Category Archives: Quantifying waste

Continuous Improvement, Quantifying waste

Why Quantify

quantify

When engaged in Continuous Improvement (CI), a key objective is to identify, quantify, and eliminate waste.

People often ask why it is so important to quantify the waste – and the answer is straightforward: quantifying the waste does three things for you.

  1. First, it helps you distinguish between the “big‐hitters” and the nice‐to‐have improvements so you focus on the most important opportunities first.
  2. Second, it makes the organization aware of the cost of a delay in tackling a ‘big‐hitter’. If a problem is wasting $5 million a year, every week of delay is wasting nearly $100,000, so the organization wants to make sure nothing slows this improvement effort.
  3. And third, quantifying the waste enables you to have more meaningful discussions with other parts of the organization whose support you need to change the processes that cause the waste.

If you’re wondering about how to go about the process of quantification, here are three simple guidelines:

  1. Identify if and how the problem affects the four forms of waste: lost sales, material costs, time, and capital costs. If the problem causes delays, think through and estimate the form of waste that the delay results in. Does it increase capital such as inventory or receivables? Does it delay sales and revenue? Does it cost you customers and future business? Does it require additional people time? Many problems will affect more than one of the four forms — lost sales, material, time, and/or capital. For example, excess inventory not only ties up capital, but may increase the number of people who need to manage it, the warehouse costs to store it, and the probability of scrapping it. All these factors can be reasonably estimated with some historical data and getting close enough to the work.
  2. Quantify the impact, recognizing that assumptions and estimates will probably have to be made. If you have or can gather data, use the data and document where you got it. If you must use assumptions or estimates, document how you came up with that — who did you talk to? Perhaps document a range that you are pretty confident about.
  3. Do the math to roll it up into annual dollars.
Quantifying waste

How Much Time Do We Waste & How Can We Find Out?

question

Recent posts have focused on time management. So today we ask, “how much time is wasted each day within your organization?”

Most of us can estimate the amount of time that might be wasted within our department or business, but few are able to be precise. Similarly, few are able to quantify most of the waste that exists within their work processes.

Quantifying the waste helps organization focus on the right things. More specifically, quantification does three things for you. 

  1. First, it helps you distinguish between the big hitters and the nice to have improvements so you focus on the most important opportunities first.
  2. Second, it makes the organization aware of the cost of a delay in tackling a ‘big hitter. If a problem is wasting $5 million dollars per year, then every week of delay is wasting nearly $10,000! Clearly the organization wants to make sure nothing slows down the improvement effort.
  3. Third, quantifying the waste enables you to have more meaningful discussions with other parts of the organization whose support you need to change the processes that cause the waste.  

So now that we’ve established “why” quantifying waste is important, here are three straightforward steps for doing so:

  1. Identify if and how the problem affects the four forms of waste: lost sales, material costs, time, and capital costs. If the problem causes delays, think through and estimate the form of waste that the delay results in. Does it increase capital such as inventory or receivables? Does it delay sales and revenue? Does it cost you customers and future business? Does it require additional people time? Many problems will affect more than one of the four forms — lost sales, material, time, and/or capital. For example, excess inventory not only ties up capital, but may increase the number of people who need to manage it, the warehouse costs to store it, and the probability of scrapping it. All these factors can be reasonably estimated with some historical data and getting close enough to the work.
  2. Quantify the impact, recognizing that assumptions and estimates will probably have to be made. If you have or can gather data, use the data and document where you got it. If you must use assumptions or estimates, document how you came up with that — who did you talk to? Perhaps document a range that you are pretty confident about. The Conway Waste Calculator can help with the documentation.
  3. Do the math to roll it up into annual dollars.
Continuous Improvement, Process Improvement, Quantifying waste

The value of a written problem statement

problem

Few decisions have a greater impact on the likelihood of an improvement project’s success than the definition of the problem.

Stephen Covey says that, “The way we see the problem is the problem!”

In a past post, we shared four guidelines for accurately defining problems, which included:

  1. Defining the problem in writing
  2. Specifying and quantifying the waste the problem is causing
  3. Identify the metric that will be use to “size” the problem
  4. Omit judgments, opinions, and predispositions about the underlying causes

These aspects of framing a problem have a huge impact on how well a team can analyze and solve a problem. They also enable a team to create an accurate problem statement.

In fact, creating a written, specific and measurable problem statement that incorporates a baseline against which solutions can be tested helps people avoid biases about root cases or solutions. This practices also makes clear why and how much we should care about the problem, and might inspire a team leader and sponsor to more enthusiastically guide the team to efficiently achieving the results the organization desires.

