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The implementation of Six Sigma strategy involves a series of steps specifically designed to facilitate a process of continuous improvement.

The strategy takes the key manufacturing, engineering, and transactional processes of entire process through the five transformational phases (Plotkin, 1999).

1. Define: Identify customer needs and a project suitable for Six-Sigma effort. 2. Measure: Determine what and how to measure the performance of the selected process. 3. Analyze: Understand and determine the variables that create quality variations. 4. Improve: Identify means to remove causes of defects and modify the process. 5. Control: Maintain the improvement.

The primary objective of the five-step process is to recognize critical customer requirements, identify and validate the improvement opportunity, and upgrade the business processes. A large number of companies have boosted their profitability, increased market share, and improved customer satisfaction through the implementation of Six-Sigma. Companies such as Allied Signal, General Electric, Sony, Texas Instruments, Bombadier, Crane Co., Lockheed Martin, and Caterpillar are beginning to dir The swot anlysis of the Perpetual Inventory System is as under: STREGTHS:

Accurate Reporting

Companies often experience more accurate financial reporting with a perpetual inventory system. Accountants update the general ledger after each inventory transaction. This results in a general ledger account that closely mirrors the actual physical inventory on hand. Owners and managers can then make quality decisions based on the accuracy of reporting inventory values. Multiple inventory types also benefit from this method, as accountants accurately track each one through the general ledger.

Electronic Management

Perpetual inventory systems often use electronic methods to record transactions. An example is the barcode system a clothing retailer uses when selling goods. Each scan records data that updates the company's inventory value. Accountants use this information to balance the general ledger. Companies also use the data to order goods

using a just-in-time system. Electronic ordering helps to prevent stock outs and lost sales.

WEAKNESSES:

Cost

Many perpetual inventory systems are expensive. The cost for these systems is twofold. The technology necessary to make the system work can be a major capital expense. Updating the system for new changes to the technology is also costly. Training employees to properly use the system is yet another expense. On the administrative side, companies must find accountants who can work the system and manage frequent changes to the general ledger.

Process

Perpetual inventory systems are often time-consuming. Electronic updates to a company's general ledger may result in a need for account reconciliations. Accountants will often spend copious hours each week or month to reconcile inventory. Persistent errors can also cause further complications. Accountants need to correct errors and balance the inventory account prior to closing the company's books. Reporting inaccurate inventory figures can trigger an audit, resulting in potential problems for the company. Additional record-keeping Increase workload, increase in staff. Additional costs Staff costs, costs of computer package to maintain inventory records.

First-In, First-Out (FIFO) is one of the methods commonly used to calculate the value of inventory on hand at the end of a period and the cost of goods sold during the period. This method assumes that inventory purchased or manufactured first is sold first and newer inventory remains unsold. Thus cost of older inventory is assigned to cost of goods sold and that of newer inventory is assigned to ending inventory. The actual flow of inventory may not exactly match the first-in, first-out pattern. First-In, First-Out method can be applied in both the periodic inventory system and the perpetual inventory system. Example Use the following information to calculate the value of inventory on hand on Mar 31 and cost of goods sold during March in FIFO periodic inventory system and under FIFO perpetual inventory system.
Mar 1 Beginning Inventory 60 units @ $15.00 per unit

