We are living through testing times…
Our governments are being tested as they try to enact programs to instill confidence in the economy and their constituents. Companies are being tested as they are forced to react to dramatic challenges in the marketplace that have seemingly materialized overnight and without warning. Individuals are being tested in the security of themselves and their families.
Although not a perfect gauge for the state of the economy, the Dow Jones industrial average has dropped from a high of just over 14,000 in the beginning of October 2007 to a low of just under 8,400 in October of 2008. In fact, the Dow was at just over 13,000 in the middle of May. How can one rationally explain such a precipitous fall in such a short time?
Likewise, how can one rationally explain the rise of oil from $90 a barrel trend in February of this year, to a peak of $145 a barrel (a 62% increase) in July and then the crash to $65 a barrel (a 65% decrease) in October? How can such a closely watched and managed commodity, such as oil, have all of this movement within less than 9 months?
I believe it is a prayer from St. Francis of Assisi; “Lord, give me the courage to change that which I can, the strength to endure that which I cannot, and the wisdom to know the difference.”
We cannot impact the stock-markets or the credit markets. We cannot affect the price of oil or other commodities. And we cannot change the economy on the macro level.
However, we can make a difference in economics on the micro-level – within our homes and within our businesses. Whether personally or in the companies for whom we work, we have the ability to make a difference – to increase productivity, eliminate waste, and have an indelible and positive effect on the bottom-line. But we have to want it and be willing to do something about it and, most importantly, we cannot be paralyzed by it.
The elimination of waste is one of the most effective and immediate ways to increase the profitability of any business or family. Every action in every process has a cost, but not every action brings a value – and those actions that do not add value only add waste.
Contained in the practice of “Lean” is the discussion of the seven wastes. Originally developed byToyota’s Chief Engineer, Taiichi Ohno, waste (or “muda” in Japanese) was classified into seven categories. The ability to identify the nature of waste and to take action towards its elimination eventually formed the core of the Toyota Production System (TPS) and Lean Manufacturing.
The seven wastes as defined Taiichi Ohno are:
Defined in its simplest form, overproduction is to make something before it is required. Not only does overproduction tie-up much needed cash in illiquid inventory, it actually inhibits the flow of materials and is a key contributor to degradation in quality and productivity.
The simple solution to overproduction is to stop producing unless there is an order. Instead, schedule and produce only what can be immediately sold (with a concentrated effort on improving machine change-over and reducing set-up times). But this requires considerable courage because overproduction hides many sins in the production process.
If you look at your production process, whenever you see idle inventory, you have waste. A great many Value Stream Maps (VSM) reveal that an excess of 95% of the production process in traditional batch and queue manufacturing will be spent waiting for the next action. In the Theory of Constraints (TOC), it is argued that an hour lost in a bottleneck is an hour lost to the entire output capability of the business and can never be recovered. Think about it, time is the one thing that cannot be recouped. Once spent, it is gone forever.
Moving inventory to and fro certainly adds cost to an item – but it adds NO value. I have been in many companies where the material is acted-upon, moved to a wait-state, moved again to be acted-upon, again to a wait-state, etc…
Production assets should be engineered and deployed so that the production process is as near-continuous as possible. But what about outside the four-walls of the enterprise – the supply chain? I read where the same hunk of metal will cross between Detroit, Michigan and Windsor, Canada almost a dozen times before it is consumed in a car. How can this not possibly be wasteful?
4. Inappropriate Processing
Make sure the proper tools are used for the appropriate tasks. Automation does not have to be expensive. And just because you have “the machine that goes ping”, does not mean it should be used in every situation. Oftentimes economical automation (often older generation equipment), when combined with immaculate maintenance and deployed under the proper circumstances will yield far greater economic results and at the same time make the company more nimble.
5. Unnecessary Inventory
When you both overproduce and wait, the result is Work-in-Process (WIP). As stated earlier, excess inventory and WIP hide many sins on the production floor but increase lead-times, take-up real-estate, and decrease quality. To improve operating performance, excess inventory and WIP must be reduced and a continuous process flow between work-centers must be engineered.
The result of achieving such an environment will give you a competitive advantage in reducing lead-times to shipment, improving overall customer service, the slashing of inventories and costs of production, and an increase in quality.
6. Unnecessary / Excess Motion
This waste is the most human related as it deals mostly with ergonomics. The types of bodily movement, the level of repetition and their intensity, and the time it takes, all have an impact on productivity. From injuries that are the result of lifting objects which are too heavy, to “repetitive stress disorder”, and everything in between – all result in waste.
Defects have a most obvious and direct impact on the bottom-line. Whether a defect results in the product requiring rework or having to be scrapped outright, the costs are tremendous. When all of the less tangible costs such as inspecting, scheduling and lost capacity are also factored into the equation, a focus on defect elimination will yield incredible results.
I have worked in many companies that the difference between being profitable and not can be a reduction of a mere 10% in defects and the associated costs.
How good can you be? Performance Improvement Potential
Cost to produce down 20-50%
Rework and Scrap down 25-90%
Lead time decreased by 50-90%
Overall cycle time decreased by 60%+
Inventory down 50%
Cost of quality reduced by 60%+
Floor space reduced by 30-70%
Purchasing costs down 5-10% every year
On-time performance TO PROMISE 99%+
On-time performance TO REQUEST 90%+
In times like now, we cannot sit idly by waiting for a bailout. We have the opportunity to determine our own destiny. All we need is the will.
Paris is the Founder and Chairman of the XONITEK Group of Companies; an international management consultancy firm specializing in all disciplines related to Operational Excellence, the continuous and deliberate improvement of company performance AND the circumstances of those who work there – to pursue “Operational Excellence by Design” and not by coincidence.
He is also the Founder of the Operational Excellence Society, with hundreds of members and several Chapters located around the world, as well as the Owner of the Operational Excellence Group on Linked-In, with over 25,000 members.
For more information on Paris, please check his Linked-In Profile at: http://de.linkedin.com/in/josephparis