Is Tylenol really lethal?

By Andrew Mickey, BreakAway Investor

The FDA announced today that it found 200 acetaminophen caplets containing metal out of the 70 million it examined. I punched the numbers and figured out this is 2.86 parts per million (ppm). In the grand scheme of things that’s not too bad. Let me explain first.

Do you remember total quality management? Well, if you ever worked for a company with more than 5,000 employees, you probably got a load of it firsthand.

Independent working environment, slashing the bureaucracy, and allowing employees solve their own problems without management’s assistance were all one of the key tenants of TQM. In fact, TQM called it all empowerment .

But TQM originally began to be popularized in 1950’s and the Japanese took it to a new level in the 80’s. But TQM is old hat. In it’s heyday, you would probably even find TQM management departments to ensure employees were empowered. But the establishment of an office to monitor the program was totally anathema to the nature of the system.

Big corporations needed something new. So they moved onto the newest management philosophy focused on process management known as Six Sigma. The goal of Six Sigma is to improve the quality of products a company makes.

The system’s ultimate goal is to get the defects per million down to less than 3.4. Achieving this level of quality reduces returns, speeds up production, and contributes significantly to the bottom line. General Electric and Motorola have made Six Sigma famous, but they rarely actually achieve that magic 3.4 defects per million.

The system is called Six Sigma because its goal is to achieve quality that is six standard deviations away from the mean. If you remember Statistics class, six standard deviations away from the mean is pretty far. In fact, out of 10 million bits of random data place on a bell curve, there would only be two that are six or more standard deviations away from the mean.

That’s about as good odds as winning the lottery in many states. So, you see that’s just a goal. And when you’re making jet engines, locomotives, or ever-shrinking cell phones, that level of quality is all but impossible, but it’s a nice goal to have.

So I don’t really fault the fine people at Tylenol and other acetaminophen manufacturers for this type of performance. As far as I’m concerned, when it comes to trading stocks, two out of three isn’t bad. And when it comes to Tylenol, 200 out of 70 million isn’t bad either.

Consumer goods and retail stocks will have enough trouble as it is with the return of the Democrat majority to the House of Representatives.