IMPROVE YOUR PROFIT: HOW TO IDENTIFY AND REMOVE WASTE FROM YOUR BUSINESS

A great deal of research has been conducted into assessing the impact of wasteful business practices and their cost to individual businesses. This research was first widely published by Toyota in relation to their manufacturing activities but has since been replicated across many business types. A common benchmark is that wasteful (i.e. inefficient or ineffective) processes can contribute towards 30% of total business costs.

The identification and removal of all or a portion of this waste can have a significant impact on profitability and cashflow and is worth considering in any business. Here are five steps you can take to get you started on achieving this:

  • Draw a simple flowchart of your business or part of your business that you wish to focus on. This need not be detailed but should include the major steps/activities that are undertaken.
  • Consider each element of the flowchart and ask “How could wasteful practices occur? Use the following criteria to help you identify different types of waste that might be occurring within each element and then list them:
    Overproduction – producing more of something than is needed or producing it before it is required. This can include over-servicing, excess time or excess paperwork.
    Waiting – this can include waiting for a person, machine, materials or information to get something done. It is not unusual for a product/service to spend more than 95% of its time waiting and less than 5% of its time having value added to it.
    Transporting – every transport event is an opportunity for damage/loss to occur and quality to deteriorate. Transport also takes time and when inefficient it wastes time. It is a source of non-valued cost.
    Inappropriate Processing – this means using the wrong person (under/over qualified) or the wrong tool (high precision when a simple tool would suffice) or the wrong process (e.g. overly complex).
    Unnecessary Inventory – this includes anything with stored or under-used value and does not just relate to stock. It can include unpaid customer invoices, underutilised staff or tools and equipment that are never/hardly used.
    Unnecessary Motions – relates to ergonomics and is seen in all instances of bending, stretching and reaching. These include Health and Safety issues which can result in significant costs if not properly managed. Another example is poor office or workshop layout resulting in inefficient workflows.
    Defects – a common waste that includes defects in purchases as well as your own products and processes. Defects can result in rework, excess scrap, delays, warranty claims, subsequent remedial work and ultimately the loss of customers and reputation.
  • Estimate the cost to your business of each waste. This need not be an accounting exercise and if it seems too hard to obtain an accurate estimate, use your judgement and a scale such as high, medium or low for each waste.
  • Estimate the ease of removal of each waste. Score this on another simple scale from hard to easy.
  • Tabulate the results and rank the wastes to decide which should be addressed first. Prioritise the higher value wastes that are easier to remove.
  • Develop a plan to remove the top three wastes.

The waste identification process is usually best done as a workshop or team exercise as it can generate some great discussions around business improvement. The trick is to develop a flowchart that can act as an agenda for discussion and not to worry about which category identified wastes should be allocated to. Then get the wastes identified, rank them in terms of cost and ease of removal and work out how to remove them. Useful tools to help you do this include the Force Field and the Five Whys.

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