Inventory Management using AI-powered IoT Devices

Inventory is the stock of a resource used by an organization. There are mainly three categories of inventories: Raw materials, Work in process, and Finished goods. Planning and controlling inventories is crucial for organizations because they represent a commitment to monetary resources. Inventory management is the most debated topic in manufacturing. Why is inventory tracking important? Inventory management is a critical component of the supply chain and is responsible for overall corporate profitability and performance. Failure to balance incoming and outgoing inventory can severely destabilize a productive firm.

This balancing act can be difficult; on the one hand, you need to have an adequate supply of products, especially during peak seasons; on the other hand, you should avoid being overstocked. Keeping track of your company’s assets and understanding their status allows you to avoid unanticipated downtime and expenses. Product supervision from the factory to the warehouse and stores is essential to inventory management. Keeping track of numbers and availability dramatically improves work efficiency. Traditional Inventory management systems have issues such as the absence of real-time inventory data, decentralized control, and imprecise projection of demand and supply. 

IoT is one of the most dynamic and fascinating information and communications technology innovations. The Internet of Things is a massive network in which various physical items equipped with sensors, processing power, software, and other technologies are connected to the Internet or other communication networks. The sensors continuously communicate data about the devices’ operational state across the web. IoT enables devices to exchange real-time data without requiring human intervention.

Many firms are rapidly employing IoT devices to increase supply chain visibility. Sensors in IoT devices detect and report on various critical environmental parameters such as temperature, location, light, and humidity. They may also support businesses in assuring quality control throughout their supply chains. IoT technology may also improve visibility in production, inventory management, and predictive maintenance in warehouses and retail establishments.

IoT devices can help reduce human labor and errors while enhancing processing speeds and warehouse efficiency. Companies are installing IoT sensors in their warehouses to track the movement and consumption of goods and other assets. Businesses are also using shelf sensors to provide real-time inventory data to their management system. By ensuring that inventory levels and equipment placements are easily identified and constantly monitored, IoT and smart warehouse management are contributing to the avoidance of costly and time-consuming errors.

Now the question arises of how IoT can be implemented for efficient inventory management. All items tracked in an inventory management system that employs IoT and RFID technology are equipped with an RFID tag. Each tag has a unique identification number (UID) that contains encoded digital data about an inventory item, such as a model number, batch number, and so on. RFID readers are used to scanning these tags. When an RFID tag is scanned, a reader sends this information to the cloud for processing. The cloud also sends information about the reader’s position and the moment the data was recorded. Based on this information, the cloud determines the object’s location with the matching ID, provides a visual representation of the findings, and shows real-time updates.

The Internet of Things has been shown to increase real-time communication in logistics and inventory management. Sensors and gadgets attached to various inventory-related products aid in touch by monitoring data in real-time. IoT allows you to locate the location of every item in your inventory. We can trace its exact position, delivery status, transit status, projected arrival time, etc. The less human intervention required, the better for an inventory management system. The presence of each item in the inventory can be ensured through automatic data gathering of inventory items.

Warehouse management is focused on maximizing the efficient use of that area. The available space in a warehouse can be better allocated once the utilization pattern is established. More frequently used items might be kept closer to the access points to improve warehouse efficiency. Artificial intelligence has allowed us to create clever algorithms that can help us track and manage inventory far better than an ordinary humans. AI technologies will aid in discovering trends that humans cannot see by carefully analyzing IoT data. This procedure will undoubtedly improve inventory management decision-making.

Monitoring solutions offered by IoT that use GPS coordinates to capture data about fleet or equipment transit status aid in improved fleet management and usage, limiting unlawful access and optimizing the entire process. Inventory management based on IoT is crucial in estimating the lead times required to assemble all the parts necessary for manufacturing. High lead times are detected to reduce stumbling blocks produced by the absence of a critical role, which causes manufacturing process stoppages.

Most businesses might benefit from implementing IoT for inventory management. However, various problems must be addressed before IoT’s full-fledged inventory management adoption, such as investment costs, security, scalability, and standards that allow devices to interact. Despite these challenges, the investment cost of IoT technology has been decreasing. Many firms recognize the significant financial benefits of IoT-based inventory management and thus implement IoT for effective inventory management.

Regardless of issues with IoT adoption, IoT Inventory Management continues to improve and offers opportunities for advancement. It is increasingly becoming an efficient and cost-effective technique in supply chain management. This technology has numerous benefits, and several readily available industrial solutions may assist firms in remaining competitive. So in this era of Information technology, It’s time to capitalize on this and handle your inventory management issues.

Knowledge Economy and Business Strategy

The briskly developing world economy is transforming into one that relies more on intellectual capital and skills and less on the manufacturing process. The rapid spread of knowledge and the growing reliance on computerisation, big data analytics, and automation drive this colossal change in the business landscape as the need for updating management strategies grows.

Peter Drucker, a management consultant, developed the concept of a “knowledge economy” in the 1960s. Drucker coined the term to characterise the transition from economies based on manual labour and primary production to those that are knowledge-based and require higher levels of education and training. The knowledge-economy is a structure of production and consumption of knowledge-intensive operations, such as data gathering, analysis, and synthesis.

The rapid pace of this transformation can be attributed to the widespread adoption of ICT, Big Data, and automated processes across industrialised economies. Greater numbers of highly educated workers requiring specialised knowledge or expertise are a hallmark of knowledge-based economies.

