UNIT VI

Syllabus:
Contemporary Management Practices: Basic concepts of MIS, MRP, Just-In Time (JIT)
Systems, Total Quality Management(TQM), Six sigma and Capability Maturity Models (CMM)
Levies, Supply Chain Management, Enterprise Resource Planning (ERP), Business Process
Outsourcing (BPO), Business Process Re Engineering and Bench Marking, Balanced Score Card.

CONTEMPORARY MANAGEMENT PRACTICES:

1. MANAGEMENT INFORMATION SYSTEM (MIS)

MIS refer to the process of covering the application of people, technologies and procedures to solve business
problems. MIS are different from regular information systems in the sense that they are used to analyze other
information systems applied in operational activities in the organization such as Decision Support systems and
Expert systems.
MIS is defined as ‘research in the information systems field which examines more than just the technological
system, or just the social system, or even both. In addition, it investigates the phenomena that emerge when the
two interact.’ Management Information system refers broadly to a computer- based system that provides managers
with the tools for organizing, evaluating and efficiently running their departments. Within companies and large
organizations, the department responsible for computer systems is sometimes called the MIS department. It is the
responsibility of MIS department to develop and design the reporting formats for various functional departments
such as Production, Finance, Marketing, Projects, and HR etc. MIS department is increasingly sought after for
every type of information that is necessary for operational, tactical and strategic decisions by using decisions
support systems, export systems and artificial intelligence.

2. MATERIALS REQUIREMENT PLANNING (MRP)

MRP is software based production planning and inventory control system used to manage manufacturing
processes. The main objectives of MRP system are:
 To ensure the availability of materials and products for production and delivery to customers
 To maintain the lowest possible level on inventory
 To plan manufacturing activities, delivery schedules and purchasing activities
MRP is used by a large number of organizations as a tool to deal with these problems. It answers questions
such as: what items are required, how many are required and by when are they required. This applies to items that
are bought in and also to sub-assemblies that go into more complex items. It covers bills of materials that provide
details of the materials, components and subassemblies required to make ach product. It provides all the planning
data that includes all the restraints in and directions to produce the end items. It covers items such as routings,
labour and machine standards, pull/work cell and push commands, lot sizing techniques, scrap percentages and
other inputs.

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 3. JUST-IN-TIME (JIT)

When the components arrive as and when required in a manufacturing operation, it is called just in time.
Conceptually speaking, JIT has no need for inventory or stock. Adopting a JIT system is also sometimes referred
to as adopting a lean production system.
JIT originated in Japan. It is a philosophy of working is generally associated with the Toyota. JIT being
initially known as the “Toyota Production system”. JIT is a new system of production based on the elimination of
waste.
There are several sources of waste that should be eliminated. These include over production, time spent
waiting, transportation/movement (time lost in material handling, processing time, inventory unkeeping), waste
associated with defective items.
JIT is also called as stockless production or lean production. JIT is a suitable production system when:
 It is possible to produce clearly defined standard products
 A reasonable number of units are made
 Product is of high value
 There is scope for flexible working practices and we can develop a disciplined work force
 There is scope for short setup times on machines
 WE can assure quality in terms of zero defects
Benefits of JIT: The benefits of JIT include better quality products, quality consciousness, worker accepting
quality as his/her responsibility, reduced scrap and rework, reduced cycle times, lower set up times, smoother flow
of production, less inventory ( of raw materials, work-in-progress and finished goods), cost savings, higher
productivity, higher worker participation, more skilled workforce, the workers accepting to improve their
competencies and willing to switch roles, reduced space requirements and improved relationships with vendors.

4. TOTAL QUALITY MANAGEMENT

TQM is a set of management practices followed organization- wide, geared to endure the organization
consistently meets or exceeds customer requirements. Process Measurement and controls constitute major focus in
TQM as means of continuous improvement. In TQM effort, all members of the organization participate in
improving processes, products, services and the culture in which they work.
 If the company is committed to provide its customers with products and services that satisfy their needs its
culture, attitude and organization also should speak so.
 Not Many companies that implemented TQM have been successful. Surveys reveal that only 20-36% of
companies that have undertaken TQM have achieved either significant or even tangible improvements in
quality, productivity, competitiveness or financial return.
 There are some prerequisites for successful implementation of TQM. These are customer-driven quality,
top management leadership and commitment, continuous improvements, fast response, actions based on
facts, employee participation and a TQM culture.
 Product development in a TQM environment is always customer- driven and focused only on quality.
Teams in TQM environment are process-oriented and interact with their internal customers to deliver the
required results. The focus of top management is on controlling the overall process and rewarding
teamwork, not individuals.

