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The Use of Enterprise Resource Planning Applications in Finance and HRM
The Importance of ERP Software In previous articles on Finance and Human Resource Management, we discussed how the finance and HRM functions have evolved to become important support functions in organizations and not just appendages to the core processes of the organization. For instance, in earlier decades when manufacturing was predominant, finance and HRM were […]
Will Automation Kill the Economy ?
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Strategic Processes – Meaning and its Features
These are the top level processes that an organization is exposed to. These include tasks that need a high level of intellectual capability and will have wide spread effects in the structure and functioning of the organization. The nature of these processes can be compared to those that the human brain performs. Here are some […]
Top 5 Economic Myths
When analyzed in financial terms, it turns out that the world is in a precarious position. However, there seems to be no sense of urgency amongst the people. This may be because of the fact that newspapers, as well as other forms of media, are not warning the people that a recession might be around […]
Prior to the introduction of Six Sigma philosophy, there was a debate as to whether Six Sigma is a goal worth pursuing. Many experts in the area of quality believed that wastage was a way of life. Trying to eliminate wastage would cause more wastage. They believed that it was possible to eliminate waste but the endeavour would cost too much and the benefits would not be worthwhile. Hence the then current state of affairs, according to them was the best state of affairs. However as Juran, who was to become a breakthrough quality leader later pointed out the costs of poorly performing processes (COPPP), the argument shifted heavily in favour of Six Sigma way of life.
Here is a representation of the typical costs that a poorly performing process incurs:
Appraisal costs are costs incurred to find out deficiencies before external customers are affected by them. These do not include routine quality checks that need to be carried, but to the excessive quality checks that lead in the wastage of resources. Examples of such costs would be:
Double checking our activities to ensure that there are no errors may be a good thing to do. However, Juran was of the opinion that it leads to considerable wastage of resources. Juran believed that there should be a mechanism which alerts in case of an error. Hence instead of double checking everything, resources will be used to make good the errors pointed out by the system. The idea was to develop a continuous measurement system and make quality checks process driven rather than people driven.
Internal process deficiency costs are the ones that are incurred to repair, replace or discard effective work. They are called internal deficiency costs because the customer will not know what has happened. However, more often than not, as one of these costs happen, the delivery time is also delayed. As a result customer service levels also take a beating. Examples of such costs include:
External process deficiency costs are the costs that are incurred on failures that happen when the product or services is being delivered to the final customer. These are the mistakes that occur in front of everyone and has a huge impact on the public opinion of the firm. Usually the firm has to spend an additional amount to regain the customers lost confidence. Examples of such costs include:
After Jurans analysis was well accepted by the management world at that time, Six Sigma became a rage. The costs of poorly performing processes were too high if all the hidden costs would be considered and hence organizations worldwide began implementing Six Sigma to become more cost effective and hence more competitive.
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