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MG311 TUTORIAL _WEEK 11

Case - Six Sigma Implementation at GE Fanuc GE Fanuc Automation in Charlottesville, Virginia, is a joint venture between General Electric and Fanuc Ltd. of Japan, a company that specializes in computer numerical control (CNC) and robotic technology. The division has annual sales of about $700 million from the manufacture and sale of factory automation products, which serve the automotive, foodprocessing and packaging, paper, pharmaceutical, robotics, chemical, and energy markets. The headquarters and main manufacturing plant is at its Charlottesville facility, and includes more than 500,000 square feet of floor space divided among seven buildings on 50 acres of land. GE Fanuc implemented their Six Sigma program in 1996, shortly after Jack Welch announced the quality initiative for the entire company. The program required a major cultural and attitude change at GE-Fanuc and around the world at GE sites, but it has resulted in a stronger, quality-driven company. The Six Sigma way of thinking is ingrained in everything the company and its employees do. “From our corporate decisions all the way out to the factory floor, Six Sigma has raised our employees’ mindset to look at data instead of emotion,” says Sheila O’Donnell-Good, GE Fanuc’s Six Sigma business leader. “If you go out on the floor and visit each line, you’re going to see a lot of good data driving decision making. . . . We have ingrained our tool sets within our people, so Six Sigma is a philosophy and an outlook that allows us to examine a broken process, get to a solution, and put controls on in the end. We also see it as a business strategy that helps us gain a competitive edge because it’s a differentiator between us and our competitors.” “At one time, GE was a Three-Sigma company and the cost of failure was estimated at 15 percent of sales. But achieving Six Sigma represents a $4 billion cost reduction opportunity through reduced cost of failure,” says O’Donnell-Good. She adds that the savings are “really greater if you think about it because there have been significant improvements through this program other than the cost-of-failure reduction.”Six Sigma teams are established to improve or correct processes. Don Splaun, manager of advanced manufacturing technology, headed a Six Sigma team that wanted to eliminate the Environmental Stress Screen (ESS) test on circuit boards. Splaun felt the test was costly and unnecessary because the ESS was followed by a second and final test. The test was designed to eliminate premature failure in the boards, but required running the boards through a hightemperature oven for seven hours. Initially, Splaun estimated that GE Fanuc was paying about $12,000 to $18,000 in electricity plus $2,000 to $70,000 a year in maintenance costs per oven and labor costs for loading and unloading the oven. Concentrating on the field-control product line, team members collected and analyzed data to determine whether the final test was as effective as the ESS. Operators filled out data sheets with information such as board name, date, and whether the board passed or failed the ESS test and subsequent tests. These data helped team members determine whether boards that failed were false failures or dead on arrivals (DOAs), which aren’t related to the ESS. Of 7,703 boards that were tested, 311 failed in the first pass. Of these, 284 (91.3 percent) were false failures and 26 (8.4 percent) were dead on arrival (DOA). Only 1 board (0.3 percent) actually failed during the ESS. DOAs were also found bad at the final test, indicating that the final test is an effective screen. Thus, Splaun and his team found only 1 failure out of 7,703 units, which was equivalent to 130 defects per million observations (dpmo), a yield of 99.99 percent, and a sigma level of 5.15.

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This analysis indicated that the final test captured the same failures as the ESS in a more time- and cost-effective manner, so the ESS and the ovens used for the test could be eliminated. To control the improvement, the company began to track the number of failures and defective boards on the line to ensure that product quality remains high after elimination of ESS. The actual benefits that resulted from the project are summarized here. Direct Labor & Materials Savings $84,742 Inventory Reduction $48,400 Energy/Maintenance $16,000 Total Hard Savings $149,142 Labor Cost Avoidance $18,000 Total Savings $167,142 Removing the test from the manufacturing process also reduced the cycle time by a day. GE Fanuc is only one example of the application of Six Sigma within General Electric. The impact of Six Sigma across the GE Corporation is clearly described in the company’s 1999 Annual Report: In 1999, the Six Sigma initiative was in its fifth year—its fifth trip through the operating system. From a standing start in 1996, with no financial benefit to the Company, it flourished to the point where it produced more than $2 billion in benefits in 1999. Jack Welch, then CEO of GE stated: “We want being a product/services customer of GE to be analogous to bringing your car in for a 50,000-mile check and driving out with 100 more horsepower, better gas mileage and lower emissions.” In the initial stages of Six Sigma, the company’s effort consisted of training more than 100,000 people in its science and methodology and focusing thousands of “projects” on improving efficiency and reducing variance in internal operations—from industrial factories to financial services back rooms. From there, the firm’s operating system steered the initiative into design engineering to prepare future generations of “Design for Six Sigma” products—and drove it rapidly across the customer-interactive processes of the financial services businesses. Medical Systems used it to open up a commanding technology lead in several diagnostic platforms and achieve dramatic sales increases and customer satisfaction improvements. Every GE product business and financial service activity [now] uses Six Sigma in its product design and fulfillment processes. Welch concluded: “Today, Six Sigma is focused squarely where it must be—on helping our customers win. A growing proportion of Six Sigma projects now under way are done on customer processes, many on customer premises. The objective is not to deliver flawless products and services that we think the customer wants when we promise them—but rather what customers really want when they want them.” (Adapted from an article in Industrial Maintenance and Plant Operations, Copyright © 2000 Cahners Business Information, A Division of Reed Elsevier, Inc., as available at http://www.impomag.com; and materials supplied by Don Splaun, manager of advanced manufacturing technology at GE-Fanuc, Charlottesville, VA.) Questions (a) What is Six Sigma and how is it different from Three Sigma? What is the difference between direct labor savings and labor cost avoidance savings from a managerial perspective? Six Sigma is quality focused, customer focused, keep a high employee morale (employee focused), resourceful  they focus on the internal processes [technical term] … they are result oriented. Three sigma it allows company for experimentation 2

and making for errors with variability. The accuracy level is 93% under the three sigma. The three sigma evolve from one sigma. The direct labor saving is downsizing and eliminating unnecessary employees. Labor cost avoidance is the replacement of employees with technology or reorganization employee titles with new jobs. (b) Verify that the number of defective boards found in the test gives a dpmo of 130. number of defects / number item produced * 1,000,000 = dpmo. 1/1773 * 1,000,000 = Review questions [refer to the scan copy] Questions: 2, 3, 4, 6, 7, 8

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