Most likely you install more capacity and manpower than a zero defect organization. Most likely you are starting more material than what the actual order requires to fulfill the requested customer order volume, an inflated Cost of Goods Sold. If your organization has a yield loss >0 then most likely you incur inspection costs. How many customer complaints do you have related to Type II errors? What is the cost of these complaints? The loss of a customer is extremely expensive, some people put this in perspective by stating it costs 5 times as much to attract a new customer as it does to keep an existing one. In layman’s terms, a failure for the process to reject a defect and therefore is probably going to your customer. Well, first a process producing any level of defects presents the possibility of a Type II error, in statistical terms, the failure to reject a false null hypothesis. What are the implications of accepting a yield loss level of even 1% (or 10,000 ppm). I even had managers of an organization reply 8% yield loss was an acceptable level! Yes, the 8% was their current yield loss. It always surprised me that they would answer somewhere close to what they were currently at (unless they currently had a single focus strategy of improving it). I have asked different organizations to tell me what an acceptable level of yield loss was. Think about this argument, is it not revealing an organizational culture? Is it providing excuses, by leaders, to not pursue difficult quality targets? The main argument was, why increase your cost for a level of quality your customer does not require. In a past LinkedIn six sigma group people were providing arguments for not going beyond a level of quality expected by the customer.
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