Why Improve Your Quality?

Poor quality costs money and creates unhappy customers! According to the PIMS Data
Survey (1992) and the United States Government’s GMO (Report of 1991):
• Businesses, which have achieved significant quality improvement – “earn eight-percent higher prices.”
• Business that achieve a superior level of quality are – “three-times more profitable.”
• Companies that improve quality gain – “four percent market share per year.”

Most companies in the beginning of their Six Sigma deployment start with manufacturing processes.
Over time, they learn that there are more bottom-line savings within
the service (transactional) side of their operations. Eventually they
apply the Six Sigma methodology to engineering operations and
start re-engineering transactional processes. Those that have
followed this path report an improvement of one sigma in those
processes. A one sigma level improvement, (or fraction thereof)
equates to bottom line – profitability.

One Six Sigma company (purportedly) lost $150 million by not

applying Six Sigma to the commercial service side of their business
the first year. It stands to reason that there would be more to gain from the transactional processes of
most businesses. Manufacturing processes have been scrutinized for years. To make the
manufacturing process (less costly) more profitable management is constantly making adjustment –
tweaking it here and tweaking it there. This cannot be said of transactional processes. Usually a
transactional process is established and, like sheep, we continue to follow the procedures even though
the business has changed directions several times. And now the process/procedure – no longer makes
any sense. Why? “We’ve always done it that way.”

Processes with hardly any defects – running at top performance (effective and efficient) generate more
profits… It is estimated that a (average United States company) Three – Sigma company (with 99%
quality product and or services) spends 25% to 30% of its sales dollars on the cost of poor quality. We
can no longer accept the historical variation of three sigma or delivering quality 99% of the time. Ninety-
nine percent quality is not “good enough” any more. Look at the difference between these Three Sigma
and Six Sigma operations – which would you, choose?

99.74 % Good (3 Sigma Operation) 99.99998% Good (6 Sigma Operation)

20,000 lost articles of mail per hour 7 articles lost per hour

15 minutes each day of unsafe drinking water
5,000 incorrect surgical operations per week
2 short or long landings at airports each day
200,000 wrong drug prescriptions each year
No electricity for almost 7 hours each month
1 unsafe minute every 7 months
1.7 incorrect operations weekly
1 short or long landing every 5 years
68 wrong prescriptions per year
1 hour without electricity in 34 years
 Why Improve Your Quality?

In almost every company where the cost of poor quality is unknown,

it exceeds the company’s profit margin!

Most improvement programs are not tied directly to bottom-line

results, so gains are sub-optimized and not reflected in the accounting
statements which only show aggregate results.

3 Sigma Operations that marshal all their resources around 6 Sigma can expect:

• To make a one sigma shift improvement each year.

• A 20% margin improvement.

• A 12% to 18% increase in capacity.

• A 12% reduction in the number of employees.

• A 10% to 30% Capital Reduction.

Source: Six Sigma - Mikel Harry - Richard Schroeder

(See Cost of Defects)