From a capital "Q" to TQM to Six Sigma - quality methods finally are having an impact on the way companies do business with their customers and channel partners.
It's a scene as typical of the late 1980s as disco was of the '70s, or student protests of the '60s. A company brings together employees from all over the world to champion the notion of Quality - with a capital "Q." The multi-day celebration involves posters, slogans, contests, T-shirts and skits. When it's over, executives are convinced they've done their utmost to promote quality throughout the organization.
More than a decade later, the slogans have been forgotten, the titles with "quality" in the name retired in favor of newer corporate buzzwords. And many once-hyped Quality programs have been quietly shelved.
But the idea is far from dead. Shorn of its more faddish trappings, quality lives on, in the form of modern-day processes such as Six Sigma, ISO 9000, and the U.S. Commerce Department's Malcolm Baldrige award. Together they provide companies with a powerful toolkit for business process improvement - one that could mean the difference between success and failure in the global marketplace.
Driving quality today is the concept of supply-chain management. Top executives who follow their products from raw materials to end user have a keen appreciation of the need for excellence across all processes, not just within discrete departments. They are looking to use modern-day quality techniques to achieve the so-called Perfect Order - a complete shipment, delivered on time and damage free. And slowly, process quality is being stretched to include channel partners - vendors at one end, customers at the other.
Six Sigma, the most rigorous of all quality techniques, was born at Motorola in 1987. The once-dominant maker of consumer electronics was losing market share at the hands of Japanese producers. It needed a way to identify both product defects and opportunities to fix them.
The solution lay in the concept of "sigma" - the degree of deviation from optimal performance. A score of One Sigma means a company is committing more than 690,000 defects per million "opportunities" - either physical products or services. Even a 99-percent success rate, excellent at first glance, translates into less than a Four Sigma. That's around 9,000 failures per million.
The pinnacle of achievement, Six Sigma, involves no more than 3.4 defects per million. Having identified where errors are occurring, a company then looks to improvements within a given area. Usually the effort is headed up by black belts or green belts, employees who have undergone intensive training in Six Sigma techniques, and act as team leaders on various projects.
Six Sigma has many similarities with its immediate predecessor, Total Quality Management (TQM), says Morgan Swink, associate professor of supply-chain management at Michigan State University. Both techniques stress management by hard data, not educated guesses. Both require the deep involvement of top executives. And both are dedicated, at least in theory, to the notion that the best solutions come from the workers.
But Six Sigma raises TQM to another level. The newer program takes a more quantitative approach to quality, says Robert C. Camp, a principal of the Best Practices Institute in Rochester, NY. It involves the use of "core maps," scorecards and other statistical tools to pinpoint the sources of error and painstakingly chart a company's progress toward improvement. Performance levels that seemed adequate, even excellent, under TQM may prove to be unacceptable under Six Sigma.
For the most part, Six Sigma is better integrated into organizations than was TQM, which tended to be compartmentalized and overseen by its own vice president. The all-too-common result was yet another corporate "silo" whose dictates never got absorbed by the operating divisions. With Six Sigma, the team leadership of black belts and green belts is supposed to ensure that quality will percolate deep into the organization.
Following Motorola's lead, Six Sigma quickly caught on at other multinationals with a penchant for innovation, such as General Electric, Kodak, AlliedSignal, Texas Instruments, IBM. And a decade later, the movement is proving to be more than a passing fad. While no company has achieved the goal of Six Sigma throughout its operation, some are approaching it in key areas.
Six Sigma began life as a measurement tool for manufacturing, where standards and defects are relatively easy to identify. It has subsequently migrated into the realm of services, although managers still find it difficult to quantify performance in that area. "A lot of times it wasn't clear what a defect was," says Peter S. Pande, president of Pivotal Resources Inc. in Walnut Creek, Calif. "There was no clear understanding of what customer requirements were."
In manufacturing, Motorola's Communications Enterprise division operates at better than 5.5 Sigma for most of its products, according to Dennis Sester, senior vice president and director of worldwide supply-chain operations. That means fewer than 30 defects per million, or 99.997 percent compliance with standards. Product availability stands at 5.9 Sigma, or 99.999 percent compliance, and some lines even run at Six Sigma for periods of time, he says.
At Motorola, Six Sigma is one part of a company-wide program dubbed Performance Excellence. Six Sigma measurements are focused largely on internal processes. Driving external quality, and helping to determine what needs fixing internally, is a customer- satisfaction program known as Top Box. Peak performance levels adhere to criteria established by the Baldrige award.
Motorola augments Six Sigma with Baldrige standards because the latter involves a balanced set of scorecards for product and individuals both inside and outside the organization, Sester days. Motorola's quality program today runs the gamut from physical product to intangibles such as promotion, advertising and even brand image.
