Tag 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, Engagement, Process Improvement

The Ripple Effect of Disengagement

Our previous post focused on ways of reducing the costs associated with disengaged workers. While the most obvious course of action might simply be to increase the percentage of engaged workers, doing so is no easy feat! It’s also important to recognize the specific ways in which disengaged workers impact an organization’s bottom line or, stated another way, to identify and quantify the waste!

During meetings with our Partners in Improvement, these costs were discussed in detail. The Partners concluded that disengaged employees create a negative and expensive ripple effect throughout an organization, and drive-up costs in numerous ways:

Higher turnover: Disengaged employees leave their employers as soon as they see a better opportunity. The turnover increases the costs of recruiting, on-boarding, and training, (1.5-2x annual salary as explained in a recent post), and significantly more for higher-level executives based on a Center for American Progress study. Every new hire brings a risk of a bad fit, and every employee leaving an organization takes with him or her some organizational knowledge that might have been helpful to that organization in future decisions.

Lower productivity: Disengaged employees don’t go the extra mile; they do not make an extra effort when faced with a challenge, and don’t put forth the same discretionary effort that an engaged person will make. A 2013 article from the Harvard Business Review concluded that organizations that cultivate high employee engagement yield a 22% increase in productivity over the norm.

Lower profitability: Similarly, McBassi & Company has compiled data which shows that the Engaged Company Stock Index (comprised of 43 companies with high engagement scores), outperformed the S&P 500 by 21.4 percentage points since it’s inception in 2012.

Little or no process improvement: Improvement requires engagement — a willingness to design and conduct experiments, a willingness to take risks to try something new and potentially better. Often times, disengaged employees focus on their personal agendas and see little upside in trying something new to forward the organization’s goals. The associated cost of lost opportunities is difficult to calculate; but it is significant and probably far greater than the direct replacement costs outlined above.

Higher pay: When we say about someone, “They are only in it for the money,” we are observing disengagement. While money is important to nearly everyone, if that is the only motivation, there is no genuine engagement. As the behavioral economist, Dan Ariely, said, “Money is the most expensive way to motivate someone.” Organizations that are unable to create an environment that intrinsically engages their employees must pay them more to keep and motivate them.

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, Identifying Waste, Identifying Waste, Process Improvement, waste walks, Working on the Right Things

Focusing on Waste vs. Improvement?

Ted Williams was considered the greatest hitter in baseball….

His .406 batting average for the 1941 season is legendary, and he finished his playing career with a .344 overall average, 521 home runs, and a 0.482 on-base percentage — the highest of all time.

A newspaper reporter once said to Ted, “Gee Mr. Williams, you’re the best batter the game has ever seen — you must be a great student of hitting.” Ted replied, “No sir, I’m a great student of pitching!”

Just as there is a difference between focusing on hitting versus pitching in baseball, there is a big difference between focusing on “improvement” versus “waste” in the Continuous Improvement arena.

One of the key differences in Conway Management’s Right Way To Manage© approach has always been a focus on the waste, as opposed to simply improvement.

What’s the difference?

Most of the big waste is hidden in plain sight — long-standing business practices that compensate for a problem that has
not yet been solved. The root causes of the problem have not been addressed, and compensating steps have been built in to avoid bad outcomes such as poor quality or lost productivity.

It’s the understanding of what waste is, and how to search for it, that makes all the difference… which will be our focus in the next few posts.

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.

 

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

Are You Working on the Right Things?

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 then quantify the waste.

Quantifying the waste helps in three specific ways:

  1. It helps you distinguish between the big‐hitters and the nice‐to‐have improvements so you focus on the most important opportunities first.
  2. 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. 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.

Now that we’ve identified “why” quantifying the waste and working on the right things is so important, our next post will focus on some of the best ways to go about doing so.

Continuous Improvement, Identifying Waste, Process Improvement, Quantifying waste, Value-added work, Working on the Right Things

How to Make Work More Value-Added

valueadded22Given that value-added work is “the work our customers would be willing to pay for if they knew what we were doing,” the core value- add of an organization’s leadership is to study and improve the system of work and to maximize the amount of work that is value-added.

