigma level or close has twice the capacity of a 1.5 sigma company with the same resources !
How do defects affect Work-in Progress ? :
- Work-in-progress = Rate x Cycle Time
- If we say that we need to produce 2 pieces per hour,
A Lean company operating at 6 sigma level or close has only half the WIP than a 1.5 sigma !
Impacts on operations summary :
Reducing variation improves the organisation’s performance!
Rolled yield and complexity :
So far we have discussed a simple, one-step process. What happens when you have a multi-step, complex process?
What is the probability that a unit will pass through these two processes without a defect?
Rolled Yield = FTY1 x FTY2 x … x FTYk
Rolled Yield = 0.9 x 0.8 = 0.72
Only 72% of the units will pass through both processes without a defect !
3 Sigma level Quality and Complexity :
For a 3-sigma process, FTY = 0.933
For a 4-sigma process, FTY = 0.994
If you were a company operating at 3-sigma level, how would you compete with a 4-sigma competitor?
Half your product has to be reworked !