Under the Six Sigma process 99.99966 percent of the output is expected to defect free or 3.4 defects are tolerated per million opportunities.
"But here is a situation where even zero defects are not tolerated," he told senior business executives at Sri Lanka's LBR-LBO CEO forum in Colombo.
"Just 1 ppm. At the impact the airbag must come out. It cannot fail."
Pallewatte said when he started the firm he was told that with the existing work ethic in the country it would be difficult to achieve such a high level of quality.
"Fear of being laughed at, rejected, kept people from breaking new ground," he said. "If you have the guts and the nerve to defy these and forge ahead that is the first attribute.
The firm now has a turnover of 39 million US dollars and exports precision sensors to top automobile makers ranging from Toyota and Honda to BMW and Volvo.
Soon after sitting for the ordinary level exams at St Anthony's College in Kandy he got a American Field Service (AFS) scholarship where he chose Japan, instead of the US, or UK because he was fond of martial arts and wanted to learn a new language.
On a field visit to Japanese factories which were highly automated with hardly any human workers, he saw one glass enclosed room at Toyota with about 400 people.
His guide at Toyota told him that they were working with airbag impact sensors and that process could not be automated, and each person were paid over 2000 US dollars.
When asked whether he could make it in Sri Lanka and export it, his guide had told him that it was too critical a component to be outsourced outside Japan. But he asked for some samples and was given three.
After one year he had come back to Sri Lanka well versed in Japanese.
After his Advanced Level exam where offered Sinhala, logic, political science and economics he had returned to Japan and worked as a translator at Japan's broadcaster as a translator, and in the evening he was playing music at a hotel, which was his hobby.
He was told by his father that he had failed his advanced level exam because he had failed Sinhalese.
"I was a sad man. I came to Sri Lanka with a heavy heart," Pallewatte recalled. "Here I did a strategic change, though at the time I did not know what strategic was."
Instead of offering Sinhala again he had switched to Japanese. When he went through the past papers in Sri Lanka, he was surprised to find that it was similar to grade 1 papers in Japan.
"The three hour paper I managed to finish in 45 minutes, it was so elementary," he told an appreciative audience.
"When I walked up to the lady supervisor and gave the answer script she told me "Oka thamai lamaya bari deval karannar epa kiyanne (Child, this is why you should not attempt to do things that cannot be done)."
Though he was selected to Kelaniya University it was closed and he tried the law college, where he was told that 'singing, dancing' subjects were not allowed, despite his insistence that Japanese was neither 'singing' nor 'dancing'.
But he appealed and Japanese were among the expanded range of subjects listed later and he said he was able to become a lawyer "accidentally".
When the Universities started he wanted to specialize in English but he was told he was not allowed, because he did not offer English at his A/Ls.
But following a meeting of the English professor he was asked to appeal to the University Senate and was allowed to follow the course on the condition that he passed English through another exam.
While he was following the law college exams, he came upon the components brought from Japan.
He then dis-assembled one component, documented them carefully and rebuilt 10 samples using parts brought to him by friends from Singapore, despite having no formal training in electronics.
These samples he sent to the person who had guided him around the Toyota factory in Japan.
After one year, following no response Pallewatte had called him. He was told that the factory will not ever outsource the manufacture of the part.
After about six months he started sending samples again. After another year, he had contacted the man again and was told that the when they see the senders address his parcel was thrown in the dust bin.
"You do not understand how business is done in Japan. Actually we assemble cars at the factory," he told me. "If you actually want to pursue this you should be talking to parts manufacturers."
Asked for some contacts at parts makers and the man was "kind enough" to send him contacts for 10 suppliers, Pallewatte said.
He then started bombarding the 10 suppliers with samples, with no response again. After about one and a half day, when he came home from his lectures, there was a long fax.
The fax contained a defect analysis report which said only two of his samples worked and eight were defective.
"I was very happy because after so many years somebody had looked at my samples," he recalled. He had then made 10 more samples taking care correcting the errors."
Another defect analysis report came saying only two were defective.
Then the company had phoned him asking offering to send parts to make 100 sensors. Which then increased to 1,000. Then the Japanese firm asked for 10,000 units.
Pallewatte could not produce such a large order at home.
Scared to Hire
But Sri Lanka's tough labour regulations made him too scared to hire people and give them jobs, in case the orders did not continue.
"By this time I had studied industrial law and I knew that if I start my own operations and if I lose my orders have to close my factory tomorrow the compensation that I would have to pay," he said.
"I did not want to take that risk."
Classical economists have explained that tight labour laws and minimum wages, which were devised in Europe, were among the reason for unemployment in the continent.
He had found an export electronics component maker headed by one Siri Samarakkody, who he said he was a 'thorough gentlemen" and had helped him fill the order.
It eventually went up to 300,000 units.
A Tamil Tiger attack on Sri Lanka's international airport had almost broken the relationship. But the 9/11 attacks in the US had made all countries risky and the relationship was preserved.
By this time he was a frequent visitor to Japan. He then persuaded Yoshiaki Ito, head of the Japanese company join him in setting up a factory in Sri Lanka.
Ito had later told Pallewatte that he had instructed a defect analysis report to be sent to him because he felt sorry for him.
He had faced further obstacles when the firm was asked to supply to an Indian based Japanese factory where there were complaints that his products were defective.
He was surprised by this and decided to investigate.
He had found that after his consignment was landed in India a person had been sent to pour water over his products so that they will be defective.
Pallewatte said he operates on a 'trust culture.' Employees were encouraged to come out with errors or problems.
If they are penalized for mistakes, they will not be forthcoming, he said.
The factory has no supervisors and at each stage of production the worker is responsible for making sure that he gets a defect free part. However there is also a final quality check.He said his knowledge of the Japanese language and culture also helped him break into the automotive supply chain there.
"Your personal relationship to the Japanese people, especially the decision makers who will make decision," he said.
"It is very vital to have a personal contact. You might have to go there and play golf and go fishing with them."