We have all heard about reducing waste to improve the efficiencies and profitability of an organisation. Quite often though it is hard to determine where to begin and what to do to find and reduce waste that exists. During a presentation to a group of lawyers recently, we reflected on the classic Toyota case study to give 7 tips to reduce waste.
After years of work to remove waste, Toyota, the Japanese automobile manufacturer, identified seven categories of waste that were most prominent in their organisation. What we found interesting is that like many businesses waste often stems from a failure to fully utilise employees. It is only by using the employees knowledge and ideas that the other seven wastes issues can really be identified and reduced.
Here are the top 7 wastes along with some examples:
- Overproduction is to produce more than needed or to produce it before it is required. It is the result of producing to the ‘Just in Case’ scenario instead of ‘Just in Time’. In a professional services firm this involves starting on client’s work before all instructions or information required are received. When the complete instructions are finally forthcoming the job has to be reworked due to incorrect assumptions made or changes that occurred before all the information was available.
- Waiting occurs whenever time is not being used efficiently. Much of a product’s lead time is tied up in waiting for the next step. This usually is because the material flow may be poor, the production run too long or the distances between work centers too great. It is not unusual for a product to spend 99% of its time waiting. Waiting may sometimes seem to contradict overproduction, but time can be used to add value by improving the processes. In the professional services game this is often referred to as bottlenecks. For example where a job is waiting to be reviewed by a Director, collated for finalisation by the administration team or waiting on queries to be answered by the client. These instances can cause inefficiencies when the delays cause team members to re-familiarise themselves with the job or the delays cause client dissatisfaction.
- Transporting - Customers generally do not want to have to pay for transportation so this is a clear source of non-valued cost. Where meetings need to occur at a client’s premises efficiency can be gained by scheduling based on the time and location to minimise travel distances and time. For example arranging these meetings to coincide with travel to or from the office or alternatively group meetings in similar geographic locations together.
- Inappropriate Processing can be easily explained by using the analogy ‘using a sledge hammer to crack a nut’. Are you using the right person/tool/process for the job? Are you using big expensive, high precision equipment when simpler tools would suffice? Are you using an appropriately qualified and skilled person for the job? For example having a partner or senior advisor complete a lengthy standard form or at the other end of the spectrum getting a junior administration team member to research a complicated issue outside their area of knowledge.
- Unnecessary Inventory held for a reseller ties up working capital. In a professional services firm inventory is the Work in Progress (WIP) and excess WIP is a direct result of overproduction and waiting. Reducing WIP allows the other problems to surface including getting to the source of profitability issues as previously discussed.
- Unnecessary Motions is related to ergonomics and is seen in all instances of bending, stretching and reaching. They are also OH&S issues which in today's litigious society are becoming more of an issue. Examples include overloading a box so that it is too heavy to carry safely or sticking a heavy item on a high shelf potentially causing issues if someone grabs it.
- Defects cost money either now or later and their costs come directly from the bottom line. They can be internal defects found before presenting work to the client and incur the costs of rework and/or delays. Alternatively they can be external defects which are discovered after the work has been delivered to the client and then incurs cost of claims, rework and potential loss of the customer to the business.
Addressing waste by evaluating these categories in the context of your business can identify many ways where profitability can be improved. Consider making the waste reduction activity a part of every employees job description. Continuous improvement of the processes and reduction of waste will ensure that your business has a strong competitive edge. Keep in mind that these savings go direct to the bottom line of the business as profit. Further the impact on customer service and quality is also a benefit that can pay ongoing dividends through client retention and possible referrals in the future.
For assistance reducing waste to improve efficiencies and profitability within your business speak to your usual Hanrick Curran advisor or alternatively contact Tim Taylor or Nathanael Lee on 07 3218 3900.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.