Human expertise is the business product or productive asset in a knowledge-based economy which can be traded for profit and these intangible knowledge-based assets are called intellectual capital. The innovation, research, and rapid technological advancement that underpin a knowledge economy allow it to function largely independently. There is a high level of computer literacy among workers, and efforts are being made to advance AI and algorithmic developments that will allow for more precise financial and business forecasting.

Michael Porter, a professor at Harvard Business School, argues that for a business to gain competitive advantage in today’s knowledge-based economy, businesses must be responsive, adaptable, and innovative. Furthermore, it needs to invest a considerable percentage of its resources toward research and development.

Early on, many manufacturers noticed issues in their supply chains, but they needed more understanding and insights to implement effective solutions. While there are other contributing factors, it became clear that a lack of ownership was often at the heart of businesses’ inability to achieve operational goals. No one at the company was in charge of the logistics of supply. Now, if you work for a company that relies heavily on its employees’ knowledge, ask yourself: Who within your company is in charge of creating company-wide knowledge? This is where the Knowledge Supply Chain comes into the picture.

Knowledge Supply Chain

Typically, the physical “tangible aspects such as the raw materials, trucks, and storage facilities associated with supply chains are the first things that come to mind when the term is mentioned. However, supply chains encompass more than just the transformation of raw materials and the distribution of finished goods; they also include the “knowledge supply chain.”

“Knowledge workers” are those whose jobs require them to “plan, acquire, search, analyse, organise, store, programme, distribute, market, or otherwise contribute to the conversion and trade of information.” Those in the knowledge economy are those who put their own and others’ expertise to good use.

The information and knowledge management roles are filled by individuals who, in most cases, need more authority to coordinate the many, often competing, activities that take place across the many, often autonomous, groups that make up an organisation. If the manufacturing industry is any indication, the worst case scenario is when you have multiple independent groups reporting directly to the CEO, who is not the right person to run your knowledge supply chain. One more thing to take away is the importance of working together on a project. Companies with efficient supply chains often employ cross-departmental teams.

The Knowledge Economy in Force – A few live cases

The influence of the knowledge economy is visible in virtually every sector of the economy that you think of. Automation and “just-in-time” inventory management systems and the crusade toward developing driverless cars are all examples of how the knowledge economy is impelling traditional manufacturing sectors like the automotive industry to transform.

The healthcare sector is an important contributor as well as a major primary beneficiary of the knowledge economy. The growth of telemedicine services, widespread use of 3D and robotic surgical aids, and accelerated research and development of new medicines result from the information economy.

An excellent illustration of the knowledge economy is the ICT (information and communications technology) sector, which is concerned with the convergence of communications services and IT, as well as the development of an information infrastructure. Connecting data storage facilities like computer servers with the means of transmission, like cell phones, is a primary goal of the ICT industry to maximise the usefulness of the information.

Since the turn of the century, companies have raised their IT spending by more than 50%, a figure that reflects the technology’s centrality to the success of modern enterprises. Companies working on developing cutting-edge technologies like AI and robotics are currently experiencing the fastest expansion rates in the IT/ICT sector.

Challenges of the Transformation into a Knowledge Economy

The process of shifting from an industrial to a knowledge-based economy gives rise to numerous challenges. Many workers lack the knowledge and abilities to do their jobs effectively in today’s knowledge-based economy.

Companies can help employees adapt to the transformation by providing them with more opportunities for on-the-job training and offering financial assistance to pursue additional education and training outside of work.

What does it mean for Businesses?

• If you feel that, in your organisation, information management (and implicitly knowledge management) is treated as a cost centre rather than a profit centre then the concept of KSC may help you position information management as a source of strategic advantage rather than a necessary nuisance.
• The innovation of R&D-heavy companies is increasingly dependent on their ability to cultivate a wide range of external relationships to foster innovation. Organising complete business processes throughout a value chain of multiple companies is a crucial benefit of thinking about these networks in terms of a supply chain.
• The focus can easily be diverted from the careful thinking and design of a solution to the business problem and technology when managers, whether in IT or any other department, place too much emphasis on the technology itself (such as this deep learning technology or that blockchain technology, or whatever the hype du jour happens to be).
• While data and the quality of data are crucial to success in the knowledge era, other factors such as cultural shifts, business process changes, and operational adjustments must also be carefully considered and accounted for in the overall ROI evaluation.

References

1. Knowledge Economy. (n.d.). Retrieved December 10, 2022, from https://corporatefinanceinstitute.com/resources/economics/knowledge-economy/
2. The Concept and Importance of Knowledge Supply Chains. (2019, August 21). Retrieved December 10, 2022, from https://www.copyright.com/blog/the-concept-and-importance-of-knowledge-supply-chains/
3. Cuofano, G. (2022, January 2). What Is The Knowledge Economy? The Knowledge Economy In A Nutshell – FourWeekMBA. Retrieved December 11, 2022, from https://fourweekmba.com/knowledge-economy/

Quantum Computing in Logistics and Supply Chain Management

IBM has always been a leader in technology and recently with the introduction of its 433 qubit quantum computer Osprey has achieved a big milestone in the race. It packs three times more qubit than the previous version named Eagle. Their current roadmap involves achieving a 4000 qubit quantum system by 2025. Before reaching this milestone they have 2 more quantum systems in the pipeline 1212 qubit Condor and 1386 qubit flamingo in 2023 and 2024 respectively.

Understanding the processing power of QC

There are a lot of open problems in the management which require a lot of computation power. These problems range from forecasting to finding the optimal solution to the last-mile problem. Quantum computing exponentially raises the speed of computing. If we consider the current quantum computer its processing speed is way faster than the current supercomputer. Leaving aside the theoretical power of Quantum technologies, even the current practical problems can be solved using the processing power of quantum computers. Due to the presence of the probabilistic nature of an electron, we can generate a string of random bits which can be used for solving the pressing problem of security. Many cryptographic algorithms are vulnerable to various statistical attacks that quantum technology can provide. This provides a lot of applications in the field of management. 