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Every major multinational says its prime directive is to keep the customer satisfied. Why, then, are customer satisfaction ratings on the decline for so many companies?
The company also adheres to ISO 9000 quality requirements, set by the International Standards Organization, at its numerous sites around the world. In fact, it is one of the few organizations to have won the right to certify itself.
"Nearly all of our operations are [ISO 9000] compliant," says Sester. "It is a fundamental."
Yet ISO 9000 by itself is not an adequate tool for ensuring supply-chain quality. "There's nothing in it that requires continuous quality improvement," Sester says. "It requires only documentation of current processes."
Motorola's own Six Sigma effort is far from complete, but the company already has racked up substantial gains. Last year, the Communications Enterprise, which markets cell phones, pagers and other personal communications devices, reported a savings of $18m in production costs over the previous 10 years. According to Pande, co-author of a new book called "The Six Sigma Way" (McGraw-Hill, 2000), Motorola's total savings from Six Sigma efforts have reached $14bn to date.
Eastman Kodak Co. is another early adapter to the gospel of Six Sigma. It was one of a consortium of five equipment manufacturers to train at Motorola University, an offshoot of the Six Sigma pioneer, in the early 1990s.
By the time Kodak withdrew from the consortium a few years later, it had produced several dozen certified black belts on the equipment end of the business. When Bob Meisel became Kodak's director of quality education last year, he expanded the program company-wide to include the chemicals, paper and film division. Kodak now certifies black belts internally, having conducted more than a dozen training cycles at locations around the world. Its Six Sigma process is summed up by the ungainly acronym DMAIC for define, measure, analyze, improve and control.
Meisel estimates Kodak's savings from Six Sigma at $140m to $150m. Past successes include reduced cycle time in paper manufacturing, for a one-time savings of more than $2m, and elimination of four days of inventory, resulting in $1m of savings from the faster flow of product.
At a chemicals manufacturing plant in England, Kodak saw reductions of 90 percent in product defects and 23 percent in cycle time, along with a 40-percent improvement in first-pass yield, Meisel says. Recent projects have acquired more of a supply-chain flavor, stressing Kodak's value to the end customer.
Like Motorola, Kodak supplements Six Sigma with other quality efforts, including ISO 9000, lean manufacturing and workout, the last a technique for achieving quick payback through the elimination of wasteful processes. Baldrige criteria play a lesser role, although they help to identify areas that are ripe for improvement.
Among Kodak's toughest challenges is measuring intangibles that aren't related directly to production. And many of the company's business processes have yet to be measured at all, a prerequisite to meaningful change. In Meisel's estimation, Kodak's Six Sigma program is only about 25 percent complete.
He expects to further the effort through intensified in-house training, especially of green belts, team leaders who work on projects of more limited scope than do black belts. The ultimate goal, he says, is to institute comprehensive quality training for all Kodak employees.
AlliedSignal was at the forefront of the Six Sigma movement. In fact, says Pande, it was Allied CEO Larry Bossidy who convinced Jack Welch, chairman of General Electric, to give Six Sigma a try. Welch, not a strong proponent of the original quality crusade in the 1980s, is today one of Six Sigma's biggest cheerleaders.
By 1999, Allied's decade-long Six Sigma effort had reaped savings of more than $600m a year. Early on, the company employed Six Sigma, not only to fix defects, but to speed up the design of new products such as aircraft engines as well.
Allied was merged into Honeywell last year, but Six Sigma is still going strong within the combined organization. The $10bn maker of aerospace and avionics equipment, power systems and building controls now operates under an all-embracing program known as Six Sigma Plus. Marked by an enhanced focus on the customer, it utilizes both electronic commerce and the internet to fine-tune business processes.
Effective as it was, AlliedSignal's original Six Sigma effort was mostly targeted internally, a reflection of its roots in manufacturing and engineering, says Bill Ramsey, corporate vice president of supply chain at headquarters in Morristown, N.J. Honeywell's goal was to deploy those same techniques in areas with a more immediate impact on the customer, such as sales and marketing and the extended supply chain. Honeywell's own Quality Values Process, based on Baldrige criteria, was enlisted to chart the progress of various business units toward quality goals.
Recently Honeywell began offering Six Sigma training to its supplier base, forming joint teams with vendors to solve specific problems in the supply chain. For example, it has taught new suppliers in the Czech Republic and Poland how to train black belts and "lean masters" for the elimination of waste.
"One of the program's real strengths is to provide a common language," says Ramsey. When all sides are engaged in solving the same problem, he says, differences between corporate cultures, even nations, tend to vanish.
In a holdover from the 1980s Quality movement, Honeywell continues to stage annual "Quest for Excellence" meetings of employees in order to highlight the successes of various business units. The events, which have a celebratory air, crown "excellence winners" at various organizational levels. The company hosts three such meetings a year, one for each major sales regions.
