Six Sigma

Now more and more people talk about Six Sigma and more and more companies use Six Sigma . What is Six Sigma ?
Definition: Six Sigma is a business process that allows companies to achieve drastic financial improvements by “designing and monitoring everyday business activities in ways that minimize waste and resources while increasing customer satisfaction”. Traditionally, quality control programs have focused on detecting and correcting manufacturing and design defects. However, the Six Sigma methodology focuses on techniques that prevent defects and errors from occurring at any stage of the process.
Statistically speaking, the phrase “six sigma” means six standard deviations. For a process to be six sigma it must have six standard deviations between the mean and the nearest specification limit. This allows only 3.4 defects per million opportunities (DPMO). A process’s sigma value is raised by lowering the variation around the mean. When a process reaches the level of six sigma, it is often said to have zero variation and therefore ‘zero defects.’

Information for inventory: mitigating the Bull Whip

In another of our supply chain classes we have discussed the tradeoff between information and inventory within a company. This basic tradeoff is that the more information a company has on actual demand the less inventory they need to carry. This information can be gained through collaboration within the supply chain. By sharing information between companies within the supply chain companies can better predict demand and therefore cut down on the need for extra safety stock. This safety stock is a symptom of a common supply chain phenomenon known as the bull whip effect. Basically as orders go up the supply chain companies don't want to be the one that runs out of inventory so they add an extra certain percentage to their order. This extra percentage causes more and more inflated demand as the order moves up through the chain. By sharing information through an ERP system or an JIT 2 methodology companies can better meet demand and help mitigate the risks of the Bull Whip effect.

Minimizing Expected Cost != Maximizing Expected Profit

I was thinking about when Minimizing Expected Cost would not be equal to Maximizing Expected Profit. The first thing that came to mind was a situation where there is a bonus given if a certain amount of product is sold.
Using the Newsboy Model the situation would be as follows:
If the Newsboy sells a certain amount of papers, the newspaper gives him a $20 bonus.
This bonus could be incorporated into the Revenue equation and would effect Expected Profit, but there is no added cost incurred for receiving the extra revenue (since it is based on papers sold and not papers bought), so it does not effect Expected Cost.

That is the only situation I could think of where Minimizing Expected Cost is not equal to Maximizing Expected Profit.

The magic of ERP

When we first talk about inventory management in the prelude, we mention about EDI, ECR and VMI. But we seem to forget one of the most quoted and most freuqently used by companies, that is, ERP system.
Enterprise Resource Planning or ERP means integrating data and running the enterprise's different departments' applications under one system. When a company decides to have their separate departments do this, they are actually eliminating the old applications and placing a new one that will run not just one department but all that's included in the ERP system.
ERP is all exclusive and it covers the whole enterprise. All the departments can be a part of the whole ERP system if the company chooses to. ERP can include the manufacturing, warehousing, logistics, information technology, accounting, human resources, marketing and strategic management. However, the company can choose to include only some of its functions in its ERP too.
Implementing ERP can be quite complicated and it can also be expensive, but it has its advantages. For one thing, it could spell a standardized data among the different departments. They would have easier communication of data so the operations of each department is made easier and made more effective. For instance, if manufacturing and warehousing are in an ERP system then manufacturing can warn warehousing when they will need more space for the seasonal increase in production. Orders can also be taken care of much easily from order acceptance to delivery this way.
When implemented correctly, the company will benefit from the smoother operations in the company. Communication is the key and ERP provides precisely this. They will also be able to operate cost effectively. In effect, the whole enterprise will be more efficient and they will be more productive because the ERP system.

Inventory Articles/ RFID

Here is a database of articles that I found on the internet which talks about many of the topics we have covered so far in class.
http://www.effectiveinventory.com/articles.html
I thought people might find this interesting but this is not the main topic of this blog.
The topic I wanted to talk about is RFID, after reading about the new advancement in RFID my interest became piqued. Why has RFID still not caught on? It was supposed to be the next great thing in inventory management but appears to have been stalled by high costs. As recently as a couple of years ago it was thought that Wal-Mart was going to require all of their suppliers to use RFID tags on all of their goods. Thinking about this topic I decided to look back at the main advantages vs. disadvantages of RFID. I was able to find a good blog/article that listed these at: http://www.inventoryops.com/RFIDupdate.htm . I will not bore you in this blog with the specifics, but as talked about below the situation boils down to cost. For anyone who is interested this link does a good job of updating you on the RFID situation. Also if you have any thoughts or feelings about RFID please comment.

New Advancements in RFIDs

The company Kovio, Inc. has recently announced a breakthrough in RFID technology. Their process uses ink-jet technology with silicon ink to "print" integrated circuits. They claim that their process can create RFIDs at a cost per item between $0.05 and $0.10. This price range is about $0.15 cheaper than the cheapest alternative.

Source: www.EETimes.com

RFIDs are used extensively in Inventory Management. The small circuits emit a specific frequency in the presence of an EM field. This frequency is then tied to an SKU number in a database for identification. Inventory tracking errors are almost completely eliminated with this system. RFIDs are usually only used in large quantities of items or on items with a large per unit price. If the price of RFIDs becomes low enough to tag every unit, then the reduction in tracking errors that have been seen in warehouses can be applied at an even more granular level and improve the tracking efficiencies of retail stores.

Questions for preparing test 1?

Anybody can give a hand?

1,Lecture note 3: page 60
100b=(b+h)% , which means 9999*b=h
Then in your example: b=9*h, which contradicts what is given above
9999*b=h.
Where does it come from? Experience?

2. Lecture note 3: page 107
Combine orders from different items into a single shipment.
Does it affect the total cost? TC=c*D+K*D/Q+h*Q/2

3. Lecture note 3: page 115
3*100=300>
Where does 3 come from? Did you approximate it from integer number of 150/60?
I think it should be x=150*100/6=250.