Calculation of Sigma Levels
Sigma levels were first discussed in Chapter 8 using a U.K. publisher's order management process as an example. Continuing with the discussion of the accounts payable project described in the preceding section, the calculation will be presented again.The first thing to remember about the sigma level is that it is the ratio of actual defects to the total number of possible defects that can occur. This aspect of the sigma process allows team members to identify not only how problems happen but, when used with other sigma tools, to determine where in the process defects are occurring. When taken within the vector of how and where, the ability to identify opportunities for improvement becomes much greater. Recall the defects per million opportunities (DPMO) calculation from Chapter 8:(Number of defects 1 million)/(Defect opportunities Units measured)Upon establishing its CTQCs, the aforementioned customer implemented the program with a group of key suppliers. After a six-month period, the customer saw some compliance from vendors, but just was not sure where they stood quantitatively. It was at this point that the customer compiled the statistics necessary to calculate the sigma level for the accounts payable project. As detailed in Table 9.3, those statistics are unit measured, number of units, defect opportunities, types of defects and total number of errors. Based on the information gathered over a six-month period, the result of the DPMO calculation is
Unit measured | Vendor invoice |
---|---|
Number of units | 895 |
Defect opportunities | 5 |
Types of defects | |
Invoice arrived late | |
Contains incorrect information | |
Cannot match purchase order number with sales order number | |
Quantity billed does not match product received | |
Invoice amount does not match contract price | |
Total number of errors | 198 |
DPMO | 44,245 |
Sigma level | 3.150 (approx.) |
(198 1 million)/(5 895) = 44,245 defects per million opportunitiesNote that during the first six months of the accounts payable initiative, the customer and its suppliers achieved a sigma level of roughly 3.150. While not great, it is a young process and, armed with a baseline, the customer can now seek ways to improve specific aspects of the operation. Remembering that a sigma team must search out the how and where of defects, a good place to start would be the five defect opportunities. By identifying the type and frequency of errors among the five defect opportunities, the sigma team can use other tools to drill down to specific problems. From that point, improvement techniques can be utilized to continuously improve upon the DPMO and, consequently, the sigma level.