Cost Impact of Moving from 5Sigma to 6Sigma | Lean Six Sigma Tutorials | Shakehand with Life
COST IMPACT WHEN MOVING FROM SIGMA LEVEL 5 TO 6
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The error or defects per million opportunities (DPMO) at different sigma levels.
►1Sigma = 690,000
►2Sigma = 308,000
►3Sigma = 66,800
►4Sigma = 6200
►5Sigma = 233
►6Sigma = 3.4
Let’s calculate the cost associated with each error at 5Sigma and 6Sigma.
💥 Example:
Suppose on cyber–Monday Amazon processed 36.8million orders. Amazon had errors while processing orders. Assume the average cost of each error is $35 including the Return shipping, labour to answer customer calls or emails, and shipping to right a wrong order.
💵 Cost of Errors at 5Sigma
►Total number of Errors = 233*36.8million = 8574.4
►Total Cost of Errors = 35*8574.4= $300,104
💵 Cost of Errors at 6Sigma
►Total number of Errors = 3.4*36.8million = 125.12
►Total Cost of Errors = 35*125.12 = $4379
The cost difference is $295,725. So, when Amazon moves from 5Sigma to 6Sigma this implies that it is improving approx. 70times.
#SixSigma #CostBenefit #SixSigmaTraining #LeanSixSigma #OperationalExcellence #BusinessExcellence #Quality #QualityControl #QualityTools #DPMO #qualitymanagement #TQM #totalqualitymanagement
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CHAPTERS:
0:00 Introduction
0:43 Error rates at different sigma levels
2:01 Cost of errors at 5Sigma
2:48 Cost of errors at 6Sigma
3:22 Cost difference between 5Sigma and 6Sigma
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