A pledge or intention to reduce waste in business is of no consequence if we do not understand how to identify waste in business! The main objective of a business owner or manager is to maximise profitability. Simply put, profit is a function of two broad elements, i.e. revenue and costs. So the choice is simple – either increase revenue or reduce costs, or better still, do both.
In this day and age of intense competition, increasing revenue can be quite the challenge. It may be easier to look within to identify opportunities to unlock the hidden potential of your business. Reducing Waste will not only help in increasing profitability through more efficient operations, but also focus on value-addition for your customers. But where do we start? In order to reduce waste in business, we have to identify Waste first.
Reduction (or Elimination) of Waste is one of the cornerstones of Lean. It is a tried and tested principle perfected by Toyota, and adopted earnestly by others around the world. Due to its pioneering usage by Toyota, it is also referred to widely as the Toyota Production System (TPS). It was born out of a necessity to utilise scarce resources in the aftermath of the Second World War. In principle it is a continuous two-step process:
- Identify Waste
- Eliminate Waste
In this article we shall focus on how to identify waste in business – whether it is a single process or the entire value stream.
The mere thought of how to identify waste in business can be mind-boggling, as the possibilities appear to vast and limitless. However, there is no need to worry as the pioneers and consolidators of Lean have come up with an easy way to help us identify the different types of Waste – TIMWOOD. If you are looking for ways of how to identify waste in business, TIMWOOD is your best friend. The acronym TIMWOOD simply stands for:
- Motion or Movement
- Defects or Scrap
Collectively, also referred to as 7Ws or Muda (Japanese term for “waste”), each of these elements waste valuable resources that could have been utilised to further the business objective. Let us understand these different types of Waste in a bit more detail (Refer to the embedded video for a quick teaser).
So let us read on and understand how to identify waste in business.
Transportation of factors of production, inputs and outputs are all considered to be a waste, e.g. raw materials shipped to different sites, employees travelling to client sites, finished goods being transported from the factory to the warehouses for distribution. In fact, this is one of the reasons why manufacturers try to optimise transportation costs. You may refer to Weber’s Theory on Location of Industries for more details. Reducing Transportation also has a cascading effect on at least another form of waste, i.e. Motion or Movement (discussed in the next paragraphs).
Inventory or Stock is one of the key areas that drive wastage. High Stock of raw materials, WIP, finished goods all contribute to wastage. Inventory levels need to be reduced/optimised based on utilisation in order to reduce waste in business processes.
Motion or Movement
Motion or Movement refers to human motion, e.g. keystrokes, movement of hands and feet (e.g. while operating machinery), physical movement of people and objects. The topic of optimising Motion or Movement has been a subject of intense analyses through Time & Motion Studies. The lesser the Motion or Movement, lesser the wastage.
This is probably one of the easy ones. We do not need to be reminded how frustrating it is to wait in a queue that inches forward like a tortoise. In order to Reduce Waste we need to reduce Waiting, e.g. waiting for inputs from the previous (or upstream) process, waiting to handover outputs to the next (or downstream) process. All of this contributes to Waste.
Another source of waste is over-production, e.g. producing goods in an assembly according to a pre-determined schedule without any consideration towards customer demand. Over-production also has a multiplier effect as it contributes to higher Inventory levels. So it adds up to more than its own. By eliminating Over-production we can Reduce Waste across the production processes.
We all like to think about exceeding customer’s expectations and go the extra mile for the customer. But we need to strike a balance between meeting and exceeding customers’ expectations. A lot of waste can be reduced by avoiding unnecessary and costly extra processes before the output is signed-off for customer usage. Every extra unit of effort adds up to the final bottom-line.
Defects or Scrap
Defects or Scrap translate directly into hard cash losses. Every unit of output that turns out incorrectly or defective requires further investment of time and money to rectify the issue or a straight loss for unrepairable units that are to be scrapped. Needless to say, customers are not paying for this extra work. So, there is no way to recoup.
Reducing Waste in Business Processes has a direct impact on profitability. Furthermore, by reducing waste and increasing the proportion of value-added activities, businesses can afford themselves the headspace to focus more on customer-centric models which inherently will contribute to increase in revenue.
Hopefully you now have some pointers on how to identify waste in business and will are ready to take the first step on how to reduce waste within your business. In order to find out more about how we can help you to Reduce or Eliminate Waste within your business, please feel free to contact the Nishtha Consulting team for a no-obligation free discussion at your convenience.