To make a diagnosis, doctors ask patients about their history and symptoms. They’re looking for signals pointing to a problem. A ship’s pilot looks for familiar landmarks to find the safe channel. A business analyst uses the same approach, looking for familiar signals to find improvement opportunities, based on experience in assessing many companies. The analyst starts with a set of questions.
When the analyst asks what you do, why you do it that way, and what you don’t do, resist the natural tendency to be defensive! Remind yourself that every weakness today is an opportunity to improve quality and profits tomorrow. Rather than withholding information and rejecting new ideas, work with the analyst to seek out the signals to start your growth engine! You wouldn’t withhold symptoms from the doctor, so don’t hide signals from the analyst you hired to make your business healthy.
What to Look for: The Eight Wastes
Waste is any activity that absorbs resources but creates no value in the customer’s eyes. You and the analyst will identify opportunities by examining your operations to find the Eight Wastes (muda) made famous by the Lean movement, based on the Toyota Production System. They are:
1. Overproduction: Some steps or some entire processes produce more than is needed now; excess sits in inventory. The solution is small batch sizes, and quick set-up time between batches.
2. Inventory: This is money sitting idly, adding no value. It could be raw material, or partially completed production, or finished goods awaiting sale. The solution is ordering in small amounts (“just-in-time”) while managing shipping costs, and processing in small batches to avoid stockpiling finished work. This requires good demand forecasts and efficient setup routines.
3. Waiting Time: Work waits in queues if it is completed before the next step is ready to handle it. People wait for work (shifting to nonproductive tasks in the meantime) if the prior step takes longer than their step. Both types of waiting time make production slower, resulting in resources adding cost without adding value.
Many solutions can be considered. The first is balancing the workflow, so all the steps take the same amount of time, called takt time. Another is eliminating handoffs, so there are fewer waiting queues. Quality initiatives can minimize rework, which makes all the downstream steps wait for nonproductive do-overs. Other solutions include shorter set-up time, parallel processing, and subassemblies.
4. Transportation: Time and effort spent moving materials, partially finished assemblies, and finished goods add no value to the finished product. These tasks delay finished goods and sales, tying up resources in the meantime. Solutions deal with logistics: locating production closer to markets, locating supplier and storage closer to production, shipping at night, receiving at night, and ordering with proper lead times.
5. Over-Processing: Avoid time and machine hours spent producing “bells and whistles” which add no value for customers, i.e., they do not enable a higher price. The solution lies in revising product design, especially any design element that requires use of a crucial or “bottleneck” machine also used for key production steps. You want to make sure the load on such machines is limited to only the essentials, since their availability determines your pace of output.
6. Motion: Time spent moving people or materials from one place to another within the production process adds no value in the customer’s eyes. The solution can involve layout of the production facility’s machinery and storage, assignment of tasks to workgroups, and finding faster ways to move.
7. Defects: Poor quality production results in wasted material (scrap), wasted labor hours for rework, and warranty costs. These not only waste resources themselves, but can slow the entire output cycle, delaying cash flow and making downstream resources less productive due to waiting time.
Solutions involve standards and measurements, in-process inspection by the workers themselves, designing methods and tools that prevent mistakes (poka-yoke), holding each workgroup accountable for correcting its own mistakes, and incentives for achieving both quality and productivity targets together.
8. Underutilizing Skills: When people can do more than they are asked to do, the money spent on others doing that work is waste. The solution is to look to your own staff first. Recognize that one person can operate more than one machine, and fill more than one role. Consider work cells where one or more people handle a variety of tasks as a team. Challenge the team to invent new methods for significant change.
Keeping in mind the Eight Wastes, you and the analyst will look for signals that point to Waste, to find opportunities to remove it.
- Piles of Work in Progress indicate an unbalanced production line, bottlenecks, and parts shortages. These can signal several types of waste, such as overproduction, waiting time, over-processing, defects, inventory, and wasted motion to move around the piles.
- Scrap, field failures, and warranty costs indicate defect wastes.
- Rework hours indicate defect wastes as well.
- Machine downtime can indicate wasted hours as employees wait for work.
- Uneven line speed is another indicator of employee waiting waste.
- People waiting for work, and work waiting for people.
- Absence of visual progress indicators hides quality and delay issues, resulting in waiting and defect wastes.
- Absence of standardization and measurements also hides quality and delay issues, and hampers improvement decisions.
- Employee workpaths, such as chasing parts and visually checking inventory before taking an order, can reveal inaccurate inventory waste as well as excess labor hours.
- Transport time and costs involve their own expense and delays.
- Excessive customizing suggests wastes such as over-processing and waiting.
- Absence of any recent 5S event suggests wasted inventory costs, potential safety issues, processing delays for finding the right tools, and wasted motion as workers move around barriers such as surplus materials and machines.
- 5S stands for Sort, Straighten, Shine, Standardize, Sustain. It is a Lean technique to transform a sloppy shop into a smooth-running machine by disposing of unnecessary supplies, tools, and equipment, while sorting the remainder into a clean layout that supports efficient production. The morale boost is an additional benefit!
- Inventory turnover analysis assesses money tied up in unused materials and finished product. One benchmark is a two-week supply. Comparing your turnover to industry benchmarks reveals the waste.
- Absence of performance measurements for key suppliers suggests possible part shortages, quality issues, and even cash management problems.
- Absence of recent competitive bids indicates that material costs may be too high.
- Absence of outsourcing comparisons signals opportunities for process improvement and cost savings.
- Asset utilization measurements reveal bottlenecks and surplus, each representing their own types of waste.
- Absence of forecast vs. actual comparisons indicates potential for excessive inventory or staff, as well as cash flow issues.
- Absence of measurements on “% quotes accepted” can reveal pricing and differentiation problems, which can turn into wasted inventory and hours.
- Statistics on the timing and accuracy of invoices and payments can suggest problems in these processes. These can threaten cash flow, the lifeblood of the business.
- Absence of documentation for key processes, often due to over-reliance on the knowledge of a few key workers, creates greater risk if they leave, potential internal controls problems, and wasted opportunities to improve those processes.
- Weak internal controls create the risks of fraud and poor cash flow. Internal controls are methods to ensure the integrity of operational, financial, and accounting information. They also ensure that management policies are followed throughout the organization. One example of internal controls is the requirement that at least two employees are involved in every financial transaction.
- Distributed authority to reduce prices creates the risk of poor margins, damaging cash flow.
- Operating more than one IT system indicates unreliable information flow due to discrepancies between systems (e.g. inventory, variable cost, margin analysis). Wasted hours is one result.
Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business, certified as a Turnaround Professional (CTP), Business Development Advisor, and SCORE Mentor. He can be reached at 630-512-0406 or email@example.com. See www.tom-gray.com. For Tom’s new book Business Techniques for Growth: More Tools for Small Business Success, and its predecessor Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbooks.com/
Have something to say? Share your thoughts with us in the comments below.