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  A core concept in implementing TQM is Deming’s 14 points which refer to the set of management
practices to help companies to increase their quality and productivity. International Organization for
standardization (ISO) defines TQM as ‘a measurement approach for an organization, centered on quality,
based on the participation of all its members and aiming at long-term success through customer satisfaction
and benefits to all members of the organization and to society.
TQM requires that the company maintain the quality standard in all aspects of its business. To achieve the
objective of TQM, it is necessary that things are done right the first time and that defects and waste eliminated
from operations.
5. SIX SIGMA
Six sigma is a set of practices developed by Motorola to systematically improve processes by eliminating
defects. A defect is defined as non-conformity of a product or service to the specifications. Six Sigma focuses on:
 Continuous efforts to reduce variation in process outputs is key to business success
 Manufacturing and business processes can be measured, analyzed, improved and controlled.
 Succeeding at achieving sustained quality improvement requires commitment from the entire organization,
particularly from top-level management
Six Sigma refers to the ability of highly capable processes to produce output within specification. In particular,
processes that operates with six sigma quality produce at defect levels below 3, 4 defects per (one) million
opportunities (DPMO). The implicit goal of six sigma is to improve all processes to that level of quality or better.
Six Sigma simply means a measure of quality that strives for near perfection. Six sigma is disciplined, data
driven approach and methodology for eliminating defects ( driving towards six standard deviations between the
means and the nearest specification limit_ in any process- from manufacturing to transactional and from product to
service.
The six sigma methodology aims at the implementation of a measurement based strategy that focuses on
process improvement and variation reduction through the application of six sigma improvement projects. This is
achieved through the use of two six sigma sub-methodologies: DMAIC and DMADV. The six sigma DMAIC
process (defines, measure, analyze, improve, control) is an improvement system for existing processes falling
below specification and looking for incremental improvement. The six sigma DMADV process (define, measure,
analyze, design, verify) is an improvement system used to develop new processes or products at six sigma quality
levels. It can be employed if a current process requires more than incremental are overseen by six sigma master
black belts.
Six sigma is a registered mark and trademark of Motorola. In addition to Motorola, companies that also
adopted six sigma methodologies early-on and continue to practice it today include Bank of America, Caterpillar,
and General Electric.
Methodology: Six Sigma has two key methodologies: DMADV and DMADV. DMAIC is used to improve an
existing business process and DMADV is used to create new product or process designs for predictable, defect-
free performance.

DMAIC: Basic methodology consists of the following five steps:

 DEFINE the process improvement goals that are consistent with customer demands and enterprise strategy.
 MEASURE the current process and collect relevant data for future comparison
 ANALYSE to verify relationship and causality of factors. Determine what the relationship is attempt to
ensure that all factors have been considered
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  IMPROVE or optimize the process based upon the analysis using techniques like Design of Experiments.
 CONTROL to ensure that any variances are corrected before they result in defects. Set up pilot runs to
establish process capability, transition to production and thereafter continuously measure the process and
institute control mechanisms.

DMADV: The Basic Methodologies consists of the following five steps:

 DEFINE the goals of the design activity that are consistent with customer demands and enterprise strategy.
 MEASURE and identify CTQs ( critical to qualities), product capabilities, production process capability,
and risk assessments
 ANALYSE to develop and design alternatives, create high-level design and evaluate design capability to
select the best design.
 DESIGN details optimize the design and plan for design verification. This phase may require simulations.
 VERIFY the design, set up pilot runs, implement production process and hand over to process owners.

6. Capability Maturity Model (CMM)

Capability Maturity Model (CMM) is a collection of instructions an organization can follow with the
purpose to gain better control over its software development process.
The CMM ranks software development organizations in a hierarchy of five levels. Each level has a
progressively greater capability of producing quality software. Each level is described as a level of maturity.
Those five levels are equipped with different number of instructions to follow.
Maturity Model: A maturity model is a structured collection of elements that describe characteristics of effective
processes. A maturity model provides a place to start, the benefit of a community’s prior experiences, a common
language and a shared vision, a framework for prioritizing actions and a way to define what improvement means
for your organization. A maturity model can be used as a benchmark to assess different organizations for
equivalent comparison. The Capability Maturity Model Integration (CMMI) is a new version of CMM.
Structure of CMM: The structure comprises maturity levels, key process areas (that identifies a cluster of related
activities that, when performed collectively, achieve a set of goals considered important), goals (that signify the
scope, boundaries, and intent of each key process area), common features (practices that implement and
institutionalize a key process area) and key practices (these describe the elements of infrastructure and practice
that contribute most effectively to the implementation and institutionalization of the key process areas).
Levels of the CMM There are five levels of the CMM. The predictability, effectiveness, and control of an
organization’s software processes are believed to improve as the organization moves up these five levels. These
are explained here:
Level 1 - Initial At maturity level 1, processes are usually ad hoc and the organization usually does not provide a
stable environment.
Level 2 - Repeatable At this maturity level, software development successes are repeatable. The organization
may use some basic project management to track cost and schedule.
Level 3 – Defined At this maturity level, processes are well characterized and understood, and are described in
standards, procedures, tools, and methods.

