How Can Waste Help Combat Inflation?

Inflation has become one of the top issues global organizations face, along with employee retention, legal and regulatory issues and rapid changes in demand.

Common solutions include increasing prices, reducing quantities or services and accepting lower margins.

But there is another often forgotten tool : focusing on the elimination of waste throughout your organization.

Waste is everywhere, even in the best organizations, and identifying and eliminating it is one of the most effective tools in offsetting increasing costs and improving profitability. Many business leaders are familiar with the elimination of waste from experience with lean principles, most commonly used in manufacturing, Fewer leaders have experience applying lean to non-production environments, but the principles are just as compelling.

The elimination of waste has been a pillar of lean manufacturing ever since W. Edwards Deming applied statistical tools to factory production based on his work at the U.S. Department of Agriculture and Census Bureau. Working for General MacArthur on census processes in Japan after WWII, Deming had the opportunity to lecture Japanese business leaders on Statistical Process Control (SPC). Japan, working to rebuild their industrial base from military to commercial products, embraced SPC and Deming, who continued working as a business consultant to Japanese industry throughout his life. Many of the key principles of the “Toyota Way” (Focus on Long Term, Process Drives Results, Develop People, Focus on Root Cause) originated from Deming’s work and led to Toyota’s rise to become the world’s largest and most successful automobile manufacturer.

While working in one of Japan’s largest conglomerates, I saw firsthand the Japanese obsession with production efficiency and cost reduction. I witnessed the focus on cost reduction in our product design and factories, but did not see the same focus on elimination of waste in work areas not directly related to production. The same relentless efforts to continuously reduce manufacturing process times and input costs were not replicated in other areas. While employees spent more hours in the office than their western counterparts, the time spent in the office was, at times, inefficient. In many areas, real work started in the late morning after catching up with colleagues and the latest news. Meetings were typically long where anyone was welcome to speak, often about subjects well outside the scope of the meeting. There were long meetings to discuss issues where the decisions had already been made by the responsible leader, and often not necessarily supported by facts and data. The relentless focus on productivity and efficiency was not regularly practiced outside of manufacturing. In fairness, much of what happened in long meetings and informal early morning and late afternoon discussions helped achieve consensus on issues and supported a friendly and collaborative office environment. The decision making process could be painfully slow but once consensus was reached execution was fast and efficient. Nonetheless, the sharp contrast between support and production struck me as a great opportunity for productivity and cost improvements (a bit more about this later).

As organizations around the world struggle to manage costs in an inflationary environment not experienced in decades, could a focus on the elimination of waste in areas where lean principles have not typically been used help keep costs under control?

YES !

Organizations rarely consider waste holistically, at an enterprise rather than a production or execution level, as a way to improve competitiveness and offset rising costs. With organizations working hard to limit increases in material, services and employment costs, the elimination of waste is an effective way to not only reduce costs but also increase employee and customer satisfaction.

The 8 Wastes

Lean advocates classify waste in 8 categories:

-Overproduction (inefficient use of resources)

-Inventory (excess assets and space)

-Transport (excessive or inefficient movement)

-Over-processing (performance/quality beyond required)

-Motion (unclear or unnecessary movement or steps)

-Waiting (upstream impact)

-Defects (mistakes)

-Underutilized talent (potential)

While the most typical application of lean has been production processes, consider the following examples of lean in non-production and supporting areas:

Overproduction - Push vs. Pull in Brazil

While executing our strategy to turn around an unprofitable business in Brazil, we discovered that employees were creating, evaluating and reporting things that no longer provided any value. When asked why they still did them, they said they had always been done and no-one ever told them to stop. They continued producing the same reports and doing the same activities for years, unaware that their work was often not utilized. As part of our strategic execution to “do not do anything that does not support our strategy”, we required all managers to review activities and reporting and eliminate anything that was not required to execute our strategy. In a matter of months we were able to re-direct over 20% of our resources to critical strategic activities and those previously de-motivated employees now were able to see their contributions to the strategy.

This is a good example of how Lean concepts should be applied to office environments. This business had been utilizing the “push” model, where information was produced and pushed to the next level regardless of whether or when it was needed, creating waste. Lean systems utilize a “pull” system where only what is requested or “pulled” from the next level of a process is generated, ensuring the right “information” is developed and only at the “time” it is needed.

