Waste costs the average business in Australia tens of thousands of dollars each year, if not more. In the course of daily business operations, various resources are consumed such as employee hours, costs of machines and equipment, etc. All of these have costs attached to them.
Ultimately, these costs have an impact on the product or service the business offers or they may come out of the business owner’s pocket. If you find that your service or product cost isn’t competitive in the current marketplace, you should consider getting a waste audit – a cost reduction strategy you shouldn’t ignore! So what exactly are the primary areas of waste and how can you as a business eliminate or reduce them?
Toyota’s Seven Wastes Model
Taiichi Ohno, who was the Chief Engineer at Toyota (the well-known Japanese multinational automotive manufacturer), developed this model, which is relevant for businesses of all shapes and sizes. He identified seven important waste areas for businesses: Transportation, Inventory, Motion, Waiting, Overproduction, Over-processing and Defects. Here is a brief look at these waste areas:
#1 Overproduction
If a business can control the production of goods based on guaranteed sales that becomes a cost-efficient proposition and can help reduce the price of the product. Overproduction of products to meet unguaranteed demand is a waste of time, money and space. Replacing a “Just in case” scenario with a “Just in time” policy helps avoids wasteful overproduction, if there is no guarantee of sales.
#2 Over-Processing
The improper use of equipment and labour for production processes results in over-processing. For example, it’s essential to identify whether highly qualified people are working in jobs meant for low-skilled employees or whether capital intensive machinery is installed where simple machinery can do the same work.
#3 Waiting
The inefficient use of time results in “waiting”- this is time gap that creeps into the production processes. Waiting can take up even 99% of the time in certain production processes and even after the completion of a product cycle. It is a waste that increases the cost of production.
#4 Inventory
Raw materials or finished product inventories represent a considerable cost for many businesses. They are not signs of the strength of the business, but a waste that eats into its profits and it’s important, making it necessary to either reduce or eliminate them.
#5 Transportation
Internal processes that use transportation to move products add to business costs but not to the value. They need to be reviewed and minimised. Internal transportation costs cannot be transferred to the buyers. The solution lies in eliminating the excessive movement of stocks and products by bringing about changes in the workplace layout at each stage of production.
#6 Motion
Factory and office layouts need to eliminate the unnecessary movement of products and services through multiple hands. Time and cost-efficient layouts increase the overall efficiency of a business as well. A motion study can identify ways to achieve these layouts.
#7 Defects
One of the most efficient ways to run a business is to adopt a zero-defect policy. Replacing or re-working a product is an addition to the cost. Identify the sources of defects such as systems, processes or human error and set up a mechanism to eliminate them
Once you have identified and quantified waste in each of these areas, you need to assess these against how easily you can fix the problem. Start with the more significant potential cost savings that will be the easiest to fix and move forward from that point.
For effective and sustainable cost reduction opportunities & efficiencies that will increase your bottom line, contact the experts at Benchmark Cost Solutions at this number – 02 9525 0777. If you prefer, write to us at this email address, and we will revert quickly.
Thanks for reading,
Benchmark Cost Solutions Team
02 9525 0777
