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This Lean blog is dedicated to providing useful Lean information that both changes the way you think about continuous improvement, and gives you tools to act on those changes. It is the only blog backed by The Continuous Improvement Companion, our extensive Lean reference guide.

ABC inventory is a method of categorizing inventory to segment items into different inventory management processes. Typically, the segmentation is done by calculating out the annual usage of the parts, and labeling the top 70% of parts (by cost) as ‘A’ parts,  the next 25% as ‘B’ parts, and the final 5% as ‘C’ parts. On occasion, an organization may include all parts without usage over the last year as another category (i.e. ‘D’ parts). 

The power of this categorization lies in the Pareto Principle. Typically, around 15-20% of your parts will fall into the ‘A’ category. Around 30% will be in group ‘B’ with the remaining items in group ‘C’. The bottom line is that the majority of your inventory cost is contained in a relatively small quantity of part numbers. That means that you can get big gains with relatively low effort.

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The program leader faces a particularly challenging task in promoting this principle. In a nutshell, he or she will be dictating to the senior staff not only who they hire, but how they spend their time.

Many senior leaders spend far too few hours of the week developing their subordinates…and their own replacements. For some, it is just not a priority. They have a lot on their plate, and they just don’t emphasize mentoring. For others, though, it is actually a conscious decision.

Some leaders are insecure, and don’t want to create competition for themselves. They don’t want to give their boss a viable alternative. The reality is that leaders who fall into this category are…

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Control limits are lines established 3 standard deviations from the mean on a control chart. Keep in mind that the control chart depicts averages, so exhibits a normal distribution. (See Central Limit Theorem) 99.7% of all random variation (common cause) will fall within the upper and lower control limits. Outliers can generally be assumed to be outliers, indicating that the process is out of control.

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When a process is said to be ‘in control’, statistically speaking, that means that all the variation can be attributed to common causes. All of the observed variation is just a function of the natural randomness built into a system or process.

In a nutshell, an ‘in control’ process is free of special cause variation.

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A control, or control group is a tool used to confirm whether changes are actually having an effect. The control group is exposed to the same conditions as the test group with the exception of the variable that is being examined.

For example, you may be experimenting whether increasing tire pressure makes a difference in mileage. You would keep all other factors the same (route, vehicle type, brand of gas, etc.) the same for two groups. The only difference would be in tire pressure. The control group would have the current tire pressure, and the test group would have the higher pressure.

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A competitive advantage is a condition through which one organization has to spend fewer resources to get the same benefit as a competitor (or, of course, gets more benefit for spending the same amount of resources.)

This advantage can be because of a perception of higher quality products, because of location, because of the ability to recruit the best workforce, or for any of a multitude of reasons.

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The central limit theorem, in layman’s terms, says that regardless of the shape of the underlying distribution, in most cases, the mean of samples taken from the distribution will approximate a normal distribution.

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