Design of six sigma supply chains

Abstract

Variability reduction and business process synchronization are acknowledged as key to achieving sharp and timely deliveries in supply chain networks. In this paper, we introduce a new notion, which we call six sigma supply chains to describe and quantify supply chains with sharp and timely deliveries, and develop an innovative approach for designing such networks. We show that design of six sigma supply chains can be formulated as a mathematical programming problem, opening up a rich, new framework for studying supply chain design optimization problems. To show the efficacy of the notion and the design methodology, we focus on a design optimization problem, which we call as the Inventory Optimization (IOPT) problem. We formulate and solve the IOPT problem for a four stage, make-to-order liquid petroleum gas supply chain. The solution of the problem offers rich insights into inventory - service level tradeoffs in supply chain networks and proves the potential of the new approach presented in this paper.