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The Web Of Quality

Industrial Management: Manufacturing

The Web of Quality

Worldwide links mean better products

Just a decade ago, U.S. businesses were crowing about the promise of new quality-improvement programs. Since then, the U.S. quality movement has altered and improved business practices, and many American companies have matched Japan's vaunted quality benchmarks. Industrial offices buzzed with phrases such as "total quality management (TQM)" and "six sigma accuracy." Such catchphrases are heard less frequently because they've been replaced by Internet jargon. And that raises a question: Where does quality stand in the Internet age?

Concerns about quality have by no means disappeared. Rather, at most successful companies, quality has become internalized, says quality consultant Joseph A. DeFeo, CEO of Juran Institute Inc. in Wilton, Conn. The special software and management practices associated with the movement are now in everyday use, he says, so quality has become less self-conscious. But it has reemerged as a critical issue because of the rapid development of Internet links among companies. Quality is no longer the concern of just a single factory but of whole supply chains. As companies outsource more of their work, they need to take increasing care to make sure their partners measure up on quality, says Michael J. Burkett, a senior analyst at Boston's AMR Research Inc., a manufacturing consultant.

This report explores the role of quality in today's increasingly networked world. The first section looks at how a unit of General Electric Co. is blazing new quality trails in a field it helped pioneer. The second lifts the lid on efforts by Mexico's manufacturers to meet the quality demands of customers in North America and overseas.Return to top

GE: Zero to 60, No Skid Marks

Never before has General Electric Co. cranked out gas-powered turbines in such quantities. Given the growing preference for gas-powered generating plants over their much dirtier coal-burning cousins, demand is booming--with no sign of slowing. In May, GE's Power Systems unit installed five times the number of turbines it did a year earlier. Yet despite the problems of grappling with such a huge increase in production, GE has become progressively better at making good on delivery date promises. Indeed, the company has actually delivered many units ahead of schedule (chart, page 172D). GE Power's success at managing its huge runup in output is a much-discussed success story among GE insiders--and a major reason they view Power Systems head Robert L. Nardelli as a top contender for GE's CEO job when Jack Welch retires.

While GE is hardly complaining about this upturn, executives realized that the runup would pose huge risks. In particular, they worried about maintaining their grip on quality, continuing to fill orders on time, and keeping customers happy. The last thing they wanted was to become another example of a company that lost control when it tried to goose production quickly after getting bombarded by orders. The production snafus at Boeing Co. in 1997 offered an ominous example of how things can go wrong in a big rampup. And when GE execs began taking notice in 1998 of industry numbers showing that electrical-power reserves in the U.S. were shrinking to alarming levels, Boeing's difficulties were painfully fresh.OUTSIDE RISKS. To prepare for the projected hike in orders, GE Power System's managers visited companies that had lived through similar explosions in their businesses. They made a point of flying to Seattle to glean insights from Boeing officials. One thing became evident right away: The biggest risk to GE was outside the company. Suppliers that lacked GE's financial resources might not be able to expand production rapidly enough. At Boeing and other casualties of too-fast growth, most breakdowns occurred when suppliers overestimated their production capacity. Since more than 50% of a turbine's components are purchased from outside vendors, GE wasted no time shoring up its supply chain. In 1998, GE Power Systems launched an exhaustive study of the suppliers that provide key components for the gas turbines. After first screening 250 of its suppliers, it intensively audited 85 that posed the greatest risk. Teams consisting of specialists in supply sourcing, research and development, finance, and management spent up to two weeks at supplier facilities across the U.S. and around the world.

Since the last major rampup in production at Power Systems in the late '80s, GE had two new tools to help it avoid supply-chain problems, says Victor R. Abate, general manager of fulfillment at Power Systems. One was the Internet. But more important was the company's vaunted six-sigma program, adopted in 1996. Six sigma is statistics-speak for 99.9999976%. Applied to manufacturing, it means a quality level of no more than 3.4 defects per million products. At GE, the six-sigma program also includes guidelines and tools for boosting productivity and wringing inefficiencies out of its manufacturing and service processes. Mark M. Little, a vice-president at GE Power Systems, says that with six sigma's tools, GE no longer has to rely on bludgeoning suppliers to deliver. Instead, GE's auditors have the wherewithal to determine whether suppliers can hand over parts in time.

GE's vendor-checkers scrutinize myriad details right down to the individual machine tools that suppliers use to produce turbine parts. GE also evaluates the suppliers' suppliers--their production capacity, shipping and delivery systems, and how rigorous their quality programs are. And the exam doesn't end there. Because a supplier might need to boost hiring, GE checks to see whether the company keeps a stack of resumes on hand. In the end, GE eliminated some suppliers and found backups for suppliers with obvious weaknesses. And they tagged some 350 potential problems that continued to be monitored until fixed by the suppliers.INVALUABLE ASSET. Perhaps most important, the initial evaluation allowed GE to establish a framework for ensuring the quality of its supply chain as production rolled forward. Says analyst Nicholas P. Heymann of Prudential Securities Inc., who formerly worked as a GE auditor: "How many companies today have guys that can go into another company and fully assess where the flaws are--and not only that but also fix them? They've executed six sigma all the way through the supplier chain."

That was an invaluable asset as orders flowed in and the stress on production systems mounted, both internally and among suppliers. With its new predictive tools, deep knowledge of its suppliers, and the ability to share information quickly via the Internet, GE could identify problems earlier and avoid potentially costly bottlenecks. "Whenever we see variation, we just attack it," Abate says.

Example: GE last year realized that a supplier of a core turbine component was poised to fall behind. Although the company was consistently delivering to GE on time, GE's six-sigma audit had found the supplier would be unable to keep up as GE went from producing 25 turbines to 45 per quarter in late 1999. GE sent a team to the company, and a settlement was reached: The supplier would lease additional equipment to keep up with GE's production track. "With these very rigorous tools," says Little, "we now know what the leading indicators are, and we can act fast."

The Internet has made a big difference, too. When GE engineers are in the field, checking on deliveries at customer sites anywhere in the world, they can report on a problem on their laptops, and this information is available instantly throughout GE Power Systems. Before the Net, the field engineers would typically resolve each problem at the plant site--but GE managers would remain blissfully unaware of the solution, which would have to be engineered all over again the next time.

So what's the customer's view of how well GE is coping with its production surges? Duke Energy North America (DENA, a unit of Charlotte-based Duke Energy Corp.) is clearly satisfied. It placed a huge order with GE in the fall of 1998 to outfit nearly two dozen generating plants with gas turbines, four of which will be on line by month's end. Including service agreements, it was a $4 billion order. So far, everything has gone according to schedule or slightly ahead of it, says James M. Donnell, CEO of DENA. For Duke, there's a lot at stake. With summer already starting to stoke demand for electricity, each day that a gas-turbine plant isn't producing means a huge revenue loss. A 640-megawatt plant running at maximum capacity for 16 hours on a summer day, for example, translates into $1.75 million in gross revenues.

For GE the stakes are high, too. The company boasts that it has grabbed a 75% share of current turbine orders. With the power industry relying so heavily on one supplier, more eyes than ever will be watching to see if Power Systems can keep managing the boom.By Pamela L. Moore in Greenwich, Conn.Return to top

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