HBP Product ID: ST101

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RONALD LAU

Germagic: Six Sigma Quality in the Making

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Daniel Lau, a third-year undergraduate business student majoring in operations management at The
Hong Kong University of Science and Technology, joined Germagic Biochemical Technology (GBT) in
summer 2021 as an intern. When he showed up to work on the first day, he was greeted by John Chan, the
operations manager. To help Daniel become familiar with the production environment at GBT, John
decided to give him a quick tour of the plant. Knowing Daniel’s background in operations management,

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John was happy to have Daniel as an intern and was interested to find out what contribution Daniel could
make over the next few months.

As they walked by the packaging area of Germagic 4H Hand Sanitizer, one of the GBT’s most popular
products, John showed Daniel the automatic filling equipment that the company had just purchased a few
months earlier. Although the new equipment was a big improvement over the semi-manual filling process
used in the past, John lamented how many more resources were still needed to make sure the equipment
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was filling the right amount of hand sanitizer into the plastic bottles.

The production was usually done in batches of 1,000 bottles at a time. After the bottles were filled,
workers would randomly check a few bottles (no more than 10 at a time, depending on the time available)
from each batch of products to make sure they were within the product specifications, i.e., 500 ± 10 ml. If
the workers found any of the bottles they sampled with less than 490 ml, they would alert their line
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supervisor, who would then stop the production to examine the equipment for possible malfunctioning. By
design, the plastic bottle could hold up to 510 ml of hand sanitizer. In case there was an overfilling problem,
it would be readily visible to the workers, as the excess would spill out of the plastic bottles. Again, the
production line would be shut down immediately for cleaning up.

Seizing the opportunity, Daniel suggested to John that they should take the samples for checking during
the production process and not wait until the entire batch of products was completed. The idea was to detect
any potential filling issues and provide an early warning during the production process by using statistical
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process control (SPC) tools such as control charts. As the operations manager, John knew about these tools
but never before implemented one. Besides, he always wanted to develop a quality improvement program
to help GBT achieve six sigma quality. Unfortunately, he had been too busy managing the supply of
materials and fulfilling the distributor’s orders during the COVID-19 pandemic and could not find an

Professor Ronald Lau prepared this case solely as a basis for class discussion. The author has disguised certain data to protect
confidentiality. Cases are written in the past tense; this is not meant to imply that all practices, organizations, people, places or
facts mentioned in the case no longer occur, exist, or apply. Cases are not intended to serve as endorsements, sources of primary
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data, or illustration of effective or ineffective handling of a business situation.

For inquiries regarding ordering and permission to reproduce the case and its materials, please write to bmcase@ust.hk or visit
cbcs.ust.hk.

© 2021 by The Hong Kong University of Science and Technology. This publication shall not be digitized, photocopied or
otherwise reproduced, posted, or transmitted without the permission of the Hong Kong University of Science and Technology.

Last edited: 1 September 2021

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 HKUST Business School Thompson Center for Business Case Studies

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opportunity to do so. John now felt a bit of relief as he realized Daniel would be the best person he could
count on to help move the six sigma quality initiative forward for GBT.

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About the Company and Products
The history of GBT could be traced back to the 1920s when the Cheng family established Chiaphua
Industries Ltd. (CIL) in Guangzhou and later moved to Hong Kong. CIL remained a family business and

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focused on manufacturing and other industrial businesses. After the SARS pandemic in 2003, CIL and The
Hong Kong University of Science and Technology’s (HKUST) School of Engineering teamed up to create
anti-epidemic technologies to develop products with antimicrobial properties.

A team of HKUST professors developed a unique long-lasting coating, among other successes. In 2017,
both parties announced the creation of the new technology used in the Germagic products. GBT was set up
as a joint venture by CIL and HKUST School of Engineering, along with two other investors from mainland
China and Taiwan.

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B2C Market
Germagic products available for the Hong Kong consumer market were the 72-hour and 30-day spray
solutions, and four-hour hand sanitizer gel and air filter [see Exhibit 1]. After the COVID-19 outbreak,
GBT began to sell Germagic spray solutions in major Hong Kong chain stores in May 2020.1 During the
pandemic, the Li Ka Shing Foundation supported Germagic products as a local innovation by promoting
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its products in its affiliated major supermarket and pharmacy chain stores. 2 In April 2021, the same
supermarket chain store started to promote and carry Germagic’s four-hour hand sanitizer gel.
Around 35% of GBT’s revenue was from the B2C market, compared to 65% from its B2B market
(spraying services using Germagic products). GBT had placed less focus on the B2C market, as it was
costly to promote consumer products to become household names unless large sums were spent on
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advertising and promotion schemes. As a result, the exposure of Germagic products to consumers in Hong
Kong was relatively low, without massive promotion and lack of government certification. Nevertheless,
GBT had plans to increase the B2C revenue ratio to 50%.3

Germagic’s Manufacturing Process

GBT produced Germagic products in its plant located in the CIL Industries Building in Shatin, Hong
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Kong. GBT purchased raw materials for the Germagic products in the open market. The ingredients were
thyme essential oil, one or more types of polymers, and medical-grade purified water.4 The main active
ingredient was thymol, which was found in thyme essential oil. Thymol had disinfecting properties that
eliminated highly contagious viruses, including COVID-19. In addition, the plant used equipment that
turned local water into medical-grade purified water.
During the outbreak of COVID-19 in early 2020, most of the factories in mainland China suspended
their operations. These raw materials and packaging materials, especially plastic bottles and nozzles that
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1 Germagic website, https://www.germagic.com/en/retailer-address.php, accessed 15 April 2021.

