If efficiency is one of the primary drivers of profitability, why do so many businesses waste assets—physical, financial, and human—with such regularity? Solving this age-old problem is the basis of “lean production,” a modern offshoot of the Toyota Production System (TPS) which was the management/production efficiency philosophy made famous by Toyota Motor Corporation. Lean production aims to identify and focus on what adds value to your organization by reducing that which does not.
Even if your organization provides services instead of producing durable goods, inefficiencies can damage your output, slow your response time, and ultimately take a toll on your bottom line. Here are the seven types of waste identified by lean production and how to eliminate each.
Wasteful Habit #1: Overproduction
Producing an abundance of units to meet perceived customer needs results in overproduction that drains resources without providing gains. Avoid producing “just in case” inventories and focus your efforts on producing the right quantity of products “just in time.”
Wasteful Habit #2: Delays & Waiting
The old adage still holds true: time is money. On a stand-alone basis, slowdowns or delays may seem insignificant. However, over time they will add up. Examine all areas of “flow” in your organization: communication, operations, material re-supplying, order fulfillment, etc. Identify aspects of your methods where the flow is stalled and adjust your process ASAP. If you have a hard time distinguishing bottlenecks, an outside business advisor with an independent perspective can help you reveal opportunities for improvement.
Wasteful Habit #3: Inefficient Transportation
Moving inventory—or sales teams, or conference supplies, or any other mobile aspect of your business—in a last-minute or ad hoc manner piles on costs that sting doubly because they could have been avoided. Proper planning and clear guidelines for travel and expense reimbursement trim unnecessary transportation costs.
Wasteful Habit #4: Inappropriate Processing
Whether it’s wrenches for assembling widgets or your online collaboration software, using the wrong tools for the job not only wastes money, it stifles efficiency. Invest in proper tools and training but avoid expensive high-precision equipment or processes where simpler methodologies can achieve an acceptable result.
Wasteful Habit #5: Holding Excess Inventory
A close cousin of overproduction and waiting, this wasteful habit requires the use of valuable resources, including storage fees and precious attention from your staff. Audit your inventory (in service-based businesses, this includes offerings that are not core moneymakers but occupy your staff’s time) and trim the “inventory” that doesn’t serve your organization.
Wasteful Habit #6: Unnecessary Motion
The physical setup of your workplace can drain efficiency and productivity. Unnecessary bending, reaching, lifting, walking, locking/unlocking, and keying in/out distract employees from the task at hand. Invest in ergonomic upgrades to reduce these extra steps and make it easier for staff to operate at their best.
Wasteful Habit #7: Letting Defects Slide
Bad products or sub-par service are the very definitions of “waste.” Product returns and service complaints set your staff back to square one with incurred costs that are unrecoverable. By implementing checks and balances throughout your operations and production, you can catch mistakes before they make it out the door.
Don’t be afraid to take a closer look
Every business incurs waste. Some are easy to spot, and some require much deeper digging. To identify areas where efficiency is weakening, conduct a process called a ‘waste audit’. Using the seven areas above as a guide, task internal teams or an independent business advisor with reviewing business processes for waste. Before getting started in earnest, devote time to developing key performance indicators (KPIs) to set goals for the teams and establish the cost/benefit milestones to be evaluated.
Be sure to keep the waste audit process itself lean and mean. Prioritize your waste audit and removal plan to tackle the most critical issues first. Start with the most apparent waste-trimming opportunities and work your way up to more complex issues. Take care not to overburden teams with too many members and be sure not to lose momentum with a too-long timeline.
An ongoing process
Repeat and refine your audit process regularly to root out the sources of waste and implement attainable changes that prevent its return. Left unmonitored, it’s surprisingly easy for old wasteful habits to creep back into a business.
During good times where profits feel comfortable, identifying waste in your organization may not be a top priority. However, one unexpected economic downturn can leave you scrambling to immediately ‘cut costs.’ It’s a tough pill to swallow if many of these wasteful expenses could have been trimmed long ago.
Are you ready to eliminate waste and tighten your operations? Haskell & White’s experienced business advisors can help your organization find ways to be more productive and profitable.