The act of crafting a problem statement does require some careful thought, but a good problem statement is worth the effort because it helps you to ensure that:

  • Team participants, leaders and sponsors, have a shared understanding of the problem that will be solved
  • The organization will give the project the appropriate priority and urgency
  • The team has a good baseline against which they can test the results of their solutions
  • The team is open to surfacing and testing a range of possible root causes so as to increase the likelihood of finding an effective and lasting solution.

Quantifying waste

Quantifying Waste

Why & How

Bill Conway always said that at least 50% of improvement is working on the right things. Organizations that are able to engage people in making good, fact-based decisions about what to work on and then execute with laser focus reap huge gains. An opportunity search is key.

That means that we must identify and act upon the opportunities for improvement that will potentially yield the greatest results. In other words, we must identify and quantify waste.

Quantifying the waste helps in three significant ways. First, it helps distinguish between the big‐hitters and the nice‐to‐have improvements so you focus on the most important opportunities first.

Second, it makes the organization aware of the cost of a delay in tackling a ‘big‐hitter’. If a problem is wasting $5 million a year, every week of delay is wasting nearly $100,000, so the organization wants to make sure nothing slows this improvement effort.

And third, quantifying the waste enables you to have more meaningful discussions with other parts of the organization whose support you need to change the processes that cause the waste.

Here are a few guidelines for “how” you might go about the quantification step:

  1. Identify if and how the problem affects the four forms of waste: lost sales, material costs, time, and capital costs. If the problem causes delays, think through and estimate the form of waste that the delay results in. Does it increase capital such as inventory or receivables? Does it delay sales and revenue? Does it cost you customers and future business? Does it require additional people time? Many problems will affect more than one of the four forms — lost sales, material, time, and/or capital. For example, excess inventory not only ties up capital, but may increase the number of people who need to manage it, the warehouse costs to store it, and the probability of scrapping it. All these factors can be reasonably estimated with some historical data and getting close enough to the work.
  2. Quantify the impact, recognizing that assumptions and estimates will probably have to be made. If you have or can gather data, use the data and document where you got it. If you must use assumptions or estimates, document how you came up with that — who did you talk to? Perhaps document a range that you are pretty confident about. The Conway Waste Calculator can help with the documentation.
  3. Do the math to roll it up into annual dollars.
Continuous Improvement, Engagement, Identifying Waste, Identifying Waste, Process Improvement, Quantifying waste

Engagement & CI Correlation

In one of last year’s posts we noted that, while enterprise engagement has emerged as a key objective in today’s business world, a surprising number of organizations have no formalized engagement strategy.

At this year’s Engagement World Conference in Galveston, this fact was once again recognized, along with several other connections between enterprise engagement and Continuous Improvement (CI).

For one, an ad-hoc approach is almost never effective.

Whether attempting to engage a workforce or drive continuous improvement, a formalized plan with clearly-stated objectives and measures is required.

Similarly, without the buy-in and support of top management, engagement and improvement efforts alike are bound to fail… they will not become the “cultural way,” and instead will simply peter-out as priorities shift.

Another correlation is the importance of quantification. Just as a CI project requires us to quantify waste and the gains our effort will generate, a successful engagement initiative will include the calculation of an anticipated return on investment or ROI once objectives are achieved.

Finally, just as ISO 9001 helped bring-about the use of more standard procedures in CI, ISO 10018 will now encourage organizations to standardize their engagement efforts. 

As noted in our previous post, the emergence of these new standards brings into focus both process improvement and quality people management/engagement, both of which are necessary to achieve and sustain high levels of quality and performance.

 

 

Continuous Improvement, Engagement, Quantifying waste

Free Engagement ROI Calculator

The Enterprise Engagement Alliance recently announced that their Enterprise Engagement Academy has created a free ROI Calculator that is available to any organization at no cost (see link below).

The tool can be used to track the potential return-on-investment of an engagement initiative, and also provides a report showing the estimated impact of improving employee engagement.

According to Allan Schweyer, Curriculum Director for the Enterprise Engagement Academy and founder of the TMLU professional learning platform, the ROI Calculator is based on “very conservative estimates of the impact of lower and higher levels of engagement created by the Center for Talent Solutions.”

Full article… | ROI calculator

Continuous Improvement, Identifying Waste, Identifying Waste, Quantifying waste, waste walks

Focusing on Waste Part 3: Three Ways to Find it!

Completing our series of posts about focusing on waste, people often ask how they might best nurture the ability to recognize the waste that is undoubtedly embedded in business processes.

Here are 3 proven methods:

  • Constant questioning. Ask yourself and everyone else if you would need this if everything were right, and right the first time.
  • It sometimes helps to bring in outsiders to help you look for waste, because it is easiest to think “outside the box” if you are “outside the box.” Customers and suppliers or people from adjacent processes may challenge assumptions we don’t even realize we are making.
  • Benchmarking internally, within the industry, and in different
    industries can also raise questions and help you recognize waste
    that you have overlooked before.