Inventory - Supplier Management

In the same Brazil based business, as we identified the root causes of high inventory costs and poor supplier reliability, we found that over the years, in an effort to reduce material costs, we had developed hundreds of suppliers. Many of these suppliers were providing the same parts or services as others (including production and non-production related items). When a supplier would not reduce prices, new suppliers were added, many of whom would provide a lower price to get our business. Suppliers were worked against one another to reduce prices and tremendous resources were dedicated to managing all these suppliers and their associated inventories. The complexity of many redundant suppliers marginally decreased purchase prices but drove high “indirect” costs. Not surprisingly, the reward and recognition process encouraged those practices by rewarding the purchasing organization for price reduction while driving much greater costs for supplier management, inventory and longer lead times. This led to a key mantra in our strategy - COMPLEXITY IS COST!

Focusing on a small group of supplier/partners and working together to reduce cost is exponentially more effective in managing cost than all too common adversarial relationships between companies and their suppliers.

Transport - Centralized vs. De-centralized

I had the opportunity to work with a highly successful company that prided itself in their on-time and high quality job performance. They were not the least expensive supplier but had developed an excellent reputation, a loyal customer base and were in the top quartile of their industry in profitability. Their material distribution was managed by individual site managers and partial trucks were regularly dispatched, often on an emergency basis, with wide discretion on what was an emergency. Dozens of trucks delivered materials to sites every day, each optimized for a specific site without considering other deliveries (site vs. enterprise optimization). Their distributed transportation model provided excellent material availability, but at a high cost in redundant inventory and transportation. A centralized distribution model could have provided a similar level of standard and emergency service but at a significantly lower cost. But, as with many successful companies, they choose to maintain their high cost model believing that it was the only way to provide the "expected" customer service. They maintained a high cost process because their profitability enabled a sub-optimized system they believed was the only way to meet customer requirements. Often, a lack of urgency to reduce costs results in lost opportunity to optimize business processes….resulting in substantial waste.

Overprocessing - Product Design & Development in Emerging Markets

If you provide more than your customers expect, value, and are willing to pay for, you are practicing a form of “overprocessing”, where those activities will not provide a sufficient return and constitute waste. I experienced this firsthand while leading a global truck business that was slowly losing market share. Our success had been based on developed countries who valued the high level productivity and durability features we offered. However, as demand for trucks in less-developed markets increased vs. developed markets, customers in developing markets told us we provided features that simply did not provide value for them. We were “over-processing” our products for their needs and were losing sales to local competitors. As we started the development of our next generation of trucks, we moved away from one global design developed in the U.S., to two designs, one in the U.S. and the other in India, one of our growing and less developed markets. Our strategy resulted in not only a cost effective development process but product offerings that met the specific needs and price points of both developed and developing markets. While establishing design, validation and production resources in multiple locations added cost, the elimination of unneeded features increased our market share and margins, more than offsetting additional development costs. Our initial lack of specific product attributes and corresponding lower costs for a growing market was a “wasted opportunity” that we ultimately recognized and rectified. In this case, the increased “complexity” was more than offset by the additional sales and margins we were able to achieve by segmenting our product offering.

Motion - Japanese Offices

You might remember in my introduction I mentioned the surprising lack of lean principles in Japan’s non-production areas. After some time working in a Japanese style office environment, I realized that in fact the elimination of a key waste - wasted motion, was practiced to perfection in the layout of workspaces.

In most organizations there is a type of workspace hierarchy and more often than not; location, space, and privacy are elements of status. Top floors, impressive space, high end furniture and window views for leaders; and lower floors, metal desks, narrow walkways and cubicles for staff. An environment structured to reward, recognize, and protect leaders from unsolicited contact with those working for them.

In many Japanese offices that had not become westernized, employees sat on the same floor, often with desks touching and no dividers. In our case only the directors had a private office….but they also shared that large office with their colleagues and desks close together. If there was a need for privacy there were private spaces available. From directors down through the organization, supervisors had immediate access to their employees and vice-versa, and staff communicated openly and immediately. Communication and timely access took priority over privacy. While this worked well in Japanese society it can be difficult to replicate in other cultures. Yet, many startups over the last decade, knowingly or unknowingly, replicated the open office concept that was a hallmark of offices in Japan’s industrial reconstruction. Regardless of the culture, the concept of keeping workgroups together from top to bottom offers the potential for signifiant reduction of waste in face-to-face communication, especially with the recent limited time employees spend in one place.

Waiting - Concurrent Product and Process Design in Trucks

How many times have you been in the middle of a project, making great progress and suddenly had to stop because you were waiting for someone else’s information or input to proceed? In a production environment material flow is coordinated with process flow and when material is late the resources (time, machine capacity, people) are lost, creating waste. The same concept applies to non-production work flows.