Let us first understand the concept of qubit

Imagine tossing a coin and assigning heads as 0 and tails as 1. An attacker can rig the coin to his advantage. Similar other ways to generate the classical bits can also be manipulated or interrupted. Now imagine an election passing through a sheet, there are two possible outcomes: either it will reflect or pass through the sheet. We can assign the respective phenomenon as 0 and 1. The bigger question is can we manipulate the process at any stage? The answer is a big No, even if we capture the electron midway it will collapse. This phenomenon makes sure that there is a 50% chance that we get either 0 or 1. The core of security lies in the probabilistic nature of qubit states which does not exist in classical cases. 

Quantum Computers can handle complex data for decision-making models compared to their classical counterparts. The ability to work with different types of data types helps in optimizing Inventory management and logistics in the supply chain. Problems such as Newsvendor problem/Last mile delivery is difficult with conventional computers. Because of the entanglement property of electrons, we can exponentially increase the speed of computation. Because of something called the No Cloning Theorem, a qubit cannot be copied and data cannot be retrieved unlike in classical settings. Integrating it with IoT can simulate the process and can be used for the maintenance of the machine. If you can find a highly efficient route in record time, quantum computers can perform multiple models simultaneously with processing speed a million times faster than the classical computers which makes it suitable for optimizing a classical scenario. 

Currently, It is not very feasible to implement QC in the supply chain industry due to high prices and impracticality. The error rate in QC is also high compared to classical computers due to the perturbation of electrons. Researchers all around the world are trying hard to restrict these errors. With Applications of QC, we can achieve great success with respect to the supply chain industry. Alongside AI & IoT, QC is one of the many digital tools that manufacturers can use to optimize and streamline their processes. 

This is becoming increasingly important as the trend of personalization of consumer goods continues and orders become more complex. With a processing speed up to 100 million times faster than traditional computers, quantum computers can perform multiple models simultaneously, making this technology particularly suitable for optimizing the classic scenario if you find a highly efficient route in record time.

References:

1. https://www.allerin.com/pilates/blog/understanding-the-scope-of-quantum-computing-in-improving-supply-chain-management
2. https://www.ibm.com/thought-leadership/institute-business-value/report/quantum-logistics

JUST-IN-TIME INVENTORY

                                     

JIT is a type of inventory management that calls for close coordination with suppliers to ensure that raw materials arrive at the exact time when manufacturing is supposed to start, but no earlier. It aims to have the minimum amount of inventory on hand to meet demand.

How does JIT work ?
JIT inventory management guarantees that stock will arrive at the exact time it is required for manufacturing or to satisfy consumer demand, but not earlier. The objective is to reduce waste and improve the effectiveness of your business operations. Since quality rather than the cheapest price is frequently the primary goal, JIT necessitates long-term agreements with dependable suppliers.

JIT is an example of a lean management technique. All components of any manufacturing or service system, including humans, are connected in JIT. They share information and depend on one another to produce effective results. The name Kaizen, which means “transformation for the better” in Japanese, is where this technique got its start. The business strategy has its roots in Japan and aims to continuously enhance operations while including every employee, from CEO to assembly line workers.

KANBAN – A critical element for the JIT Inventory System
The “nervous system” of lean JIT production, kanban regulates inventory movement and work-in-progress production. When it comes to reducing manufacturing waste brought on by overproduction, kanban is essential. 

Push inventory tactics are used in more conventional mass production techniques and are based on the anticipated quantity of sales. The pull approach used by Kanban allows for greater production floor flexibility because a business can only generate items in response to genuine customer requests. On a factory floor, Kanban uses cards—either paper or digital—to monitor the status of output. Kanban cards track the flow of inventory through the manufacturing process and can indicate when it’s time to place an order for additional stock.

Benefits of JIT
Just-in-time results in reduced scrap ,better quality products ,reduced cycle and setup times, higher productivity, higher workforce participation, etc. In addition to these benefits, JIT also improves relationships with suppliers.
It is clear that implementing a JIT system is a task that cannot be undertaken lightly. It will be expensive in terms of management time and effort, both in terms of the initial implementation and in terms of the continuing effort required to run the system over time.

Let us look more into the supplier side benefits of JIT.
Supplier gets a long-term guaranteed contract, steady demand and a good price. In return to these suppliers agrees to quality components (e.g. zero defects), guaranteed delivery times,
a “partnership” with its customer, contingency plans to cope with disruptions, common disruptions might be: the effect of bad weather, a truck drivers strike blocking roads/ports, a flu outbreak reducing the supplier’s workforce.

Criteria for supplier’s selection :
1) Good industrial relations (“involvement”, “value”, “dignity”, “ownership”), no strike deals
2) Close to production plant (else potential transportation delays)
3) You believe that the supplier can met their promises with respect to the list of factors given above that they are agreeing to.

You can decrease the total number of suppliers if they meet these requirements; in fact, it makes sense to do so. Why do you need five suppliers if five already meet all of these requirements? Obviously, for safety concerns, you can elect to have more than one supplier. A factory fire or an earthquake can affect even the best-run suppliers, but probably no more than two or three providers. Cost-wise, having a single supplier may be appealing, but one must weigh the danger versus the savings.

