Cover Story: The Enigma Of Six Sigma

Take quality. Add accuracy. And the result is a tool that's making TQM transcend the shopfloor, driving defects out of companies, and bringing mathematical precision to process-improvement. BT presents the CEO's primer on Six Sigma.

3.4 defects in 1,000,000. If you precision-engineered total quality, that is what you'd get. Around the world, quality-obsessed CEOs are chasing that magic figure as they wield what could turn out to be the sharpest tool to please customers, pump up profits, and eliminate flaws. Invented at Motorola, perfected at General Electric (GE), and now practised by a handful of corporations in India, Six Sigma is converting defect-prone businesses into powerhouses of perfection.

Such force flows from the simple, but stunningly sharp objective of Six Sigma: design, operate, and control every one of the processes in your company in such a way that none of them yields more than 3.4 defects out of every 1 million units of output. With breathtaking clarity, Six Sigma is telling companies in clear, accurate, mathematical terms how good--or, more likely, bad--their quality-levels are, how much they can improve, and what progress they're making on that journey. And the Six Sigma strategists are leveraging this knowledge to consummate exciting improvements in quality--not just on the shopfloor, but all over their organisation.

SIX SIGMA@ALLIED SIGNAL

At alliedSignal, Six Sigma is an overall strategy to accelerate improvements in its processes, products, and services. It is also a measurement of total quality to let the company know how effective it is in eliminating defects and variations from its processes. It encompasses tools from all improvement initiatives, including those in operational, technical, and customer excellence. It also applies to every function in the company, not just the factory floor. Although the businesses that make up AlliedSignal are different, the company now has a single, common way to describe its work by applying Six Sigma to all its processes. The company's objective: to use Six Sigma to achieve a growth of 12 per cent and a productivity improvement of 7 per cent by 2000. Workers at AlliedSignal Inc. are using Six Sigma-driven robust efficiency to make turbo-chargers, carpet-fibres, and avionics. The company has saved $1.50 billion through Six Sigma, and wants to slash another $500 million of waste this year. Reducing waste helps AlliedSignal raise profit margins. "Six Sigma is crucial for us," says Lawrence Bossidy, the CEO of AlliedSignal. "We're trying to broaden it outside manufacturing, and we're off to a good start. You've got to have growth and productivity in business these days."

Want to know where we stand? The global mean isn't inspiring to begin with. Explains Charles Loew, 59, Managing Consultant, Consulting & Training Services, Motorola University: "Companies that haven't begun their quality journey are usually at One or Two Sigma levels. The worldwide average is about Three Sigma." That's 66,807 defects per million parts. As for companies in India, estimates made by Six Sigma consultant S.C. Bajaj, a GE veteran of 23 years, place our progress at 308,537 defects. Or, a lowly Two Sigma.

Against this backdrop, corporate India's Six Sigma success stories are looking miraculous. In 1998-99, its first year of implementing Six Sigma, Wipro recorded savings of Rs 4.40 crore. The company expects to be a Four Sigma corporation in key processes by March, 2000, and hit Six Sigma levels by end-2002. Wipro's first essay at Six Sigma was to purge the defects from Letters of Credit (LC) at its peripherals division in Bangalore in April, 1997. The project was hugely successful, and cloned at Wipro's peripherals unit in Mysore in February, 1998. The Six Sigma team worked on a mistake-proofing plan with 27 vendors for a set of LCs that had to be opened through 2 bankers. By December, 1998, the Mysore office was keeping pace with the head-office. In the past 24 months, Wipro has taken up more than 70 such projects, generating savings from different projects ranging from Rs 3 lakh to Rs 2 crore. Declares Azim Premji, 54, CEO, Wipro: "We look at Six Sigma as a powerful locomotive carrying us along."

On Godrej-GE's assembly-lines at Vikhroli, Mohali, and Pune, defective components were coming in at the rate of 300,000 for every million parts. By GE standards, this was simply unacceptable. Applying Six Sigma, Godrej-GE now expects to bring down the defects to 1,000 per million parts, between Four and Five Sigma. In 1998-99, it whittled down its fixed costs by Rs 4 crore after 5 of its Six Sigma projects were completed, with the first defect-free consignment being shipped in December, 1998. And the company is targeting cost-savings of Rs 10 crore in the next 2 years. Confirms Vijay Crishna, 54, CEO, Godrej-GE: `'We're not talking about intangible savings here. Six Sigma has given us the power to measure and control costs. And that goes straight to our bottomline."

