Wednesday, September 18, 2013

Lean Six Sigma to solve inventory problems

Last week we learned that inventory management is undertaken with two things in mind:
-Customer service
-Cost of inventories

In other words, the goal of inventory management is to provide the highest customer service at the lowest cost.

To achieve this goal, managers should make the right decision when deciding How much to order? and When to order?. It is known that the more information you have, the better decision you can make. However, it is not enough to have information, but the information has to be analyzed properly so that such information can be used to improve processes. For example, inventory problems are often underestimated and managers do not attack the real causes of the problem, they only focus on the effects of the problems.

To ensure information provides value to the decision making process, there are some methodologies aimed at improving processes. In particular, the methodology Six Sigma uses the DMAIC approach (Define, Measure, Analyze, Improve, Control) which can be applied to achieve an improvement in inventory processes.

As we could read in the article "How to compare Six Sigma, Lean and the Theory of Constraints" in the "Define" stage we need to identify who the customers are along with the characteristics and related processes that are important to them. At the same time, we have to identify what problems affect the customers. The next step, "Measure", comprises measuring the processes  and collecting data. After that, during the "Analyze" stage, data collected is analyzed in order to get information and to produce knowledge, in order words, in this step we should be able to know what are the real causes (roots) of the problems. The fourth step is to "Improve" the processes based on the solutions devised after the analysis. Changes needed are implemented. In the final stage, "Control", an evaluation is performed to determine if the process is producing the desired output, if so, the process is put under control to make sure it will continue working properly.
The article I chose for this week talks about how the methodologies can be used to identify and solve the real causes of two of the most common inventory problems: excess inventory and obsolete inventory , enabling companies to improve their overall performance.

Some the questions that come to my mind after reading this article, and considering the differences and coincidences between each methodology are:

Can companies get better results if they apply different methodologies to improve each stage of their supply chain? In other words, is it feasible to implement Six Sigma for inventories and Theory of Constraints for Procurement within the same company?

Article reference:

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