While leading a global product line at the start of a major update I asked our team to assess what went right and wrong in our last product update. Our most significant findings were late introductions and budget overruns due to lack of timely and effective coordination between design and execution. Our process had the designers completing product designs and then passing them on to the teams responsible for execution. The process required the next team to “wait” to start their work, creating a “push the problem downstream” mentality, resulting in cost overruns, quality problems, product availability issues and ultimately customer dissatisfaction.

As we started our product update, we transitioned to a concurrent process vs. the previous sequential process. From the beginning, all members of the team; marketing, design, execution and customer support were involved. This change dramatically shortened our product design and development process (no waiting and minimal rework) improved product availability, achieved unmatched quality and resulted in a dramatic improvement in customer satisfaction. In any organization, you are providing a “product” for your users. How you develop and enhance that product is critical to your user experience. A team working in a concurrent rather than a sequential environment will always result in a more efficient development process and better customer experience.

Defects - European Pricing

One of the key elements of both lean and quality processes is “Stop-to-Fix.” Simply meaning that anywhere in your process when you find an error you do not pass it on, you stop the process, identify the root cause of the error and put steps in place to ensure it doesn’t happen again. In a production line this literally means the production line stops until the failure is identified and the cause resolved. In a business process the concept is the same, you don’t pass on the error, you resolve it and re-design the process.

Working with our distributors in Europe selling equipment and services ranging from $5,000 to $1 million, in a very competitive environment, we often received requests from our distributors for special pricing based on specific customers and competitors. These requests became so frequent and time consuming that we often had a backlog of requests. This process had been in place for so long and was so embedded in our business that the inefficiency and delays were simply accepted as a "cost of the business". Some even suggested that the inefficiency of the process “discouraged” distributors from asking for price adjustments. There are few things more important in a business than properly pricing your products, and our process was clearly broken. We stopped our “special” pricing process, utilized 6Sigma tools to evaluate the issues, and working hand-in-hand with our distributors, developed an annual pricing process that established fixed prices, based on our common market goals and competition. By stopping our legacy process and working with our partners, we eliminated the broken “process by exception”, replacing it with a simple, competitive pricing strategy that allowed our distributors to quickly and effectively provide competitive offers to our customers in line with our shared sales and profit goals. Many companies have countless “legacy” processes that, despite consistent failures, are simply not challenged. Establishing a culture of “continuous improvement” empowers employees to “challenge” processes and practices that are often considered “the way things have always been done”.

Underutilized Talent - China

While building a manufacturing and design campus in China, I had the opportunity to hire and develop our entire workforce, a large percentage who were recent trade or college graduates. In our startup phase, most of our leaders came either from state owned enterprises or existing foreign companies. Facing double digit annual growth, and a lack of available leaders externally, we needed to quickly find, prepare and deploy talented leaders to build our business, Our principal process improvement process was 6Sigma, where Black Belts lead improvement and change projects. We offered employees with leadership ambitions the opportunity to become 6Sigma Black Belts. After completing an extensive curriculum of process and leadership training, they were given the responsibility to lead multifunctional/multilevel teams to address our most significant opportunities. These team leadership experiences became a key element of our leadership development and provided a talented pool of leaders, many of whom went on to hold some of our most important leadership positions.

While there are many different approaches to solving critical business problems, 6Sigma gave us the opportunity to quickly develop future leaders and provided them with leadership experience and visibility that previously would have taken years to achieve.

Whatever methodology your organization uses for process improvement, identifying employees with skills and leadership ambitions early, and putting them in a position to lead project teams that address your most challenging issues often uncovers a wealth of hidden talent and enhances your reputation as a "great place to work".

Why do many organizations chose not to focus on the elimination of waste?

Why is waste often invisible to leaders?

Why do many organizations fail to recognize the correlation between the elimination of waste and its positive impact on employee, partner and customer satisfaction?

In my experience the number one reason organizations and their and leaders fail to focus on waste is:

SUCCESS

Unfortunately many "successful" organizations lack the urgency to change the way they do things because they believe they do not need to, they are "satisfied" with their results. That is one of the principle differentiators between good and great organizations...

Good organizations are focused on what they are, great organizations focus on what they could be. Great organizations are never satisfied, they maintain a culture of continuous improvement.

WHICH ARE YOU?

If you are a good organization working to become great and would like some help, please contact me....my passion is helping the good become great.