2 Li Ka Shing Foundation, https://www.lksf.org/, accessed 15 April 2021.
3 Interview with Hamilton Hung at GBT Hong Kong on 18 March 2021.
4 Wikipedia, “Polymer,” https://en.wikipedia.org/wiki/Polymer, accessed 15 April 2021.
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were used to spray all sorts of disinfectants, were in short supply. With some delays and added costs, GBT
was able to source the plastic bottles with nozzles from Thailand and Hong Kong.

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In GBT’s manufacturing plant, after raw materials were received, they were blended into Germagic’s
unique formula. The mixture was processed by special equipment using MAP-1 technology before bottling.
This technological know-how was kept confidential to protect GBT’s intellectual property. GBT workers
closely monitored the production process and quality testing.

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As a final step, GBT delivered finished goods to its distributor’s warehouse, which was responsible for
delivering them to clients’ stores or warehouses, according to purchasing orders received. The total time
required from purchasing, manufacturing, to delivering to stores or warehouses normally required two to
three months. In exceptional cases, where delivery of raw materials was delayed, the same process would
require four to five months.

Control Charts for Monitoring Process Quality

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After a candid conversation with John, Daniel wasted no time to start researching what would be needed
to get things going. He realized that he should not try to tackle too many quality issues at the same time and
decided to focus on the filled volume, a particular process attribute of the Germagic hand sanitizer product.
This experience would help assess if the current production process met the quality expectations. Further
studies would be carried out next to select a few more process attributes to monitor and improve.
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Although Daniel had just completed an elective course in Quality and Process Management a semester
earlier, he realized that he would need to find out more about statistical process control (SPC), in addition
to all the class notes he compiled before. He learned that SPC would allow the users to monitor a process
to determine whether it was indeed stable, and to distinguish naturally random variations (known as
common cause variations) from those special variations (assignable variations) that should be identified
and eliminated.
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Daniel also recalled that a process was deemed to be stable and in control if the process exhibited only
common cause variations. On the other hand, a process would be considered out of control when it exhibited
assignable cause variations. When that happened, investigation would be needed, followed by corrective
action.
After the process was found to be stable and in control, Daniel could further investigate if the filling
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process was indeed capable of meeting the design specifications consistently. That could be done by
computing the process capability index (Cpk), which was a numerical measure to assess how well the process
could actually produce products that met the design specifications. When Cpk was 2 or higher, the process
was considered having six sigma quality or better (an exceptional quality achievement).
At that point in time, Daniel realized he had just come up with a rough development plan to answer all
the questions that John might have. To this end, there were four major tasks for him to complete: (1)
designing the control charts, (2) collecting the data, (3) ensuring the process was in statistical control and
stable, and eventually (4) computing the process capability index to determine how much improvement
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should be made in order to achieve the six sigma quality.

The most challenging part, Daniel thought, was to make sure he thoroughly understood all of these
concepts in order to communicate effectively to John and other fellow frontline workers who did not have
enough knowledge of SPC. Daniel was confident that by the time he completed all of these tasks and had
ST101 3
UST101 Germagic: Six Sigma Quality in the Making

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Permissions@hbsp.harvard.edu or 617.783.7860
 HKUST Business School Thompson Center for Business Case Studies

an initial assessment of GBT’s quality achievement, he would have a much more solid understanding of

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the concepts involved.

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Without any established control charts in place at GBT, Daniel would need to start from scratch to
collect data to construct the control charts. He had already received a prior approval from John to collect
whatever data he needed to get the job done. He wanted to focus first on monitoring the filled volume of
Germagic 4H Hand Sanitizer. With the workers’ assistance, he managed to collect 25 samples of five bottles

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each over the course of five working days, and they were measured and recorded [see Exhibit 2].
Daniel was fully aware of the type of data he received, and he could use it to develop the X-bar and R
charts to monitor the sample mean and sample variation, respectively. To develop and use X-bar and R
charts to monitor the filling process, the process mean and variability would be measured and recorded for
each sample of data collected from the production process. The most common measure of variability was
standard deviation, which measured the dispersion of data around the mean. Since the population mean and
standard deviation were unknown, sample data were taken and used to estimate the unknown population

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parameters, as a standard statistical practice.
Daniel remembered what he had learned in the Quality and Process Management class; range data
(maximum value minus minimum value for each sample) was a good approximation and could be used in
lieu of standard deviation to measure process variability. That explained why R chart (instead of standard
deviation S chart) had been a popular choice and became a common practice in industry for ease of
understanding and calculation for the workers.
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In addition, 3-sigma control charts were widely used as an industry standard tool for monitoring the
process mean and range, where the upper and lower control limits were determined by the mean value (i.e.,
the center line) plus and minus three standard deviations. The upper and lower control limits (UCL and
LCL) of a 3-sigma control chart for the process mean (X-bar chart) and range (R chart) could be determined
easily using a control chart specification table [see Exhibit 3].
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Daniel decided to construct an Excel worksheet to simplify the calculations, which was not difficult for
him at all.