Some successful companies practicing Just-in-Time systems

Apple

Technology giant Apple has also used JIT concepts to improve the efficiency of its production process. The unique aspect of Apple’s JIT strategy is how they work with their suppliers to meet their objectives. With only one main warehouse in the

US and 150 major suppliers worldwide, Apple has built solid, strategic connections with its suppliers. This production outsourcing made Apple leaner, cut expenses, and decreased overstock as a result. The majority of their inventory is at their retail stores because they have just one central warehouse in the US. Apple started utilizing drop shipping, further adding to the JIT mix. This lowers the price of storage, shipping, and wastage.


Factors attributing Apple’s success
1) Apple is relieved of this obligation because to suppliers’ willingness to maintain stock on hand.

2) Keeping stock in their retail locations

3) Procedures for drop shipping internet purchases

McDonald’s

JIT inventory is used by fast-food businesses like McDonald’s to provide daily service to their consumers. These fast food restaurants typically have everything they need on hand, but they may wait until after the order has been received to assemble and prepare their hamburgers and sundaes, for example (except for a few finished products at peak times). This harmonizes the procedure so that customers always receive orders with the same consistent experience.


Factors attributing McDonald’s success
1) Standardized procedures ensuring consistency

2) JIT method increases customers satisfaction as items are made more freshly


JIT helps business owners save money and reduce wastage, while still providing their customers with the products they want and need in a timely manner. As excess inventory is vastly decreased by ordering inventory stock on a “just when you need” basis, business owners will not need to keep large quantities of inventory stock parts reducing all the costs associated with this.

The Newsvendor Model

With the onset of the digital era, the print media has become obsolete and using digital devices to stay updated has become prevalent. But have you ever wondered how a newspaper vendor accurately decides how many newspapers to carry to sell just the right number?

A key idea in supply chain and inventory management is the newsvendor model. Simple is the idea. Consider a street hawker peddling newspapers. They only have one opportunity each morning to purchase numerous newspapers from the printer. Given that unsold copies of today’s newspaper become worthless, how many copies should the vendor keep on hand?

All things considered, the newspaper vendor’s conundrum is simple to resolve, but the approach employed to do so can be utilised to resolve a variety of other, more challenging issues. Let’s go over the fundamentals of the newsvendor model today, talk about how to develop a more complex model, point out instances where it excels, and mention a few typical drawbacks.

Let’s say the vendor sells papers for $2.50 after purchasing them in bulk for $0.50 apiece. Every paper sold brings in a profit of $2.00, while at the end of the day, unsold papers are thrown away at a loss of $0.50. Since it hurts more to turn away a customer than to toss out a paper, it makes sense that the merchant would prefer to have some extra papers. We’ll need to have some idea of anticipated demand in order to determine just how many more are needed.

We need to evaluate some expenses while taking demand into account in order to get the profit-maximizing point. The Critical Fractile (C.F.), which is determined as follows:

C.F. = CU ÷ (CU + CO) = $2.00 ÷ ($2.00 + $0.50) = 0.8, or 80%

Where CU is the cost of Underage and CO is the cost of Overage.

The Cost of Underage, or CU, is the opportunity cost of rejecting a customer. In this case, the $2.00 profit margin represents the expense of being underage.

The Cost of Overage, CO, is the expense incurred when a newspaper is not sold. For the vendor, it is the price they paid per newspaper, $0.50 in this case.

We need to take into consideration additional variables in the actual world since newsvendor issues are more complex. Utilizing more sophisticated overage and underage fees is the first step.

Overage costs are typically simpler to calculate. The following are some typical additions:

Salvage Value: Is there any value you can reclaim? Metal components and perishable food waste can both be sold to scrap yards for recycling.

Opportunity Cost of Capital: What else might you do with the money than buying inventory? Maybe your company has other ideas it wishes to work on. At worst, you may invest in US treasury notes and get some income without taking any risks.

Less terms are added to the cost of underage, but they might be difficult to understand:

The price paid in damaged goodwill for refusing a customer by a business. The client can become angry or dissatisfied and reconsider making an order the following time. You may consider this a decrease in the customer’s lifetime value.

Expedite Fees – On sometimes, stock-outs are just unacceptable, and you may be required to pay a supplier expedite fees to address a looming shortfall.

Increased Costs from Flexible Suppliers – Some businesses employ a dual supplier approach, with a first choice with a lengthy lead time and cheap cost and a secondary alternative with a short lead time and high cost. The underage cost might be adjusted to account for this cost differential.

The demand distribution is the model’s additional element. Demand was expected to be normally distributed in our scenario, which is a critical assumption. We should be prepared to support our use of the normal distribution with facts. The typical distribution is frequently incorrect for slow-moving items because sales can never fall below zero (consider the gamma distribution instead). Alternatively, construct the issue so that you can apply the normal distribution by using the central limit theorem.

The newsvendor model can assist in the resolution of a wide range of issues with a little imagination. It is possible to take into account tier pricing, different levels of security, discounts, and many other factors. It really is an effective method!

Where does the newsvendor model succeed?

When Uncertain Demand Occurs.

The newsvendor’s fundamental tenet is that you should seek less painful outcomes. Which would you rather have, if you were going to be wrong, overstock or understock? How far are you really willing to go? The newsvendor model offers a methodical approach to considering these options and picking a stocking point in the face of uncertainty. When there are many stakeholders and a variety of priorities, structured decision-making is very helpful. If something goes wrong, the newsvendor model and a sound business procedure may put everyone on the same page and cease blaming one other.

