Controlling and systematically improving quality levels expressed in sigma levels, or in their corresponding percentage returns, brings about a persistent improvement in costs related to income generation.
Improving quality implies both a reduction in scrap and a reduction in costs related to the repair of faults and errors. In the same way, it generates lower costs corresponding to internal and external failures.
Since the calculation of the levels in sigma is carried out for each component in particular; call them in the case of a car: brakes, radiator, shock absorbers, paint, etc.; the sigma level of the car as a whole must be carried out according to the importance of the type of related failures and the maximum possible costs that these will generate if they occur.
For the purposes of a simplified analysis, we assume a product in which six types of failures can occur with their respective costs (or maximum losses) generated in the event of their occurrence. Among these costs we can mention those related to warranties, provision of repair services, returns, scrap, internal repairs, insurance, among many others. From the total of these costs we calculate the participation of each type of costs, to which we multiply them by their corresponding levels in sigma, with which we have a level in sigma weighted according to the implicit costs for each type of failure.
Then, for each period, the total costs (of production and operating) and their respective sales level are linked, with which the total cost per monetary unit sold is obtained, which are related to the respective levels in sigma.
With a sufficient amount of data, the correlation coefficient between the sigma levels and the total costs per monetary unit of income is calculated. (For the data provided in the example, a correlation coefficient of - 96.56 corresponds).
Having plotted the points in the graph as a function of the sigma level and their corresponding costs, we proceed to draw the second-order polynomial trend line with which we obtain the cost curve associated with a positive increase or increase in the levels of quality expressed in sigma.
In a company, not only the sigma levels associated with the quality of products or services should be calculated, but also those related to administrative and marketing functions. In this regard, it is worth noting the possibility both of relating the total costs to the levels in sigma, as well as carrying out the relationship between the costs associated with production and their respective quality levels, and the operating costs and their respective quality levels.. (Example: levels in sigma corresponding to the processes of billing, accounting / registrations, dispatch of orders, among others).
The latter is of fundamental importance in service companies such as financial institutions and insurance companies, among others, where calculation errors, process errors or simple operational failures can lead to significant data reprocessing costs. (Example: reprocessing of account statements, reprocessing of interest calculations, etc.).
The curve deduced from the data for a sufficiently long period of time, keeping the work processes unchanged, can lead to the deduction of the learning curve.
We return in such a way to the first words regarding the transcendent importance of both permanent monitoring of quality levels and their associated performance percentages, together with the costs associated with them, and the systematic improvement processes aimed at reducing of the same in the medium and long term.
It should not be forgotten that an improvement in quality is associated with the possibility of higher sales, and with it a significant increase in levels of returns. We are talking about possibility, because except when we are talking about products for industrial use or inputs, in which there is a greater rational behavior on the part of consumers, in the case of consumer products, not only quality counts, but also other factors of psychological character.
As the quality level increases (increases in the sigma value) the profitability grows slowly, but when approaching high levels in sigma the return on investment (or on the capital invested) grows to a much greater extent, since not only because of the savings related to quality costs, but also because of the significant increase in sales, generated by the high level of quality of products and services, which leads to higher demand. Likewise, this higher quality can give rise both to higher prices due to the quality “plus”, and to lower prices generated by lower costs, due to higher productivity caused by higher quality levels. These higher prices linked to high quality generate high value for the customer,in such a way that they originate a shift in demand towards their products (greater market share).
Linked Readings:
Questions and Answers on Six Sigma - Mauricio Lefcovich - www.winred.com - 2005
Six Sigma - Towards a new paradigm in management - Mauricio Lefcovich - www.sht.com.ar - 2003
Creation of Value. The key to competitive management - William A. Band - Editorial Díaz de Santos - 1991
