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, food-
processing 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
ODonnell-Good, GE Fanucs Six Sigma business leader. If you go out on the floor and visit
each line, youre 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 its 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 ODonnell-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 high-
temperature 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 arent 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 companys 1999
Annual Report:
In 1999, the Six Sigma initiative was in its fifth yearits 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 companys 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 operationsfrom industrial factories
to financial services back rooms. From there, the firms operating system steered the
initiative into design engineering to prepare future generations of Design for Six Sigma
productsand 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 beon
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 thembut
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

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 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