The list of converts is swelling rapidly. Despite its faith in Japanese quality practices, Maruti Udyog has started a Six Sigma pilot-project in its spares department. Hero Motors is using Six Sigma to bring down warranty-costs. Bajaj Auto is on the verge of converting too. Confirms S. Ravi Kumar, 42, Senior Manager (Business Development), Bajaj Auto: "We are studying the feasibility of adopting Six Sigma as a religion across the company." Similarly, the Indian operations of transnationals that have already adopted the tool globally are being compelled to take it up too. AlliedSignal's Indian facility at Gurgaon has been following Six Sigma since its first day of operations. Admits D.P. Roy, 54, Executive Director (Quality & Development), Modi Xerox: "Xerox has now taken up Six Sigma at its locations in the US and Europe, and it is just a matter of time before it is introduced here. We think Six Sigma will blend neatly with our on-going quality programmes, like quality policy deployment. What's more, we'll be in a better position to quantify what we have been doing all along."

SIX SIGMA@MOTOROLA

In addition to the use of statistical methods, Motorola's Six Sigma programme includes monetary performance incentives for participating employees as well as extensive in-house training. During the first year of the Six Sigma programme alone, Motorola spent more than $25 million on an initial top-down training programme. As of 1992, out of a total of 100,000 workers, nearly 70,000 had participated in the company's Understanding The Six Steps To Six Sigma course. By 1992, Motorola had achieved an 80 per cent reduction in the cost of quality per unit shipped, yielding a total savings of nearly $4 billion. Just one year after Six Sigma, Motorola saved $250 million on failure costs. Products such as Motorola's Micro TAC cellular phone reflect the impact of the Six Sigma programme. The Micro TAC contains one-third the number of parts of the product it replaced and 90 per cent of Micro TAC components were manufactured by Motorola to comply with Six Sigma requirements. In 1991, the communications division was reorganised from multiple locations to one central location when it was discovered that it was impossible to maintain a Six Sigma level of service with a decentralised structure. As of 1990, Motorola's marketing department had achieved nearly Six Sigma in typos and has since been instituting measures of error in areas such as photography, pricing, and grammar.

All of them have been looking at the gains made by the global Six Sigma stars. Pioneers like Motorola reported savings of upto $2 billion over 10 years of implementation while a recent convert like GE totted up $750 million in shaved-off costs in 1998. Similarly, by pursuing Six Sigma quality-levels throughout the company, Raytheon expects to burn away over $1 billion in costs annually by 2001. Just like every classic TQM tool, Six Sigma has a direct link with profitability by reducing the cost of poor quality, which firms have to incur through rework, rejects, and lost customers. Analyses Sarita Nagpal, 44, TQM Co-ordinator, Confederation of Indian Industry: "The pursuit of cost-management during the recession explains why Six Sigma appears such an attractive tool."

You've got it. For, Six Sigma at its most powerful is a tool that can ratchet up quality-levels in every single process in your company--not just on the shopfloor. In fact, that's precisely where its versatility stems from. >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, labour, and material.

But, 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."

You can also expect your Six Sigma analysis to show up faults you weren't even aware of. Recalls Anand Dutta, 40, President, GE Motors: "We thought there was a bias against us when our parent began insisting on a Pareto rating of our products before shipment. But, when we quantified our defects using Six Sigma tools, we realised that we were generating 20,000 faults per million spares. And the faults weren't even major; most of them were just the results of carelessness." Adds V. Rama Kumar, 45, Corporate Vice-President, Wipro: "In addition to the quantitative gains, Six Sigma has helped us streamline our processes. That will help us in future too."

Itching to ask the obvious question--especially if, like other companies, you've also set off a TQM or TPM, or both, movement in your company?

Well, Six Sigma can certainly be plugged into such initiatives. After all, its philosophy is the same as that of TQM: reducing defects. So are the tools that it can use. In fact, what Six Sigma can really do is to add octane to your TQM fuel. For, its metrics of performance are more sharply-defined than is the case with most quality programmes, which have a multiplicity of objectives, ranging from broad operational goals, like reducing cycle-times, to micro-level ones, like reducing waste. Points out Scott Bayman, 52, President and CEO, GE India: "The difference between Six Sigma and the other quality approaches is that the others measure your abilities to meet some quality. Six Sigma actually measures the output of your processes. So, it's less theoretical and more real world."

Agrees R. Dayal, 48, General Manager (Quality), Maruti Udyog: "We have been using quality-control tools for a number of years, but Six Sigma introduces a certain rigour and robustness which isn't there in TQM. We've found that the harder our targets get, the more difficult it is to use conventional TQM tools to meet them." Adds A.K. Singh, 44, General Manager (Technical), Jindal Strips: "Measurement is key here. If your metrics are ambiguous, you won't be able to control your defects, which means you won't be able to control your processes." Simply put, Six Sigma implementors know what they are chasing, and can measure their progress in objective terms. So can you.

The explanation--drawing on the original work in statistical process control theorised by the grandfather of quality, Walter Shewhart--is deceptively simple. The mathematical translation states that a process that operates at six sigma allows only 3.40 defects per million parts of output. The Six, of course, is the culmination of a progression that starts, for all practical purposes, at Three Sigma (66,807 defects per million), and traverses Four (6,210) and Five (233).