Seasonal or one-time decisions

The newsvendor concept is fantastic if you must select and stick to a choice. Since orders must be placed months in advance, many businesses use the model to determine how many Halloween costumes or Christmas decorations to carry. The newsvendor may also benefit from previous purchases of electronic components. Many components become outdated, forcing businesses to make “last-time-buys.” While engineering improves the design, the newsvendor is an excellent way to decide how many older parts to purchase.

Competitive markets

The newsvendor model works effectively for products supplied in competitive, liquid markets because overage and underage charges are straightforward to assess. Since customers have very low switching costs and may not even be aware of stock-out incidents, goodwill cost is frequently overlooked. Price elasticity also has a significant impact. Given a large enough discount, many things are nearly guaranteed to sell, which aids in identifying overage expenses. Profit-maximizing actions are encouraged by the current state of the market.

Common Challenges with the Newsvendor Model

Determining overage and underage expenses can be challenging, particularly for goods without a shelf life.

Nobody ever wants to refuse service to a customer due to a stock shortage. You might permanently lose their business! There may be a significant goodwill cost connected with underage events for industries that rely on strong client relationships (sometimes with hefty switching prices). How would you assess the possibility that a stock-out will be “the straw that broke the camel’s back” and prompt your customer to start exploring for alternative suppliers? The idea is simple, but coming up with a number is difficult, which frequently causes businesses to be overly risk-averse.

Overage expenses are typically easier to understand, but it’s a common mistake to believe that all inventory will be used eventually. Another mistake is relying on the engineering division to come up with ideas for using surplus stock. Engineers must prioritise a broad list of projects when parts become obsolete and consumer preferences shift. Although scrap is a reality, it might be challenging to estimate probability-weighted scrap costs or engineering expenses.

Sometimes, you can’t predict how a need will appear.

Demand ignorance and demand uncertainty are very different from one another. In the former situation, projections for both high and low outcomes are based on knowledge about the shape and nature of the demand. In the latter scenario, there is a much wider range of possible outcomes, and demand projections are speculative rather than supported by facts. In brand-new products with no track record, demand ignorance is most prevalent. Businesses should search for chances to get early signals of demand and utilise those to guide their actions. Making irrational assumptions will only lead to failure.

It is preferable to be unlucky than lucky.

The news seller maximises projected revenues, but this does not guarantee the most profitable results. Imagine flipping 1,000 coins; you would anticipate getting heads almost 50% of the time. However, there is a possibility of seeing 100% heads if you flip a coin five times. When making important, infrequent judgments, especially ones that have all-or-nothing repercussions, use extra caution. Your preference for betting on heads or tails can be determined using the newsvendor model, but the story shouldn’t end there. Engage in effective stakeholder communication and search for original approaches to lessen uncertainty.

References:

https://www.projectclue.com/mass-communication/project-topics-materials-for-undergraduate-students/the-role-of-newspaper-vendor-in-the-newspaper-process

Special Six Sigma stories

What is “Six sigma” in quality control?

The word “sigma” is a statistical term that measures how far a given process deviates from perfection

Six Sigma is a highly disciplined process that helps an organization focus on developing and delivering near-perfect products and services. To achieve six sigma quality, a process must produce no more 3.4 defects per million opportunities*.

(*An opportunity is a chance for non-conformance or not meeting required specifications)

• Six sigma allows to describe the performance of a process in terms of its variability and to compare different processes using a common metric known as defects per million opportunities (DPMO).
• This calculation requires three pieces of data:

1. Unit: The item produced or being serviced.

2. Defect: Any item or event that does not meet the customer’s requirements.

3. Opportunity: A chance for a defect to occur.

• A straightforward calculation is made using the following formula:

DPMO = Number of defects / (Number of opportunities for error per unit * Number of units * 1,000,000)

Analytical tools used in six sigma:

Flowcharts: They are used to show the connections between different stages of a process.

Run charts: They depict trends in data over time, and thereby help in understanding the magnitude of a problem at the define stage. Typically, they plot the median of a process.

Pareto charts: These charts help to break down a problem into the relative contributions of its components.

Check sheets: These are basic forms that help standardize data collection. They are used to create histograms such as shown on the Pareto chart.

Cause-and-effect diagrams: Also called fishbone diagrams, they show hypothesized relationships between potential causes and the problem under study. Once the C&E diagram is constructed, the analysis would proceed to find out which of the potential causes were infact contributing to the problem.

Opportunity flow diagram: This is used to separate value-added from non–value-added steps in a process.

Process control charts: These are time-sequenced charts showing plotted values of a statistic including a centerline average and one or more control limits. It is used to assure that processes are in statistical control.

Failure mode and effect analysis: This is a structured approach to identify, estimate, prioritize, and evaluate risk of possible failures at each stage of a process.

Design of experiments (DOE): sometimes referred to as multivariate testing, is a statistical methodology used for determining the cause-and-effect relationship between process variables (X’s) and the output variable (Y).

Six Sigma Methodology:

For already existing process-

Define, Measure, Analyze, Improve, Control (DMAIC)

For a new process-

Define, Measure, Analyze, Design, Verify (DMADV)

Six sigma uses Defects per million opportunities (DPMO) as a metric for understanding process variability.

DPMO is a mathematical calculation of the estimated quality of a process defined as the defects per million opportunities.

