Remove waste and recover profits
BUSINESS OPERATORS are always seeking ways to improve their bottom line. The search for ways to improve the bottom line tends to be more intense when the economy is sluggish.
The most powerful way to maximise your business potential is to lower costs. This is the favoured response as it becomes increasingly hard to increase sales volume or sales price, or secure the ever elusive capital. How can one reduce costs without capital? The answer lies in muda dori (Japanese for waste removal).
Waste can be defined as any activity that consumes resources without creating value for the customer or any activity for which the customer is not willing to pay. Removing waste to recover profits is therefore very important. Toyota became a leader in auto manufacturing by eliminating waste and reducing costs, translating to savings totalling ¥200 billion (US$2.2 billion) annually through low- or no-cost kaizen (continuous improvement) initiatives.
The Jamaica Productivity Centre’s Technical Assistance Services Unit has assisted local entities to realise that such savings do exist. Under our guidance, two local firms have identified annual savings totalling over US$2M through low-cost initiatives and utilising available internal capacity.
Gembustu Consulting approximates that possible profit and loss impact through these initiatives may result in inventory (working capital) reductions of 75 per cent, cycle time reductions of 50 per cent to 90 per cent, and defect reductions of 50 per cent per year. How can other Jamaican entities realise similar savings while improving quality and delivery times?
Below are seven ways muda, or waste, presents itself in the generation of goods or services within your organisation:
Ë Overproduction – producing more than is required by the next process or customer, for example, in finance. This could be duplicate data entry or, in logistics, moving a volume of stock greater than the future consumption.
Ë Motion – operator, machine or worker making several movements that add no value to the product or service. This can be a result of poor layout, poor workstation design, or persons not knowing where to find items needed to carry out their work function, among others things.
ËInventory – keeping unnecessary raw material, parts, works in progress and finished goods. This increases the risk of items being obsolete and can hide more serious operational problems.
Ë Conveyance/Transport – Conveyance itself is muda because it creates no value. Obviously, parts and products must be transported, but movement beyond the absolute minimum is muda. Institutions with large distances between processes have to be wary of this waste as this increases operational cycle time and consumes resources.
Ë Waiting – Operators stand idle as machines cycle, equipment fails, documents approval circuit takes too long, and computer system downtime or need for parts cause delay.
Ë Over-processing – unnecessary or incorrect processing. One company visited in Japan had within their processes a step to clean the product with an expensive chemical. With the addition of heat to a previous step, this step was eliminated, saving the company thousands annually and eliminating the use of a hazardous and expensive chemical.
Ë Defects – this includes rework, scrap or even excess inspection. Quality should be built into the process and defect stopped and not passed on to the next step.
These non-value-added activities can cost your company profit opportunities and can put it in peril. Can any of these be identified within your organisation? How much is it actually costing you? Even small advances in removing waste can yield significant results. A company-wide drive to find lowcost initiatives to remove waste can lead to incremental improvements in quality and productivity and a reduction in cost and lead time, making profit maximisation a reality.