But there is much more to Six Sigma than merely lowering the number of defects. The Greek letter, Sigma, is the statistical shorthand for standard deviation--and what the metric really refers to is the extent to which a process is capable of deviating from pre-set specifications without causing errors. The higher the sigma rating, the greater is this capability, with Six Sigma allowing variations of upto 6 times the standard deviation without causing flaws.

The mathematical interpretation of Six Sigma is crucial to implementing the tool. The output of any process in your company--the products rolling off your assembly-lines, the bills created by your accounts people, the pay-cheques delivered--can be analysed 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.

Consider, for instance, a process which, every hour, produces 100 units of a particular component which should measure 100 mm in length. Measurements may show that while 95 out of the 100 units produced are, indeed, 100-mm long, the remaining 5 deviate from that ideal, each to a different extent. This data can be used to calculate the standard deviation, or sigma--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 question, of course, is whether these deviations will be counted as flaws under the given CTQ. This is determined by the upper and lower specification limits of the product. If they allow those deviations--that is, 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. What if they don't? That's when the capability of the process has to be changed.

Six Sigma offers 2 approaches. One is to change the design of the product in which this component is used so that it can accommodate some of the variations in the length without malfunctioning. Thus, for instance, the so-called design-width could be Three Sigma--accommodating components with 3 times the standard deviation of the process. In other words, components that measure between 99.07 mm and 100.03 mm will also be acceptable. Of course, that will still mean eliminating those units whose sigma exceeds 3, but this will, at least, lessen the number of defects in every sample.

The second approach is to make improvements in the process itself so that the chances of defects are lowered. That will reduce the value of the standard deviation, or sigma, of the process. If, say, the value of the sigma can be halved through this method to 0.005, the acceptable specification-limits--99.07 mm and 100.03 mm, respectively--will automatically become 6 times--and not 3 times--the standard deviation. Et voila! A Six Sigma process will be yours. The implication? To take a process to Six Sigma level, you must, ideally, adopt both approaches: changing the design to increase the range of acceptability in the CTQ; and improving the process to reduce its chances of variance.

In practical terms, this means that Six Sigma is a tool that must be wielded both at the design stage and at the process stage. As a matter of fact, a Six Sigma rating, in ideal conditions, should produce no errors at all. If it does lead to those 3.40 defects out of every million parts, that's because even the best processes, over a period of time, tend to generate deviations of upto 1.50 sigma. Thus, the effective extent of deviation can go upto 7.50 sigma while the process allows only 6 sigma without defects. That translates into those 3.40 flaws. Admits Sunder Mulchandani, 44, CEO, AlliedSignal India: "It sounds intricate, but the underlying principles are simple enough."

Wondering whether 3.40 defects per million isn't too high to aim for? Why isn't 6,210 (Three Sigma) flaws per million parts--the upper end of the corporate average in the US--also good enough, particularly since it can be achieved with less effort? Just a minute. The average product rolling off your assembly lines today could consist of as many as 10,000 different parts, components, and designs--any of which runs the risk of being defective. Thus, 3.40 flaws per million parts actually amounts to 34 defective products out of every 1,000. In other words, an average of 34 out of 1,000 customers will still be unhappy about your product--explaining why even Six Sigma is not the ceiling.

Want to know what Four Sigma could mean? Here's a horrifying shortlist: 1,24,200 wrong prescriptions a year; 4.60 hours of toxic water supply a month; 62.10 minutes of telephone services shutdown a week. At Four Sigma levels, the cost of poor quality is estimated to be between 15 and 20 per cent of your sales--compared to less than 10 per cent in a Six Sigma company. Sums up Soumesh Bagchi, 54, a Professor at the Indian Statistical Institute, Calcutta: "In traditional statistical analysis, we used to talk in terms of Three or Four Sigma as acceptable levels of tolerance. If companies are thinking in terms of Six Sigma, we're looking for quantum improvements."

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, realised 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 correlations, 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, chances were high that other defects had been missed, and would show up later during usage.

On the other hand, error-free products rarely failed in the first 3 years of customer-usage. Evidently, 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 minimise--and, ideally, eliminate--defects from the manufacturing process?

That was when another engineer, Mikel J. Harry, 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, and changed to eliminate that potential. Explains T. Ganguly, 61, Director, Crompton Greaves: "Breaking down and studying processes is a key element of result-oriented quality programmes. This helps in tracking down the root-cause of defects."

Until 1994, Six Sigma remained a closely-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. One of the earliest to pick it up was AlliedSignal, where CEO Lawrence Bossidy led the conversion. But it wasn't until GE's CEO, Jack Welch, introduced Six Sigma across the length and breadth of his organisation that the tool grabbed the limelight--and stayed put. Four years after `Neutron' Jack pushed Six Sigma hard into the innards at GE, it contributes 20 per cent to the conglomerate's earnings. That has spurred many others to follow suit.