DPMO = Number of defects/ (No of opportunities for error per unit x No of units)

Motorola

The foundation pillar of Motorola was laid by Paul and Joseph E Galvin by acquiring a bankrupt company Stewart Battery Company in 1928. Till 1982 the company’s prime focus was on Research and Development. They innovated from mere battery eliminators to hand-held mobile phones. But in 1982 the company started facing financial losses. Market share dropped drastically. The problem identified was customer dissatisfaction due to defective products. This is when Motorola realized the need to lay down a strong defect elimination plan and came up with A 5-year goal of six sigma implementation. They shifted their focus to minimizing defects. The goal was to improve quality using the DMAIC approach (Define, Measure, Analyze, Improve and Control approach). Since the goal was large the required investment was large. Experts advised Motorola that it is a suicidal initiative given the prevailing financial stresses of the company. But Motorola was adamant about its decision. After the completion 5 years, Motorola was successful in implementing six-sigma quality levels in their products and was ruling the market again. The success of this plan inspired Motorola to implement Six Sigma in strategic decisions like business organization, processes, services, and administration. The six-sigma approach helped Motorola win the most prestigious quality award i.e., Malcolm Baldridge National Quality Award not once but twice.

Motorola worked significantly on reducing the DPMO as a result of which the variability was reduced drastically in the manufacturing process

The number of opportunities for error in a mobile phone could be hardware issues, functional issues, or assembly issues. Again, the error opportunities are multiplied by the number of parts assembled in the mobile and the functions it performs. DPMO can be at a minimum of 0 and a maximum of 1 million, the process gets better as DPMO moves from right to left on a scale of 0 to 1 million. Thus, if there are 0 DPMOs, the process can be considered the best one while 1 million DPMOs exhibit the worst processes.

Southwest Airlines

Defects are tangible in the manufacturing industry but intangible in the service industry. The no of opportunities for error per unit in an Airline industry can be in both Products as well as Services.

The errors in the product are tangible and easy to identify but service errors are intangible which is quite difficult to detect. Thus, calculating DPMO is a bit difficult for this industry. Southwest airlines implemented lean six sigma quality tools in the services they offer. An immediate feedback mechanism was introduced to give voice to their customers. The action was taken on an urgent basis to every complaint received from customers. Southwest Airline was the first airline to introduce ticketless flying. This was a lean six sigma approach for cost-cutting. The key aspect for Southwest Airlines was Loyalty to the customers. The quality control approach helped Southwest Airlines operate efficiently in the era of recession and financial crisis. When every other airline was facing downsizing, lay-offs, and losses, Southwest Airlines operated successfully by eliminating non- value-adding activities. Also, they were the first airline to introduce the “Bags Fly Free” concept. The first two bags of luggage of the customer will not be charged. This was possible due to optimization in other aspects of the cabin like space optimization, increasing leg space, and other lean changes in the aircraft i.e., Boeing 737. The business strategy on which Southwest Airlines operates is a cost- cut-down approach by minimizing waste or NVAs.

Mumbai Dabbawalla

Complying with the best six sigma practices Mumbai Dabbawalla has been a phenomenal service industry when it comes to service quality. The six-sigma theory states an efficiency of 3.4 defect ppm (parts per million). But Mumbai dabbawalla has achieved an efficiency of 1 defect in 16 million Dabba deliveries.

They have proudly achieved the six 9 efficiency score i.e., 99.9999% efficiency in their supply chain. The DPMO score of Mumbai Dabbawalla is close to zero. As explained by the founder Shri Mahadu Havaji Bachhe, the pick-and-drop facility of the tiffin boxes was started as a service to people, and today also this service is worshiped by the 3000 employees of the company. Each Dabbawalla is assigned 35 tiffins per shift to be picked up from the tiffin provider’s houses, dropped at the consumer’s location, picked up empty tiffin from the same locations, and dropping it back at the providers’ homes. Discipline, Service to People, and Resilience are the defining qualities of Mumbai Dabbawalla. This principle helped them to minimize delays, increase efficiency and achieve the most effective quality level i.e., more than six sigma that the nation can witness. They have also combined Lean Six Sigma with the concept of unity. The people in the company come from the same locality, religion, and culture. The company does not follow a typical organizational hierarchy. Although there is a leader for each 20-30 dabbawallas, this leader also performs the same work as the other dabbawallas. This uniformity among its employees is the key to the sustenance of the organization. The supply chain and logistics of the dabbawallas are very simple and manual which makes it easy for the dabbawallas to understand and act immediately in case of any changes. They have given the world a very important lesson that six sigma is not necessarily technology and automation, you can keep it simple and still achieve the highest efficiency possible.

Starbucks

For a company that focuses a lot on brand value proposition, customer satisfaction is the key to their business. How a customer perceives their product and their service is of high importance to Starbucks. Howard Schultz, the former CEO of Starbucks brought the wave of lean six sigma to the company. One interesting incident of Lean Six Sigma was the espresso machine that was introduced in Starbucks in 2008. To increase operational efficiency the traditional espresso machines were replaced by automated ones.

These new machines surely decreased the customer waiting time and the taste of coffee was also enhanced but still, the customer base was decreasing. After analyzing the problem using a DMAIC approach Howard Schultz found out that the new machines are no doubt faster but also taller. Because of this, the baristas could not maintain eye contact with their customer hurting the customer experience.

Thus, new machines were introduced that were smaller in height. The learning from Starbucks’ Leans six sigma operational efficiency was that lean six sigma is not only about products and reducing defects but also how you can increase brand value by providing an enriching experience to your customers. For Starbucks, DPMO relied completely on the service they offer. Thus, they decided to give their customers an Experience of a lifetime by enhancing the service quality which helped them reduce service errors.

