Six Sigma - A debate of the validity of Six Sigma

[Marc]

I know... I know... Six sigma is 'over rated'. But then again, maybe not. Here's something to think about from Forbes web site:

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For GE’s Jack Welch, cost-cutting isn’t an event—it’s a process.
Revealed at last: the secret of Jack Welch’s success

By Michelle Conlin

THERE ARE CERTAIN management mantras that will forever be associated with General Electric’s Jack Welch: being only number one or number two in your field and preaching the “boundaryless” sharing of ideas, a process that breaks down traditional corporate hierarchies to make sure that information flows up as well as down.

To that add a defect-reduction program called Six Sigma. Don’t let the jargon fool you: This is serious stuff, and Welch has embraced it with his usual zeal. Six Sigma contributes mightily to GE’s earnings growth, which was 13%in 1996 and should reach 14% in 1997.

Think of a sigma as a mark on a bell curve that measures standard deviation. Most companies have between 35,000 and 50,000 defects per million operations, or about 3 sigma. For GE, a defect could be anything from the misbilling of an NBC advertiser to faulty wiring in locomotives. Three years ago GE engineers determined that the company was averaging 35,000 defects per million operations—or about 3.5 sigma. (The higher the sigma, the fewer the errors.) That was a better-than-average showing, but not enough for Welch’s restless mind.

He’s now maniacal about hitting his goal of reducing defects to the point where errors would be almost nonexistent: 3.4 defects per million, or 6 sigma.

“This is not about sloganeering or bureaucracy or filling out forms,” Welch says. “It finally gives us a route to get to the control function, the hardest thing to do in a corporation.”

In implementing Six Sigma, Welch borrowed a page from Motorola—whose engineers first embraced the concept in the early 1990s—and from AlliedSignal, which followed Motorola’s lead.

It took Motorola eight years to get to 6 sigma from about 3 sigma. Welch said he wanted to get there faster and, like Motorola, apply the Six Sigma program to all the company’s businesses. Five years, he said, not eight.

That was in 1995. Already GE has reduced its defect rate to more than 3.5 sigma. Welch has demanded that the defect reduction program apply not just to the goods rolling off all the manufacturing lines but to performance during the product’s lifetime as well.

Customers of GE’s Milwaukee-based medical division were frustrated by the short life span of the tubes in GE’s CAT scanners. The tubes lasted for about 50,000 to 100,000 X rays and took about four hours to replace. Lots of angry patients and lost dollars.

GE assigned a team of Six Sigma “Black Belts”—as those trained to manage the program are called—to the problem. Their job was to measure and analyze each phase of the tube manufacturing process to see what improvements could be made.

Engineers found they could reduce by nine months the time needed to perfect new models of the X-ray tubes. GE is producing tubes that have up to five times the life span of the old tubes. The new tubes provide sharper, more complete pictures, allowing physicians to examine images of the entire brain of a stroke victim, rather than just slices at a time.

The cost savings flow over to other areas: Defect-free tubes coming off the assembly line help free up production capacity. What GE Medical Systems learned in making this product better is now being extended to other kinds of X-ray tubes the company makes.

The Six Sigma program has produced unexpected benefits. The conventional wisdom was that GE Medical needed to use expensive titanium and tungsten to make X-ray tube bolts. The Black Belts came up with proof that cheaper materials like aluminum and steel would do just fine.

Before they get credit for any savings, Welch requires Six Sigma Black Belts to prove that the problems are fixed permanently. Forty percent of each bonus given to all top managers is now tied to Six Sigma goals.

The money is well spent. Savings at the Medical Systems division alone hit $40 million last year. Also in 1997 GE raised its companywide savings estimates for the defect program twice, from between $400 million to $500 million, then to $600 million and $650 million.

By the year 2000, Morgan Stanley Dean Witter analyst Jennifer Pokrzywinski figures gross annual benefit from the program could be as much as $6.6 billion, 5.5% of sales.

Now you have the secret of Jack Welch’s success. Not a series of brilliant insights or bold gambles, but a fanatical attention to detail.