General Electrics Quality Gamble

General Electric’s Quality Gamble General Electric’s Quality Gamble The Implementation of Six Sigma General Electric (GE) is among the most profitable companies and, according to Fortune magazine, the most admired. It stock is the most highly valued in the world. Some critics would argue, if it’s not broke, why fix it? Jack Welch, CEO of GE, believes in the infinite capacity to improve everything. Why does a company that has experience so much success recently invests over a billion dollars in a quality initiative? Increase competition has GE adopting the attitude that businesses that stand still become obsolete as businesses that continue to grow pass them by. Also by implementing Six Sigma GE is preparing itself for future profitability opportunities. Finally, research indicated a need for improvement in the way GE does business. GE had been straining for years to increase operating margin and six sigma is a way to do that.

What is Six Sigma? Six sigma, the mother of all quality efforts, can mean different things to different organizations. The Six Sigma Academy defines it as tactics and tools to improve profitability through focusing on improving the sigma capability of an organization’s processes. GE defines six sigma as first as a management philosophy; a never ending to competitive leadership by satisfying customer requirements profitability. Second they define it as a measurement system; a measure of a processes inherent ability to meet customer requirements. In general six sigma is a statistical non-financial performance measurement at which you should design, operate, and control every process in your company in such a way that none of yield more than 3.4 defects per million units of output.

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Six Sigma is a tool that measures in a clear, accurate, mathematical terms how good or bad their quality levels are, how much they can improve, and what progress they are making along the journey. On a global perspective, companies that have not begun their quality journey are around one or two sigma. The worldwide average is around three sigma. The majority of the companies utilizing six sigma in India are at a low two sigma. An average domestic company is at three sigma, while a good company is at three and a half. Today GE is around three and a half with goals of reaching six sigma by the year 2000.

Companies operating at three to four sigma lose 10-15% of their total revenue due to defects. Sigma Defects One 690,000 Two 308,000 Three 66,800 Four 6,210 Five 230 Six 3.4 Background of Six Sigma Motorola created the originals formulas in the 1980’s. The result was a culture of the quality that permeated throughout Motorola and led to a period unprecedented growth and sales. Its genesis lies in a classic stretch-target set in 1981 by Motorola’s CEO, Bob Galvin, to his people: effect a ten-fold improvement in product-failure levels over a 5-year period. Bill Smith, an engineer at the company, realized that such results could not be achieved without going into the core of what caused defects in the first place So, he conducted a statistical correlation between the field-life of a product and the number of flaws that had been spotted and corrected while the product was being manufactured.

The results arrived at in 1985, turned out to be positive. In other words, if a product had been found defective and corrected during the production-process, changes were high and other defects had been missed and would show up later during usage. An observation had been made that products rarely failed in the first 3 years of customer-usage. Therefore, the simplest way to prevent product-breakdowns was to ensure that the process prevented defects of any kind, making detection and repair redundant. External support for this argument came from the best-in-class benchmarking that Motorola had been conducting simultaneously.

It showed that total quality companies were turning out products that had not been reworked at all. The question: how could Motorola minimize-and, ideally, eliminate-defects from the manufacturing process? That’s when Mikel J. Harry, a Motorola Engineer, introduced the concept of Six Sigma to Motorola. The idea was to set a steep quantitative target for all processes and then, parse each process into smaller and smaller sequences, each of which could be examined for their potential for errors, then that potential was eliminated. Breaking down and studying processes is a key element of result-oriented quality programs because this helps in tracking down the root-cause of defects. Until 1994, Six Sigma remained a guarded secret at Motorola. The outside world knew about it, but not how to use it.

In 1995, however, CEO Gary L. Tooker decided to throw open the source-code. Six sigma did not gain acceptance globally until GE’s CEO, Jack Welch, introduced Six Sigma across the length and breadth of his organization. Four years after Six Sigma was inserted into GE’s culture it contributes 20 percent to the conglomerate’s earnings that has spurred many others to follow suit. What Makes Six Sigma So Powerful? Six Sigma is a tool that can ratchet up quality-levels in every single process in your company, in fact that what makes it so versatile. From your accounts to your customer-service, from your supply chain management to your advertising, every process can be evaluated on the basis of its adherence to Critical to Quality (CTQ) parameters.

After all, defects can-and do–occur in an engineering design, in the time it takes to treat a patient–or even in a banking transaction. All your processes, therefore, can deviate from the ideal level, and cost you additional time, labor, and material. By using the sigma scale from 1 to 6, you can study competing levels of capability and, then, raise yours to those standards. GE, for instance, has used Six Sigma with great success at GE Caps, whose processes are transactions-driven. Says Pramod Bhasin, 46, President, GE Capital Asia: In a services company, you measure your output. A courier company carries so many parcels, and you say so many of them reached on time.

What Six Sigma does is to allow you an efficient way of finding out where your greatest need is and what your softest point is, and of addressing them in a measurable, analytical, and objective way. The mathematical interpretation of Six Sigma is crucial to implementing the tool. The output of any process in your company can be analyzed in terms of the number of errors in it. What Six Sigma analysis does is to measure every process on each of the CTQ factors. For example, a process that produces 100 units of a particular component every hour has a CTQ of 100 mm in length. Measurements may show that while 95 out of the 100 units produced are 100-mm long.

The remaining 5 deviate from that ideal length, each to a different extent This data can be used to calculate the sigma, or the likelihood and extent of deviations from the norm of the process. Assume that the value of sigma for this process turns out to be 0.01.The upper and lower specification limits of the product will determine whether these deviations will be counted as flaws under the given CTQ. If the upper and lower control limits of the process fall beyond the upper and lower specification levels, the customer won’t have a problem, but if they do not the capability of the process has to be changed …