Implementing Six Sigma

Six Sigma is a business initiative first espoused by Motorola in the early 1990s. Recent Six Sigma success stories, primarily from the likes of General Electric, Sony, AlliedSignal, and Motorola, have captured the attention of Wall Street and have propagated the use of this business strategy. The Six Sigma strategy involves the use of statistical tools within a structured methodology for gaining the knowledge needed to create products and services better, faster, and less expensively than the competition. The repeated, disciplined application

5. Adapted from Forrest W. Breyfogle, III, Implementing Six Sigma (New York: Wiley, 1999), pp. 5-7.

of the master strategy on project after project, where the projects are selected based on key business issues, is what drives dollars to the bottom line, resulting in increased profit margins and impressive return on investment from the Six Sigma training. The Six Sigma initiative has typically contributed an average of six figures per project to the bottom line. The Six Sigma project executioners are sometimes called "black belts," "top guns," "change agents," or "trailblazers," depending on the company deploying the strategy. These people are trained in the Six Sigma philosophy and methodology and are expected to accomplish at least four projects annually, which should deliver at least $500,000 annually to the bottom line. A Six Sigma initiative in a company is designed to change the culture through breakthrough improvement by focusing on out-of-the-box thinking in order to achieve aggressive, stretch goals. Ultimately, Six Sigma, if deployed properly, will infuse intellectual capital into a company and produce unprecedented knowledge gains that translate directly into bottom line results.6

Former General Electric (GE) CEO Jack Welch described Six Sigma as "the most challenging and potentially rewarding initiative we have ever undertaken at General Electric." The GE 1997 annual report stated that Six Sigma delivered more than $300 million to its operating income. In 1998, they expected to more than double this operating profit impact. GE listed in its annual report the following to exemplify these Six Sigma benefits:

• Medical Systems described how Six Sigma designs have produced a 10-fold increase in the life of CT scanner X-ray tubes—increasing the "uptime" of these machines and the profitability and level of patient care given by hospitals and other health care providers.

• Superabrasives—our industrial diamond business—described how Six Sigma quadrupled its return on investment and, by improving yields, is giving it a full decade's worth of capacity despite growing volume—without spending a nickel on plant and equipment capacity.

• Our railcar leasing business described 62% reduction in turnaround time at its repair shops: an enormous productivity gain for our railroad and shipper customers and for a business that's now two or three times faster than its nearest rival because of Six Sigma improvements. In the next phase across the entire shop network, black belts and green belts, working with their teams, redesigned the overhaul process, resulting in a 50% further reduction in cycle time.

• The plastics business, through rigorous Six Sigma process work, added 300 million pounds of new capacity (equivalent to a "free plant"), saved $400 million in investment and will save another $400 by 2000.7

A USA Today article presented differences of opinions about the value of Six Sigma in "Firms Air for Six Sigma Efficiency."8 One stated opinion was that Six Sigma is

6. Information in this paragraph was contributed by J. Kiemele, Ph.D., of Air Academy Associates.

7. 1998 GE Annual Report.

8. D. Jones, "Firms Air for Six Sigma Efficiency," USA Today, July 21, 1998, Money Section. Copyright © 1998 USA Today; reprinted with permission.

"malarkey," while Larry Bossidy, CEO of AlliedSignal, counters: "The fact is, there is more reality with this (Six Sigma) than anything that has come down in a long time in business. The more you get involved with it, the more you're convinced." Some other quotes from the article are as follows:

• After four weeks of classes over four months, you'll emerge a Six Sigma "black belt." And if you're an average black belt, proponents say you'll find ways to save $1 million each year.

• Six Sigma is expensive to implement. That's why it has been a large-company trend. About 30 companies have embraced Six Sigma, including Bombardier, ABB (Asea Brown Boveri) and Lockheed Martin.

• Nobody gets promoted to an executive position at GE without Six Sigma training. All white-collar professionals must have started training by January. GE says it will mean $40 billion to $15 billion in increased annual revenue and cost savings by 2000 when Welch retires.

• Raytheon figures it spends 25% of each sales dollar fixing problems when it operates at four sigma, a lower level of efficiency. But if it raises its quality and efficiency to Six Sigma, it would reduce spending on fixes to 1%.

• It will keep the company (AlliedSignal) from having to build an $85 million plant to fill increasing demand for caperolactan used to make nylon, a total savings of $30-$50 million a year.

• Lockheed Martin used to spend an average of 200 work-hours trying to get a part that covers the landing gear to fit. For years, employees had brain-storming sessions which resulted in seemingly logical solutions. None worked. The statistical discipline of Six Sigma discovered a part that deviated by one-thousandth of an inch. Now corrected, the company saves $14,000 a jet.

• Lockheed Martin took a stab at Six Sigma in the early 1990s, but the attempt so foundered that it now calls its trainees "program managers" instead of black belts to prevent in-house jokes of skepticism Six Sigma is a success this time around. The company has saved $64 million with its first 40 projects.

• John Akers promised to turn IBM around with Six Sigma, but the attempt was quickly abandoned when Akers was ousted as CEO in 1993.

• Marketing will always use the number that makes the company look best Promises are made to potential customers around capability statistics that are not anchored in reality.

• Because manager's bonuses are tied to Six Sigma savings, it causes them to fabricate results, and savings turn out to be phantom.

• Six Sigma will eventually go the way of other fads, but probably not until Welch and Bossidy retire.

• History will prove those like Smith wrong, says Bossidy, who has been skeptical of other management fads. Six Sigma is not more fluff. At the end of the day, something has to happen.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

Get My Free Ebook

Post a comment