Process Capability of Manufacturing Quality Products

While Daniel was excited about the initial findings of the control charts, he began to feel a bit
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overwhelmed about computing the process capability index (Cp for centered process mean or Cpk for off-
centered process mean), which could be used to assess the process capability of manufacturing quality
products. When Daniel reviewed his class notes on this subject, he found that the process capability index
could be computed using the following formula when the product specifications (upper and lower
specification limits, USL and LSL) were given and the process mean is the same as the target value of the
design specification:
Cp = Specification width / Process width
= (USL – LSL) / 6σ
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In practice, the process mean (from the actual output) was most likely different from the target value.
If that was the case, Daniel would need to calculate Cpk, which was the minimum of the process capability
indexes on both sides of the mean.

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 HKUST Business School Thompson Center for Business Case Studies

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Cpk = min[ Cpl, Cpu ]

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where Cpl = (mean - LSL) / 3σ and Cpu = (USL - mean) / 3σ
When Daniel looked at the formula for Cp again, he found he had marked a side note there before,
saying that 6σ was also the width of the process control limits. In other words, the formula for Cp could be
stated as:

Cp = (USL – LSL) / 6σ

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= (USL – LSL) / (UCL – LCL)
Staring at all these formulas, Daniel became confused about many concepts he thought he had learned
very well before. After a long sigh, Daniel wished he could understand better the difference between control
limits and specification limits. Why was the concept of 3-sigma control charts not the same as six sigma
quality? Why did six sigma quality require Cpk = 2? How could he explain them to others in simple terms

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about six sigma quality and its managerial implications? Until Daniel could figure out all these concepts,
he would not be able to move on to the next task.
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UST101 Germagic: Six Sigma Quality in the Making

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EXHIBIT 1: EXAMPLES OF GERMAGIC PRODUCTS FOR B2C MARKET

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Multi-Pro Disinfectant ProShield Disinfectant 4H Hand Sanitizer Air Disinfection Stick-

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Spray (72-hour Long- Deodorizer (30-day Long- (4-hour Non- On Filter (90-day
Lasting) Lasting Virus Prevention) Irritative Sustained Disinfection)
Sterilization)

Source: Germagic website, https://www.germagic.com/en/our-products.php, accessed 2 August 2021.

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UST101 Germagic: Six Sigma Quality in the Making

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EXHIBIT 2: SAMPLE DATA

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Observations
Sample 1 2 3 4 5
1 501 498 500 502 504
2 500 498 499 503 500
3 502 499 499 501 498

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4 504 503 500 501 497
5 500 501 503 498 498
6 500 500 502 501 505
7 499 499 500 501 501
8 502 496 495 496 504
9 500 495 501 498 501

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10 499 500 501 497 500
11 508 499 496 502 500
12 502 499 504 500 496
13 500 498 501 499 504
14 496 501 498 502 498
15 498 502 500 505 501
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16 503 500 501 500 497
17 499 498 502 501 502
18 503 501 503 502 497
19 500 503 498 504 502
20 499 503 501 498 497
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21 495 499 497 501 494

22 502 495 500 501 490
23 502 503 499 500 498
24 499 500 501 498 499
25 502 500 502 498 496
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Source: Compiled by the author.

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UST101 Germagic: Six Sigma Quality in the Making

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EXHIBIT 3: STATISTICAL TABLE FOR CONSTRUCTING X-BAR AND R CHARTS

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Factor for R Chart
Number of Observations in Subgroup Factor for x-bar Chart Lower Control Limit Upper Control Limit
n A2 D3 D4
2 1.88 0.00 3.27
3 1.02 0.00 2.57
4 0.73 0.00 2.28

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5 0.58 0.00 2.11
6 0.48 0.00 2.00
7 0.42 0.08 1.92
8 0.37 0.14 1.86
9 0.34 0.18 1.82
10 0.31 0.22 1.78
11 0.29 0.26 1.74

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12 0.27 0.28 1.72
13 0.25 0.31 1.69
14 0.24 0.33 1.67
15 0.22 0.35 1.65
16 0.21 0.36 1.64
17 0.20 0.38 1.62
18 0.19 0.39 1.61
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19 0.19 0.40 1.60
20 0.18 0.41 1.59
X and R charts problems:

Control limits for mean: Control limits for

UCL  X  A2 R UCL  D4 R
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LCL  D3 R
LCL  X  A2 R

harts problems:

ontrol limits for mean: Control limits for range:

UCL  X  A2 R UCL  D4 R
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LCL  D3 R
LCL  X  A2 R

Source: Compiled by the author.

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ST101 8
UST101 Germagic: Six Sigma Quality in the Making

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