References:

https://pecb.com/article/six-sigma-a-case-study-in-motorola

https://www.henryharvin.com/blog/mumbai-dabbawalas

https://www.henryharvin.com/blog/starbucks

Robotics in Supply Chain: Feasibility in India

Imagine ordering a book online in 1995 on Amazon and the book gets delivered to you within a week. 10 years later, Amazon offers Amazon Prime services which promises delivery within 2 days. Now, Amazon is planning to launch Amazon Prime Air where the package will be delivered to the customer within an hour. Yes, you read it right. The delivery time is promised to be within 60 minutes. Sounds like a futuristic Pixar movie isn’t it? But this is soon to be a reality and all thanks to the innovations in Robotics Process Automation (RPA) where in processes involved in Supply Chain of a firm are automated using latest technologies.

Blank conveyors on a blurred factory background. 3d illustration

Just like the Enterprise Resource Planning (ERP) systems or the Customer Relations Management (CRM) systems, the Robotics Process Automation (RPA) systems are used for the efficient use of the available resources, fast decision making, and reduction in cost incurred, keeping track of each and every transaction and bringing reliability in the operations of the firm. The implementation of the RPA can be looked as a big project the firm has to undertake when it aims at increasing its capacity of operations and bringing in some automation to fast track some repetitive processes.

As digitisation is penetrating the remotest part of the world, a firm has to process a huge amount of data and that’s where the Artificial Intelligence and Machine Learning components of the Robotics are coming in handy to the firms. The use AI and ML to process the data generated in a huge warehouse of amazon to process the orders and efficiently deliver the packages without failure add to the customer value of the Amazon. There is no surprise that Amazon recognised the importance of robotics in its operations and established Amazon Robotics in 2012. It started using robots for moving packing of the packages and now-a-days, the warehouses are automated for the effective sorting of packages according to predetermined categories.

The need of robotics in the operations and supply chain of a firm can be depicted from the study done by Statista, the market data research website shows that the spending on the Robotics Process Automation (RPA) software worldwide in 2020 was $2.09 billion and predicts it to be $23.9 billion in 2030. The following chart shows the expected growth in spending on RPA each year.

When it comes to supply chain, the use of robotics and automation can be broadly categorised in following:

• Movement of goods, work-in-progress and products through the facilities.
• Collection of data through sensors
• Software systems for cognitive learning
• Implementation of AI for flexible and fast processing of data

The robots can be used to perform the repetitive, high risk tasks such as moving and distributing packages across the warehouses. In this way, robots can increase the level of job satisfaction among the workers operating the robots, reducing the risks of accidents and can enable human workers to focus on more creative problem solving and doing long-term planning and management.

The data generated while managing a huge warehouse can have a huge mental toll on a human worker, making the task prone to errors. But using the robots for data collection and tracking can make the process more fast and reliable than a human working on the same. 

Using the AI and ML software to process the data collected can also prove beneficial in fast decision making in supply chain and thus improve the customer satisfaction.

The robots which can be used the improving the supply chain can be The Store Robots that helps in replenishment and sorting of materials in the warehouses e.g. Scooter and Kermit robots in amazon warehouses, industrial robots like SCARA for pick-n-place activities and handling of material without human interventions, also some sensory robots to collect data from the operating environment.

Feasibility of Robotics and Automation in Supply Chain in India:

India is one of the fastest growing markets in terms of digitisation. The consumer demands are increasing and global firms are eager to tap into these opportunities by setting up manufacturing facilities and distribution centres in India. High demand means high requirements of Automation and Big data processing. The firms who want to operate in the Indian markets will require high amount of Robotics Process Automation (RPA), but is it feasible for the organisations to invest into RPA in the Indian market. There are some hindrances in introducing RPA for the firms in Supply Chain like:

• Overpopulation-

Most problems in Indian economic development can be attributed to overpopulation of India. Because of overpopulation, manual labour is essential to curb the unemployment problem. Introduction of automation means making manual labour redundant and increasing unemployment. Though the topic of robots being responsible for job loss is debatable, unskilled labours whose jobs will be replaced by robots will definitely oppose the move of introducing RPA by their firms to secure their job.

• Lack of discipline-

Even if futuristic technologies are introduced in India, the population should be ready to welcome such technologies. When high speed train service Tejas express was introduced between Mumbai-Goa, passenger found stealing earphones, tearing up seats and outside crowd throwing stones at windows as fun. The recent Vande Bharat Express has met cattle related accidents on tracks twice in one month after introduction. These incidents calls for questions like is Indian people are really ready for high tech technologies even in supply chain. After all, people do discuss throwing stones at drones delivering packages in India during fun discussions, don’t they?

• Project Implementation at organisation level-

The implementation of RPA at organisation level will require very high commitment from senior management as well as employees to successfully implement the project. The willingness of the employees to bring change in their working and training them to cope up with the new way of working will impose a huge challenge for the organisation to automate the supply chain activities of the firm.

Though there are many such challenges to use RPA in Supply Chain in Indian market, there is no doubt India is a growing digital market and organisations will try to use advance technologies they have to operate in Indian market overcoming the obstacles. Though currently India is operating at $677 million market of robotics and automation, initiatives like Drones-as-a-Service by the Indian government will definitely encourage the market to become a multi-billion dollars prospect.

Sources:

https://www.forbes.com/sites/stevebanker/2020/04/02/robots-and-the-autonomous-supply-chain/?sh=64737a5e787a

https://www.aboutamazon.com/news/transportation/how-amazon-is-building-its-drone-delivery-system

Understanding Reverse Logistics

What is Reverse Logistics?

