Some forms of waste can be tricky to spot, but it’s vital to eliminate all waste. We are regularly surprised by the amount of waste that occurs in manufacturing and supply chain businesses. When I meet with clients who are looking to improve their bottom line performance, I always ask them, “Do you know where the waste is in your operation, and are you able to identify how to reduce it?” I encourage you to consider that question.
How long has it been since you challenged your waste allowances? Too often we see these allowances included in production costs, with waste only counted when these allowances are exceeded. I believe that a healthy manufacturing business should have little or no waste.
Waste can come from within the manufacturing process and supply chain or as we often find, in wasted human capital resources. It sounds obvious but we know that some forms of waste can be difficult to spot.
Many business leaders can be shocked when they realise the levels of waste that are embedded in their business culture and how easily management accept it.
Have you considered how much waste occurs in your business every day? Waste can be well hidden in but it is often in plain sight. Some key areas to start looking at are listed below.
A large expense in most manufacturing businesses is overproduction. Making a great quantity of products before they are needed can be a costly problem. But when resolved, profitability and productivity will both improve.
Investing in materials to produce goods that are not required unnecessarily ties up cash that could be used more effectively. We often find that manufacturers are stuck in a cycle of overproduction because that’s the way it’s always been done. Overproduction may also be the result of equipment usage; if a machine has a long set-up process, larger quantities are produced to maximise throughput. Another reason for overproduction may be incorrect sales forecasts.
The first step in resolving the issue is identifying the problem. The next step is implementing principles that focus on “just in time” manufacturing while also considering ideas for improving equipment set-up times. This leads us to the next point: inventory.
Are you holding too much excess stock? It’s a good idea to set goals and fully understand how much inventory is required to fill orders. When you keep excess inventory, there is a physical cost, and if you are funding your inventory with borrowings, there is an interest charge that needs to be considered too.
As well as the above the line costs, there are also some hidden costs tied up in holding inventory. These include the costs associated with storage and keeping track of stock and perhaps even insurance. The longer stock is held, the greater the risk of damage and potential for write offs if the inventory becomes obsolete.
Inventory includes the raw materials that are awaiting production or the finished goods that sit in the warehouse waiting for customer orders. When levels of inventory waiting for the next step in the manufacturing process build up, a focus needs to be placed on that bottleneck to streamline production. That leads into the next point: waiting.
Like most manufacturers, your wages bill will be one of your largest expenses. Employers are paying for the idle time employees spend waiting for:
- a previous process to complete
- the next step in the manufacturing process
- breakdowns to be resolved
- delivery of components or stock
- information from superiors or other departments
- direction on what product is required next
- slow operators or other employees.
If this waiting occurs during overtime, it’s even more costly to your business. Streamlining manufacturing and balancing your production processes will eliminate the majority of waiting in your business. Planning can be a key tool in reducing waiting times, while minimising equipment breakdowns and keeping employees productivity levels high will also reduce waiting.
When we work with clients, we closely evaluate the value stream to understand what elements of the production process a client is prepared to pay for. Excess motion is one of these areas. Motion waste is any movement of a person or equipment that does not add value to the production process. When we move a product it’s not transformed in any way, and therefore it’s a waste.
Excess movement over a long period of time can lead to injury in people or unnecessary wear and tear in your machines. This can lead to breakdowns that have an impact on productivity and production times.
The goal is to reduce the movement of people, machines and inventory. This usually requires a reorganisation of work spaces because poorly arranged work spaces lead to inefficiency and sometimes injury.
Adding more value to a product than a customer is prepared to pay for is over-processing. It’s vital to understand what your customer values, why they buy your product and what they are prepared to pay for when deciding where over-processing may be occurring.
The cost of over-processing can be high because it can reduce productivity and means that your employees are spending time performing tasks that are not required rather than completing other more profitable tasks.
Defects are probably one of the first areas people think of when we talk about production waste. A defect is when a product produced deviates from its specification or is faulty. The costs of defects go beyond the obvious costs related to manufacturing the item.
What are these costs? The costs vary depending on when the defect is identified, but some areas to consider are the costs of:
- problem solving
- machine setup
- increased lead times
- customer loyalty
- product recalls.
Many of the causes of defects are avoidable with the right planning and product design. A culture of continuous improvement will help to eliminate defects. Keeping employees trained to identify defects early in the production cycle can also help to reduce waste.
Transportation doesn’t only occur when the product leaves the warehouse, it’s anytime the product moves during the manufacturing process. One of our clients achieved significant savings when we recommended moving a production step from one side of the factory to the other. The move bought the step closer to the earlier production step which enhanced efficiency and eliminated delays. Their product was heavy and it was not only time consuming to transport the goods across the factory floor, it was also causing injuries to employees.
Unnecessary transportation can also be avoided by looking at the location of your suppliers. Finding suppliers that are closer to your production facilities will reduce the time, cost and risk associated with moving goods. Whenever goods are transported, you risk increasing wait times.
Let’s face it, excess transportation not only has an impact on productivity, the risk of damage and loss is amplified, both of which affect the bottom line. There are many ways that excessive transportation can be eliminated to maximise your production processes and drive profitability.
I hope we’ve provided some useful insight into areas that need to be explored if you’re looking to increase profitability in your business. Our team are experts, and to help you minimise waste in your organisation we are offering a free consultation, please click here to contact us and arrange it.