If you can take a path of searching for WASTE rather than just improvements, regardless of whether you already have a solution, you can avoid the “road of diminishing returns,” and instead delve into the underlying causes to make truly important improvements.

Continuous Improvement, Identifying Waste, Identifying Waste, Quantifying waste

CONQ?

In a recent CI discussion on LinkedIn, Rob Kooijmans, a quality manager in the Netherlands, referenced the importance of quantifying waste and opportunities for improvement.

“The best way to know the strengths and weaknesses of your organization is to get good insight in your cost of non-quality (CONQ),” he said.

As noted in several previous posts, we certainly agree.

Bill Conway always said, “At least 50% of improvement is working on the right things.”

Thus a “waste and opportunity” search is key. We must identify waste and then act upon the opportunities for improvement that will potentially yield the greatest results – i.e., the “right things.” Once this quantification step has been completed, it is much easier to gain the buy-in of all stakeholders – leadership and colleagues alike –  because it is easier for everyone to see what can be gained (or lost!).

“The biggest reason why CONQ is so important is that it is expressed in money – and money is the universal language all managers and company owners understand. If you need to convince management to invest in your team and to invest in quality in general , you need to be able to substantiate the benefits,” Kooijmans said.

We have found that when organizations “identify and quantify the waste,” people are able to more readily recognize the best opportunities for improvement, allocate resources, and then set effective priorities and time-frames.

 

Continuous Improvement, Culture building, Identifying Waste, imagineering, Innovation, Process Improvement, Quantifying waste

Silo Treatment?

Bill Conway always said, “The biggest waste is found in the interfaces and interstices.”

Or, said another way, the waste is found at the seams of the value stream as it crosses  different organizational boundaries, which are often referenced as the “silos” in which many of us work.

Some time ago, we were involved in an exercise in streamlining office work and had set up an order processing operation that had lots of obvious waste analogous to the sort commonly found in office processes. The simulation was conducted a number of times, usually in one large room with different departments in different areas of the room.

Participants were always able to identify large amounts of waste, because it really is much easier to see waste in someone else’s process than in one’s own. The simulation helped participants to see the waste and then to draw analogies to opportunities they had overlooked in their own work. So light bulbs would go on and participants would generally be able to redesign the process to increase throughput up to ten-fold!

Then one day, the training facilities were different: no large room, just one mid-sized room and a number of breakout rooms.

Even more realistic, we all thought… the Credit Checkers were in one room, the Order Processors in another, and so on.

But when we reconvened to debrief, everyone seemed oddly comfortable with the whole process they had been executing. They identified little things they could improve within their small group, but they missed the elephant in the room — perhaps because it was in next room, or rather the hallway where no one owned it.

As Bill always said, the big waste was in the “interfaces and interstices… and, as noted in a previous post,  “It is easiest to think outside the box, when you are from outside the box” (or silo!).

Continuous Improvement, Identifying Waste, Identifying Waste, Quantifying waste, Working on the Right Things

Steps for Quantifying Waste

Noting that at least 50% of improvement is working on the right things, our previous post shared insights on “why” identifying and quantifying waste within our organizations is so important.

Now, the question is “how” to do it…

The first step is to identify areas of waste, many of which may have previously gone unnoticed. This step often requires the use of historical financial and operational data, and also that we think “outside of the box” when examining our work processes. Involving people at all levels, and people from cross-functional areas, can help the team look at each problem or bottleneck without bias.

Once problems are uncovered, review how each affects the four forms of waste:

  • Lost sales or opportunities (typically the largest waste)
  • Material costs
  • Capital costs
  • Lost time

If the problem causes delays, think through and estimate the form of waste that the delay results in.   Does it increase capital such as inventory or receivables?  Does it delay sales and revenue?  Does it cost you customers and future business? Does it require additional people time?

Keep in mind that many problems will affect more than one of the four forms of waste.

For example, excess inventory not only ties up capital, but may increase the number of people who need to manage it, the warehouse costs to store it, and the probability of scrapping All these factors can be reasonably estimated with some historical data and getting close enough to the work.

Next we must quantify the impact of each problem, recognizing that some assumptions and estimates will probably have to be made.  Try to document a range that you are pretty confident about.

Finally we can “do the math” to prioritize the improvement projects we’ll undertake first. Key criteria will be the overall potential savings (i.e., the problems creating the most waste), and the estimated time-frame for implementation.

These two determining factors are important, and sometimes it is better to opt for a smaller “return” if the project will involve fewer complexities and a significantly shorter time-frame. We’ll take a closer look at this perspective in our next post.