Ramsey sees the continuing evolution of modern-day quality processes that involve channel partners, not just internal departments. "Six Sigma and the supply-chain view naturally fit together," he says. Managers have gone from treating purchasing as a standalone function to something that begins with a specific customer requirement, and ends with fulfilling that requirement.
Honeywell may have gotten a head start with Six Sigma through the AlliedSignal merger, but it's far from done. Ramsey says the company as a whole now operates at just over Four Sigma, versus Two Sigma in the old Allied organization. Yet even that level of performance will yield more than $700m in savings this year.
The internet will play an increasingly vital role in the application of Six Sigma, and supply-chain quality in general, experts predict. Through the use of information technology and the net, companies can do a better job of measuring performance, manipulating statistics and communicating with channel partners. Today, says Ramsey, "the vast majority of our Six Sigma projects utilize the internet to drive process improvements. And almost all our net activities have black belts [as leaders]."
Jack Welch has mandated the use of Six Sigma throughout General Electric, and GE Global EXchange Services (GXS) is no exception. Based in Gaithersburg, Md., the unit offers both consulting services and software suites that integrate various supply-chain applications. GXS employs the tenets of Six Sigma both within its own organization and on behalf of clients, according to Steve Scala, vice president of integration solutions.
The focus is on variance control. An average order cycle of 30 days may sound acceptable, Scala says, but individual shipments might arrive as early as 10 days, or as late as 60. Either way, they could spell trouble for the receiver.
Acting as a consultant, GXS works to limit the degree of variance through application of Six Sigma techniques. With more confidence about a shipment's actual date of arrival, the client can reduce safety stock to an absolute minimum.
Scala says vendors must look beyond their own processes to a product or service's impact on the entire supply chain. For example, the GE division that makes aircraft engines had cut the time it took to recondition a unit. But the improvement meant little to the airlines, which weren't seeing a reduction in the period their planes were grounded. The only meaningful measure, says Scala, is "wing-to-wing" cycle time, determined by multiple channel partners.
Variance control works equally well with more day-to-day products. For Tesco, the British supermarket chain, GXS created an extranet through which suppliers could gain access to in- store, point-of-sale data. The result was fewer markdowns and stockouts, the two largest contributors to retailers' losses.
Internally, GXS measures sigma levels in such areas as the processing capability of its data centers, turnaround time on resolving client problems, and overall client satisfaction. Scala says the company has had particular success in promoting business-to-business integration and data exchange over the internet, an area that is operating at 5.84 Sigma. Other divisions of GE, such as aircraft engines, are either at Six Sigma or very nearly there.
The road to Six Sigma is seldom a smooth one. Like any complex corporate undertaking, it is marked by setbacks and even outright failures. According to Sester, the culprit is usually a lack of long-term vision by top management. Executives may view Six Sigma as a one or two-year effort that will yield quick successes. They fail to understand the enormity of the change that must occur before they can reap the full benefits of quality.
Employees respond in kind. Aware of the tepid commitment at the top, they may withhold the trust in management that is needed to implement something as complex as Six Sigma. "It will be seen as the program of the month," says Swink.
"It's not the fault of the concept," he adds. The difference between companies that succeed and those that fail lies in their motivation for adopting the program in the first place.
Driving quality today is the concept of supply-chain management
The problem may begin with a lack of vision at an early stage. Of Swink's MBA students, "80 percent are here to get a piece of paper. Twenty percent have a burning desire to learn something new."
Even the most idealistic students are liable to change their tune when they reach the boardroom. It takes a tough CEO to resist the investor community's demands for short-term profits. In the 1980s, Quality was a crusade among a handful of executives who were willing to wait years for results, says Jack West, management systems assessment manager of Northrop Grumman in Baltimore.
Now, leaders like GE's Welch have "zero patience," West says. They're demanding some kind of bottom-line payoff within six months to a year, even if the program's full benefits won't be felt for much longer than that.
In response, consultants are retooling their strategies to ensure a measure of up-front return on investment. The Scottsdale, Ariz.-based Six Sigma Academy focuses on "critical-to-quality" processes, usually those most evident to the customer, says Anne Foley, vice president of sales. Previously, companies tended to attack the easiest problems first, whether or not they yielded any quick gains. "ROI is almost instantaneous now," she says.
The key lies in customer satisfaction. That's hardly a new concept, Pande points out in "The Six Sigma Way," but TQM mostly gave lip service to the notion. Few companies in the 1980s and 1990s attempted to learn their customers' actual needs - and, most importantly, how those needs changed over time.
Applied properly, Six Sigma recognizes the dynamic nature of the supplier-customer relationship. On the service side, at least, a company's sigma rating is never permanently fixed; the bar is always being raised. Says Swink: "Quality has no meaning beyond that of the customer."
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