In many industries, profits are a direct reflection of the degree of operational waste in the company. The less operational waste, the higher the profits. The higher the operational waste, the lower the profits. Too much waste, and a company could quickly be at a loss.
Although recognition and acknowledgement of this operational tightrope may be painful, it carries with it a tremendous opportunity — the company that can identify and correct operational waste can gain the ultimate competitive advantage. It’s the most efficient company, with the lowest operational cost, that can always win the inevitable margin wars.
What exactly is the impact of eliminating waste at your company? The answer is different for each organization, but look at the possibility of trimming your operating expenses from as little as 1% to as much as 15% and you will have the range of impact.
To identify the waste in your operations, ask yourself the following three questions:
1) Where are we “reworking?” Rework is any activity that was not done right the first time and must be done again. Typical areas of rework in operations are:
Inventory control
Customer orders (specifications)
Invoices (quantity, price)
Billing statements
New account set-up
Account collections activities
Driver scheduling
Store shift scheduling
Computer month-end closing
To identify your worst offenders, watch for the daily or monthly crisises that occur time after time in your business. Any time you observe a high level of stress or emotion in the workplace, you’ve likely identified rework.
To segregate isolated incidents from constant problems, start making notes about the activity associated with the crisis. If after a month or two you see repeat offenders on your list, you’ll know you’ve identified problem areas of operational waste.
2) What is the root cause of the rework? Rework is merely a symptom of an inefficient process. After identifying recurring areas of rework, your next challenge is to look for the root cause — identify exactly what is causing the problem.
For instance, if your rework lies in end-of-month inventory control, you may find that the root of that problem is the processing of incoming stock, not the end-of-month count. You may find that if new, incoming inventory was entered more accurately into your computer system, you would be able to elminate many end-of-month procedures.
One company that used this type of analysis on inventory control found dramatic savings. The main hours spent on inventory were reduced from 444 hours per month to 65.43 hours, an 85% reduction. The company had been paying over $5,000 per month in overtime due to inventory problems. That number was reduced by over $4,000 per month to only $736. The inventory discrepency (book versus actual) was reduced from $63,000 per month to only $2,400 per month. Anytime you can streamline a process, reducing the opportunity for error, you’ve taken a big step in reducing waste and operating more efficiently.
3) What activities in my organization are not bringing value to my customers? Too many of our daily hours are spent in non-value-adding, time-wasting activity. What activities do you and your staff routinely perform that are not beneficial to your customer, or worse, take away from good customer service?
Have each person in your organization list the activities they do each month that they consider counter-productive to good customer service. Next, bring all the lists together and see if you can identify commonality in activities. Segregate the common activities into logical groups. After grouping these non-productive activities, brainstorm how they might be eliminated or streamlined.
By asking, answering and then taking action on just these three questions, you will be well on your way to eliminating waste in your organization.