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Level 4 – Managed Using precise measurements, the management can effectively manage and control the
software development effort. In particular, it can identify ways to adjust and adapt the process to particular
projects without measurable losses of quality or deviations from specifications.
Level 5 – Optimizing This maturity level focuses on continually improving process performance through both
incremental and innovative technological improvements.

7. SUPPLY CHAIN MANAGEMENT

Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of
the supply chain as efficiently as possible. It spans all movement and storage of raw materials, work-in-process
inventory, and finished goods from point-of-origin to point-of-consumption.
Supply Chain Management encompasses the planning and management of all activities involved in
sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination
and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and
customers. In essence, supply chain management integrates supply and demand management within and across
Supply chain execution is managing and coordinating the movement of materials, information and funds across
the supply chain in a bi-directional flow.
Activities/functions Supply chain management is a cross-functional approach to managing the movement of
raw materials into an organization and the movement of finished goods out of the organization toward the end-
consumer. As the focus of the companies is more and more on core competencies, they have reduced their
ownership of raw materials sources and distribution channels. These functions are increasingly being
outsourced to other firms that can perform the activities better or more cost effectively. This has resulted in an
increase in the number of companies involved in satisfying consumer demand, while reducing management
control of daily logistics operations. The purpose of supply chain management is to improve trust and
collaboration among supply chain partners, thus improving inventory visibility and improving inventory
velocity.
8. ENTERPRISE RESOURCE PLANNING (ERP)

Enterprise resource planning (ERP) is the integrated management of core business processes, often in real-time
and mediated by software and technology.
ERP is usually referred to as a category of business-management software — typically a suite of integrated
applications—that an organization can use to collect, store, manage and interpret data from these many business
activities.
ERP provides an integrated and continuously updated view of core business processes using common
databases maintained by a database management system. ERP systems track business resources—cash, raw
materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll. The
applications that make up the system share data across various departments (manufacturing, purchasing, sales,
accounting, etc.) that provide the data. ERP facilitates information flow between all business functions and
manages connections to outside stakeholders.
Enterprise system software is a multibillion-dollar industry that produces components supporting a variety
of business functions. IT investments have become the largest category of capital expenditure in United States-
based businesses over the past decade. Though early ERP systems focused on large enterprises, smaller enterprises
increasingly use ERP systems.
The ERP system integrates varied organizational systems and facilitates error-free transactions and
production, thereby enhancing the organization's efficiency. However, developing an ERP system differs from
traditional system development. ERP systems run on a variety of computer hardware and network configurations,
typically using a database as an information repository.

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 An ERP system covers the following common functional areas. In many ERP systems these are called and
grouped together as ERP modules:
 Finance & Accounting: General Ledger, Fixed Assets, payables including vouchering, matching and
payment, receivables Cash Management and collections, cash management, Financial Consolidation
 Management Accounting: Budgeting, Costing, cost management, activity based costing
 Human resources: Recruiting, training, rostering, payroll, benefits, retirement and pension plans, diversity
management, retirement, separation
 Manufacturing: Engineering, bill of materials, work orders, scheduling, capacity, workflow management,
quality control, manufacturing process, manufacturing projects, manufacturing flow, product life cycle
management
 Order Processing: Order to cash, order entry, credit checking, pricing, available to promise, inventory,
shipping, sales analysis and reporting, sales commissioning.
 Supply chain management: Supply chain planning, supplier scheduling, product configurator, order to cash,
purchasing, inventory, claim processing, warehousing (receiving, putaway, picking and packing).
 Project management: Project planning, resource planning, project costing, work breakdown structure,
billing, time and expense, performance units, activity management
 Customer relationship management: Sales and marketing, commissions, service, customer contact, call
center support — CRM systems are not always considered part of ERP systems but rather Business
Support systems (BSS).
 Data services : Various "self–service" interfaces for customers, suppliers and/or employees.