Purchase

140 units @ $15.50 per unit

14

Sale

190 units @ $19.00 per unit

27

Purchase

70 units @ $16.00 per unit

29

Sale

30 units @ $19.50 per unit

Solution

FIFO Periodic

Units Available for Sale

= 60 + 140 + 70

= 270

Units Sold

= 190 + 30

= 220

Units in Ending Inventory

= 270 220

= 50

Cost of Goods Sold

Units

Unit Cost

Total

Sales From Mar 1 Inventory

60

$15.00

$900

Sales From Mar 5 Purchase

140

$15.50

$2,170

Sales From Mar 27 Purchase

20

$16.00

$320

220

$3390

Ending Inventory

Units

Unit Cost

Total

Inventory From Mar 27 Purchase

50

$16.00

$800

FIFO Perpetual

Purchases Date Units Unit Cost Total Units

Sales

Balance

Unit Cost

Total

Units

Unit Cost

Total

Mar 1

60

$15.00

$900

140

$15.50

$2,170

60

$15.00

$900

140

$15.50

$2,170

14

60

$15.00

$900

10

$15.50

$155

130

$15.50

$2,015

Under the perpetual inventory system, an entity continually updates its inventory records to account for additions to and subtractions from inventory for such activities as received inventory items, goods sold from stock, and items picked from inventory for use in the production process. Thus, a perpetual inventory system has the advantages of both providing up-to-date inventory balance information and requiring a reduced level of physical inventory counts. However, the calculated inventory levels derived by a perpetual inventory system may gradually diverge from actual inventory levels, due to unrecorded transactions or theft, so you should periodically compare book balances to actual on-hand quantities.

Perpetual inventory is by far the preferred method for tracking inventory, since it can yield reasonably accurate results on an ongoing basis, if properly managed. The system works best when coupled with a computer database of inventory quantities and bin locations, which is updated in real time by the warehouse staff using wireless bar code scanners, or by sales clerks using point of sale terminals. It is least effective when changes are recorded on inventory cards, since there is a significant chance that entries will not be made, or will be made incorrectly. Balance sheets complete the sequence of accounts, showing the ultimate result of the entries in the production, distribution and use of income, and accumulation accounts. Balance sheets and accumulation accounts form a group of accounts that are concerned with the value of assets owned by institutional units or sectors, and their liabilities at particular points in time and with the evolution of those values over time. Balance sheets measure the values of stocks and are compiled at the beginning and end of the accounting period. On the other hand, the accumulation accounts record the changes in the values of assets and liabilities during the accounting period. They are flow accounts, whose entries depend on the amounts of economic or other activities that take place within a given period of time. In the balance sheets three categories of assets are distinguished: a) non-financial produced assets b) non-financial non-produced assets c) financial assets (i) Periodic stock verification (ii) Continuous stock verification (i) Periodic stock verification: It refers to a system where physical stock verification is normally done periodically, i.e., once or twice in a year. Under this method, value of stock is determined by physical counting of the stock on a particular date, usually at the end of the year. It is a simple and economical method of stock-taking and is adopted in small concerns. This type of verification is good only for the items which do not find place in the perpetual inventory records, e.g., works-in-progress, components and consumable stores at site etc. But there are many limitations of this method. Stores may' be closed down for a few days to facilitate stock-taking. There is possibility of fraud] discrepancy, etc. (ii) Continuous stock verification: This system comprises of counting and verifying i number of items at random daily throughout the year so that all items of stores are verified several times during the year. Notice of the particular stock to be verified each clay is given to the store-keeper only on the date of actual verification. As there is an element of surprise check in this system of stock-taking, effective control over the items of stores can be exercised. The system does not necessitate the closing down of the stores to facilitate stock-taking. There is also less possibility of fraud and discrepancy, but the method is expensive and is adopted by big concerns only.

The actual stock of material should not differ from the recorded stock under normal circumstances. But-sometimes differences arise due to the following reasons: (i) Breakage and wastage of materials due to improper handling. (ii) Shrinkage and evaporation.

In earlier periods, non-continuous, or periodic inventory systems were more prevalent. Starting in the 1970s digital computers made possible the ability to implement a perpetual inventory system. This has been facilitated by bar coding and lately radio frequency identification (RFID) labeling which allows computer systems to quickly read and process inventory information as part of transaction processing. Perpetual inventory systems can still be vulnerable to errors due to overstatements (phantom inventory) or understatements (missing inventory) that can occur as a result of theft, breakage, scanning errors or untracked inventory movements, leading to systematic errors in replenishment. The ESA95 recommends the Perpetual Inventory Method (PIM) for the calculation of the stock of Fixed assets whenever direct information is missing (par. 6.04). The calculation of consumption of Fixed capital can be based on these stocks of assets. Besides net capital stock which appears in the Balance sheets can be derived within a PIM approach. In this paragraph the basic principles of the PIM will be discussed. Using the PIM, gross capital stock is calculated as the sum of gross fixed capital formation in Previous years, of which the service live is not yet expired. In the simplest case it is assumed that the total investment of a particular asset does not deteriorate during the expected service life of that asset and is discarded as a whole after that period of time.
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