By using the insights and information of people doing the work and knowledge about improvement tools and methods, a manager can improve the system of work so that everyone’s performance improves, more value is created, and the organization becomes stronger and more profitable.

Here are four ideas to increase the portion of resources that are directed at value adding activities:

  1. Work On The Bottlenecks – When we work on many things that have a small effect, we will have a small impact. The way to increase value most substantially is to work on the bottleneck, or constraint. If the bottleneck can be widened even just a little, it provides a pure increase in value.
  2. Increase Alignment With What Customers Truly Value – One of the biggest wastes is when the products or services we offer do not align perfectly with the customers’ needs and values. Errors are possible in two directions.
    • Bundling a feature into the product or service that the customers do not really need or want.
    • Overlooking ways we could leverage our capabilities to solve a problem that the customers may not even have articulated to themselves.
  3. Get At The Root Causes – Instead of  working on problems and symptoms, drill-down to root causes so that lasting solutions can be found.
  4. Eliminate The Non Value Adding Administrative Work – A great deal of time in most organizations is spent on emails, meetings, and reports that do not produce additional value for the customers or the organization. By taking proactive steps such as reducing inbox clutter or introducing meeting effectiveness practices, an organization can reduce waste and quickly boost people’s capacity to perform more value-added work.

By tackling these four things — the bottleneck, understanding and alignment with what the customer really values, the root causes and the non-value adding administrative work — any organization should be able to greatly increase the value content of the work.

Read the full article…

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

Increase the Pace of Continuous Improvement Via Process Examination

perception2Recent posts have focused on the importance of quantifying waste and opportunities for improvement before launching improvement projects.

Otherwise, we risk working on the wrong things because there is typically very little correlation between the ad-hoc ideas for improvement (perception) and the biggest problems or opportunities for improvement that actually exist within the organization (reality).

This post will focus on the “Process Examination” approach, which involves creating a value map to identify inventory pileups, bottlenecks, delays, and so on.

One effective method of accomplishing this is to create a SIPOC diagram, which is  a visual tool for documenting a business process from beginning to end by listing:

  • Suppliers
  • Inputs
  • Process
  • Outputs
  • Customers

The SIPOC diagram will enable you to determine high level process flow, identifying each key input and output of each process.

Once you have these identified, you list the quality criteria for each input and output, select an importance factor for each criterion and select how well it is met — or not!

Continuous Improvement, Process Improvement, Working on the Right Things

Get Further Faster by Quantifying…

perception2Many organizations do not focus on identifying or quantifying waste, but instead come up with lists of idea driven improvements. That is, someone comes up with an idea for an improvement, puts together a proposal, and then tries to implement it.

The problem with the idea-driven approach is that there is very little correlation between the list of ideas for improvement (perception) and the biggest problems or opportunities for improvement that actually exist within the organization (reality).

The idea-driven approach to improvement depends on someone identifying a solution at the outset. But the biggest opportunities are usually buried in the tough long-term problems for which solutions are not immediately obvious to anyone! If a solution doesn’t occur to someone, the problem doesn’t make the list. If it doesn’t make the list, it is never studied sufficiently to come up with a solution!

Get Further Faster!
As noted in previous posts, organizations can get further faster by identifying and quantifying the waste first, and then choosing the best opportunities from all of the areas of waste you have identified.

A portion of the waste is easily spotted and addressed if you take the time to collect the information. But remember, much of the waste is hidden — built into budgets, accepted practices, current operating procedures, and shared assumptions. It is built into processes that are compensating for problems that have not yet been solved. This waste is difficult to see without expanding the vision of what is possible.

Over the years, we have seen several approaches to identifying the waste put into practice. Four such approaches to surfacing the waste are:

  1. The goal driven search
  2. Brainstorming
  3. Work walk-through / waste walks
  4. Process examination

We will discuss each of these approaches in greater detail in upcoming posts.