9. BUSINESS PROCESS OUTSOURCING (BPO)

When some or all non-core processes are subcontracted, it is called Business Process Outsourcing. The
main aim of Business Process Outsourcing is to allow the company to invest more time, money and human
resources into core activities and building strategies, which fuel company growth.
BPO is the current trend in view of the vibrant global markets which are dynamic and highly competitive.
A company must focus on improving productivity and yet, cut down costs. Therefore, all such tasks that use
up precious time, resources and energy are being outsourced. BPOs, or the units to which work is being
outsourced, are highly flexible, quicker, cheaper and very efficient.
BPO helps free up a firm’s capital while reducing cost. The functions or processes being outsourced range
from manufacturing to customer service to software development and much more. Many of the companies that
seek to outsource are in the western hemisphere and most of the BPO units are in the east, like India, China,
Malaysia and even Russia.
Business Process Outsourcing (BPO) is the contracting of a specific business task, such as payroll, to a
third-party service provider, Usually, BPO is implemented as a cost-saving measure for tasks that a company
requires but does not depend upon to maintain its position in the marketplace. BPO is often divided into two
categories; back office outsourcing, which includes internal business functions such as billing or purchasing,
and front office outsourcing, which includes customer-related services such as marketing or tech support.
BPO that is contracted outside a company’s neighboring country is sometimes called near-shore
outsourcing, BPO that is contracted to a company’s neighboring country is sometimes called off shore
outsourcing, and BPO that is contracted within the company’s neighboring country is sometimes called
onshore outsourcing.
The most common examples of BPO are call centers, human resources, accounting and payroll
outsourcing.

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 10. BUSINESS PROCESS REENGINEERING (BPR)
BPR is a management approach aiming at improvements by means of elevating efficiency and
effectiveness of the processes that exist within and across organizations. Business process reengineering is
also known as BPR, Business Process Redesign, Business Transformation, or Business Process Change
Management.
In Other words of Hammer and Campy BPR is ‘the fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in critical contemporary measures of performance, such
as cost, quality, service and space.”
Business strategy is the primary driver of BPR initiatives and the other dimensions are governed by
strategy’s encompassing role. The Organization dimensions reflect the structural elements of the company such
as hierarchical levels, the composition of organizational units and the distribution of work between them.
Technology is concerned with the use of computer systems and other forms of communication technology in
the business. In BPR, information technology is generally considered as playing as role as enabler of new
forms of organizing and collaborating, rather than supporting existing business functions. The people/human
resource dimension deals with aspects such as education, training, motivation and reward systems. The concept
of business processes- interrelated activities aiming at creating a value added output to a customer-is the basic
underlying idea of BPR. These processes are characterized by a number of attributes: process, ownership,
customer focus, value-adding and cross functionality.

11. BENCH MARKING

Benchmarking is the process of comparing an organization’s and internal processes against those of
other organizations within or outside its industry. The other organizations against which the comparisons are
made, known as ‘benchmark partners’, are usually those that are perceived to be the best performers in their class.
Benchmarking is a systematic process---it must have a framework and use a standard set of attributes that are
measurable to compare multiple organizations objectively. Benchmarking must be performed on a specific area or
activity only, such as operational best practices, information technology, staffing, compensation packages,
distribution systems, budgeting, and the like. Limiting the scope of the benchmarking activity allows the
formulation of a more focused agenda that provides more useful information from better-targeted benchmark
partners.
In general, benchmarking partners are classified into four (4) categories: (1) internal, which pertains to
departments, factories, etc. of the same company; 2) competitive, which pertains to direct competitors; 3)
functional, which pertains to best-in-class organizations who are in the same field or activities; and 4) generic
which pertains to leading organizations from various fields and industries.

12. BALANCED SCORECARD (BSC)

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 Balanced Scorecard is a new approach to strategic management developed in 1990’s by Robert Kaplan
and David Norton. This approach replaces the customary practice of
 Evaluating the performance of an organization or individual in the organization in terms of profits made or
market share gained etc.
 Designing the performance management systems around the annual budget and operating plan. These
promote short term, incremental tactical behavior.
The balanced scorecard suggests that we view the organization from four perspectives. Each of the above
perspectives will be analyzed in terms of objectives, measures targets and initiatives. All these are integrated with
vision and strategy. The questions that are asked in each of learning and growth perspective. The process of
preparation of balanced scorecard involves developing metrics, collecting data and analyzing it relative to each of
these perspectives:
The learning and Growth Perspective: This explains how we will sustain in our ability to change and
improve to achieve our vision.
The Business Process Perspective: This analyses what business processes we must excel at in internal
business internal business processes to satisfy our shareholders and customers.
The customer Perspective: This explains how we should appear to our customers in improving customer
relations to achieve our vision.
The Financial Perspective: This outlines how we should appear to our shareholders in financing enterprise to
succeed financially.