Deep Dive into Inventory Management Concepts for the Service Industry

Deep Dive into Inventory Management Concepts for the Service Industry

The concept of inventory and its management in the service industry is quite complicated to explain and can vary, depending on the context. Inventory in a service domain is different from what it is in the manufacturing sector. Inventory in the service domain is intangible and can be understood easily with these examples:

  • Inventory in a hospital’s emergency ward might be the patients waiting for the service attendants. In this context, the rising count of patients means that the hospital might have reduced the service staff (inventory). In other words, the hospital needs to effectively manage its people inventory to serve more patients in a more efficient and timely manner.
  • In the context of the service domain, inventory is often considered as an intangible good that has no physical property. For instance, seats at a movie theater are the inventory, but there are other labels for unused capacity, like occupancy rate, and others. Here remaining seats are the inventory for which there are no buyers.

In the previous instance, the inventory (service staff) should be filled-up to meet the higher demand. In the latter scenario, however, inventory must be reduced to ensure minimum wastage and optimum utilization.

Lean Inventory Management is the Future

In a recent decade, Six-Sigma has evolved into Lean Six-Sigma (or LSS), and that is why Lean principles equally apply to inventory management across industries. Lean Inventory Management principles are, therefore, appropriate for businesses outside the manufacturing sector, and include service providers, along with wholesalers, distributors, and retailers who deal in physical goods. Thus, you need not be a manufacturer to relish the benefits of Six-Sigma concepts.

Lean has its roots in Japanese Kaizen techniques and is an ideal approach for the organizations that support the continuous improvement for their products, services, processes, and functionalities. Lean, therefore, emphasizes incremental improvement to efficiency and quality over time.

Implementing Lean Principles in inventory management can ensure quantifiable improvements for small and medium-sized businesses. Moreover, Lean Supply Chain methodologies help organizations in improving workflows, reducing costs, and increasing profits. Unlike Six-Sigma, these benefits are for enterprises of all sizes and not just for large-scale manufacturing units.

The Future-Ready Principles

Similar to Six-Sigma, there are five guiding principles in Lean Inventory Management that are evolved from quality management and manufacturing principles of the past decades.

Modern businesses, therefore, administer the following methodologies to efficiently manage the pressing issues that they face in this competitive environment.

  • Value: Identify the value that an organization will get from Lean Inventory Management.
  • Flow: Optimize inventory flow by eliminating all business obstacles.
    • The principle evolves from the Japanese 5-S Lean methodology (Sort, Straighten, Sweep, Standardize, and Sustain).
  • Pull: Move inventory only when customers demand it.
    • The concept comes from the Kanban Lean principle.
  • Responsiveness: Be flexible and adjustable to change.
    • The methodology adapts the principles of Kaizen Lean.
  • Perfection: Be consistent in refining the inventory management processes to improve quality and efficiency, while reducing cycle time and cost.
    • The tactic derives from the Six-Sigma methodology – DMAIC (Define, Measure, Analyze, Improve, and Control).

Organization-Wide Transformations

Effective implementation of appropriate Lean Inventory Management principles can help organizations in transforming these six major processes across various functionalities:

  • Demand Management: Businesses should move the inventory only when there is a demand
  • Cost and Waste Reduction: Organizations should manage the inventory to the extent that it does not affect the customer in any negative way.
  • Process Standardization: Enterprises must plan to standardize their business functions and inventory transportation.
  • Industry Standardization: Businesses should consider standardizing their product parts and components.
  • Cultural Change: Operation leads must make sure that everyone along the supply chain must work as a team.
    • This echoes principles from Just-in-Time manufacturing.
  • Cross-Organization Collaboration: Teams, from across an organization, that work on a particular project or try finding solutions for a specific concern are critical to innovation, better performance, and improving customer engagements.


In conclusion, Six-Sigma methodologies, approaches, and tools still have a place in modern industries. These principles and concepts are, however, transitioned into Lean Six-Sigma and Lean Inventory Management methodologies. These future-proof initiatives include inventory management principles that help businesses in reducing waste, minimizing costs, increasing efficiency, and raising business gains.

Posted on 18 July, 2019

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Categories : Lean Six Sigma White Belt Course

Comments so far.. Add new comment

laura 28/07/2019

Dear mam , You doing good work for working pupil..who engage in the industry especially, have willing for improvement

Neolen 23/07/2019

Best, clear explanation, well-drafted course.

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