Most companies operate at Three or Four Sigma. That means the losses they incur as a result of poor quality cost them 10 to 15 percent of their revenue. A company operating at Six Sigma, however, can generate considerable savings. According to one source, the savings as a percentage of revenue vary from 1.2 percent to 4.5 percent [source: ISixSigma]. That means a company with revenues of $1 million could save up to $45,000, and a company with revenues of $1 billion could save up to $45,000,000.
Six Sigma Calculations
To give such numbers meaning, the engineers at Motorola set up a scale to evaluate the quality of a process based on these defect calculations. At the top of the scale is Six Sigma, which equates to 3.4 DPMO, or 99.9997% defect-free. In other words, if you have a process running at Six Sigma, you've almost eliminated all defects -- it's nearly perfect. Of course, most processes don't run at Six Sigma. They run at Five Sigma, Four Sigma or worse. Here's the full scale to get an appreciation of the numbers involved:
Five Sigma = 233 DPMO, or 99.98% defect-free
Four Sigma = 6,210 DPMO, or 99.4% defect-free
Three Sigma = 66,807 DPMO, or 93.3% defect-free
Two Sigma = 308,538 DPMO, or 69.1% defect-free
One Sigma = 691,462 DPMO, or 30.9% defect-free
As you might expect, performing these calculations in a modern manufacturing environment is not a simple matter of counting up a few defects and punching numbers into a calculator. Careful planning and a methodical approach are essential. So, at the same time that Motorola's engineers were developing the mathematics, they established a problem-solving methodology that enabled them to consistently duplicate these calculations regardless of the process or environment. This methodology is as much a part of Six Sigma today as the mathematical concepts it is based on. Indeed, as Six Sigma has evolved, it has become closely associated with other business strategy methodologies, such as Balanced Scorecard.
That means different people at different times will define Six Sigma quite differently. Some will describe it as a metric, or a measurement of defects. Others will describe it as a methodology, a way to solve problems. And still others call it a business management system. In the next section, we'll take a closer look at Six Sigma history to give more context to all of its various meanings.