How much profit is your business losing to wastes hidden inside your operations every day?
Waste elimination is one of the most effective ways to increase profitability in your business. To get rid of waste we need to fully understand exactly what waste is and where it can be found.
Processes either add value or are a drain on the production of an item or delivery of service. From time to time, it is important to identify the underlying causes of poor profit performance and peel back the inefficiencies that can undermine your profitability.
Studies have shown that waste can account for up to 30% of the operating costs of an organization.
The 7 Wastes
The Waste Audit is a tool we use to identify the 7 common causes of waste in an organization and to develop specific actions to address the highest priority issues. The following 7 wastes are the most prominent.
1. Overproduction. Producing more than needed or producing before customers require it. It is the result of producing to the Just in Case scenario instead of Just in Time. Paying excessive over time is another example.
2. Waiting. This occurs whenever time is not being used efficiently. Much of a product or service’s lead time is tied up in waiting for the next operation. This usually is because material flow may be poor, the production run too long or the distances between work centers are too great. It is not unusual for a product/service to spend 99% of its time waiting. Waiting may sometimes seem to be a healthy counter to overproduction, but time can be used to add value by improving the processes. Waiting for a decision to be made is a common area of inefficiency.
3. Transporting. Customers do not want to have to pay for transportation between processes, so this is a clear source of non-valued cost. More than this, every transport event is an opportunity for damage/loss to occur and quality to deteriorate.
4. Inappropriate Processing. Can be easily explained by using the analogy, using a sledgehammer to crack a nut. Are you using the right tool/process for the job? Are you using big expensive high precision equipment when simpler tools would suffice? Are you using the right person for the job?
5. Unnecessary Inventory. Includes finished products and “Work in Progress” (WIP) and is a direct result of overproduction and waiting. Reducing WIP allows the other problems to surface. The analogy often used is that of a ship sailing along on a “sea of WIP” which hides rocks below the water level. By lowering the water level of the “sea of WIP” slowly it allows the problems to be addressed as they surface. If this is not done, there is a high probability that the ship will run aground.
6. Unnecessary Motions. Is related to ergonomics and is seen in all instances of bending, stretching, and reaching. They are also OH&S issues which in today’s litigious society are becoming more of an issue.
7. Defects. These cost money either now or later and the costs come directly off the bottom line. They can be internal defects found before sale and resulting costs include the costs of scrap, rework or delays. They can be external defects which have been delivered to customers with resulting costs from warranty claims, onsite repairs and potential loss of customers. As a rule of thumb, the cost of a defect increases tenfold for each production or supply chain step.
Putting it on the ground
We can talk all day about waste and profitability but if we cannot put impactful changes on the ground – what’s the point? We must find a way to increase the odds of successfully removing waste from your business.
Consider the following proven approach:
- First, conduct a 2 – 3-hour workshop with key employees of your team focused on the 7 Wastes. Your team will often have tremendous insight into areas of improvement.
- Second, identify the top 3 areas of waste reduction and develop a One Page Plan outlining actions, timelines, and people responsible.
- Third, schedule regular monthly meetings focused on waste reduction and reviewing and updating the One Page Plan to hold each other accountable to the actions and commitments.
Often businesses will put most of their energy into increasing sales, however pushing more sales through an inefficient system creates more waste. At least as much energy and time should be spent removing waste and making systems and processes more efficient to reap the benefits of higher profitability.