Reverse logistics comprises the sector of supply chains that process anything returning inwards through the supply chain or travelling ‘backwards’ through the supply chain. This can encompass anything from returned goods, inward disposal/recycling of packaging materials, the recycling/responsible disposal of materials from previously sold products, etc. According to The Council of Logistics Management, reverse logistics is the process of implementing, controlling, and planning the cost-effective flow of finished goods, raw materials, and in-process inventory. The flow is from the point of consumption (i.e. the customer) to the point of origin (i.e. the manufacturer) to properly dispose of these or to recapture value.

Examples of reverse logistics

Following are the common examples of reverse logistics:

1. Returns: Handling customer returns of goods such as claims under warranty
2. Remanufacturing: Building products with a combination of reused, repaired and new parts
3. Refurbishing: Reconditioning used goods for sale
4. Packaging: The use of durable packaging that is used by continuously returning backwards in the supply chain
5. Unsold goods: Unsold goods are returned by distribution partners according to the terms of sale
6. End-of-life: Accepting goods at the end of their life for reuse or recycling
7. Delivery failure: Deliveries that don’t complete
8. Rentals and leasing: Customers returning things taken on loan
9. Repairs and maintenance: Returning items to a producer for repair and maintenance

In this article, let us look at some of the companies which are excelling in this reverse supply chain

Apple

Apple manufactures iPhones and other products, which are then sold in various stores across the world. Consumers purchase iPhones and enjoy the product until they want to upgrade their product. When consumers return to a store to buy the latest model, Apple offers consumers discounts on a new product if they turn in their old product. The electronics industry worldwide spends several billions of dollars on returns every year; however more than half of returns are not defective. While many companies view returns as a cost driver, Apple considers reverse logistics and returns management a competitive edge that helps maximize value recovery for returned products through customer satisfaction and profit revenue.

Knowing that good service helps in customer retention and customer retention is at least five-fold effective than cost reduction, Apple has always made an innovative attempt to manage returns effectively and deliver quality customer service. Fast and simple returns practices lead to reduced response time and increased convenience, leveraging customer experience, enhancing customer retention and loyalty, and upturn repeat purchases. A well-managed and efficient gate-keeping process is applied by Apple so that the costs of accepting the return will not exceed benefits. Return policies and product warranties with clear guidelines protect the company from excessive and unauthorized returns.

Apple opts to reduce return management costs by outsourcing its reverse logistics to third-party logistics providers (3PLs). In doing so, reverse logistics expertise and network are achieved quickly, eventually leading to greater flexibility and faster speed to market. By implementing technology and automation in its reverse logistics processes, the company achieves speed at a lower cost and manages profitable asset recovery from products that fall out of the supply chain.

H & M

H&M is one of the few clothing brands that use reverse logistics for used clothes. H&M accepts used clothing at all of its stores worldwide. The clothes can be any condition or brand, and H&M will use the clothing they’ve collected to create an all-recycled clothing line. This type of reverse logistics chain allows all kinds of consumers to get involved with the brand, even if they didn’t purchase their garments from H&M.

From the point of view of marketing, effective reverse logistics work for the brand. Today, one tweet or post on social media could have substantial positive or negative effects on a company. By being prepared and having already established access points to consumers in the reverse logistics system, the company will keep consumers happy and let them feel that they do something good. Being an active, environmentally-friendly corporate citizen also works for any brand. In terms of logistics, returns are also highly effective. Quickly delivered returned goods can be re-launched into the supply chain: either in their current state or after appropriate modification.

Once the clothes are dropped at the H&M store, they are re-worn, reused or recycled.

Re-wear: Wearable clothes are marketed as second-hand clothing.

Reuse: If the clothes or textiles are not suitable for re-wear, they’re turned into other products, such as remake collections or cleaning cloths.

Recycle: All other clothes and textiles are shredded into textile fibres and used to make insulation materials.

UPS

United Parcel Service (UPS) is American multinational shipping & receiving and supply chain management company. UPS is the largest courier company globally by revenue, with annual revenues of around $85 Billion in 2020, ahead of competitors DHL and FedEx. Hence, by incorporating small changes in their operations, they could significantly impact sustainability in the supply chain. UPS successfully uses reverse logistics to minimize their environmental impact by allowing consumers to reuse boxes to ship items. UPS also has recycling services, where they will pick up goods that are no longer needed and responsibly dispose of them.

A returnable container is a type of secondary packaging that can be used several times in the same form, in contrast with traditional cardboard boxes. For this equipment to be used, a system for the return logistics of the containers should be available. This system should guarantee that the containers are transported from the recipients to the next senders and that they are cleaned and maintained, if necessary. This is ensured by UPS.

Every company has a different approach towards reverse logistics because one size doesn’t fit all. Some companies might want to have no returns at all, while some would like to increase customer satisfaction by allowing easy returns. For example, in the fashion sector, US department stores like Saks 5th Avenue and Nordstrom have second-tier sales to which they can hand off excess inventory at marked down prices. On the other hand, a very high-end fashion company might insist that all excess inventory was returned to the factory for recycling rather than see its brand in low budget shops.

In addition, getting it right once is no guarantee of getting it right the next time. Pharmaceutical company Johnson & Johnson conducted one of the most skillful product recalls ever when its cyanide-adulterated Tylenol product returned from pharmacies and shops in 1982. Unfortunately, it did not exercise the same skill and transparency in recalling its Motrin product in 2009, to the extent that congressional investigators became involved to find out what was going on. Hence, a reverse logistics policy of a company needs to be implemented on a case-to-case basis aligning with its business strategy.

Reference

1. https://simplicable.com/
2. https://www.c3controls.com/
3. https://www.academia.edu/
4. https://logisticsmgepsupv.wordpress.com/