Six Sigma, Monte Carlo Simulation, and Kaizen for Outsourcing

I recently tripped over a very good and interesting article written by Marcia Gulesian, titled Six Sigma, Monte Carlo Simulation and Kaizen for Outsourcing.

Despite its seemingly complex title, the article touches on the basics of Six Sigma and decision analysis where Six Sigma basic quantitative calculations are discussed – such as process capability calculations (Cp, Cpk) are used in an example for the outsourcing of a critical component. The example utilizes a Monte Carlo Simulation a model to illustrate her point.

The example model simulates the outsourcing of a critical component to 3 different vendors, and demonstrates the critical information that a Monte Carlo Simulation model can provide to make informed decisions regarding cost, volumes, supplier capabilities and internal resources. As we all know, having multiple vendors is necessary, but knowing how to distribute your demand across them and knowing the risks and costs involved is critical.

If you would like to experiment with the model, you can download it,  But please know you’ll need @RISK to run it, you download the @RISK free trial to run the simulation.

The over-arching topic of the article is that any process can be scrutinized for variation and cost reduction, and in my opinion should be. Companies will continue to outsource more and more so that they may focus on their core competencies. But as this happens, it becomes more imperative that a sound strategy is used to manage the potential outcomes.

I’m very happy to have found this article. Maria obviously understands the power and value of Six Sigma and Monte Carlo Simulation and look foward to future articles from her. 

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