Business Management Articles
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by Rene T. Domingo (email comments to

Profitability does not imply absence of wastes. Your company could be making money and losing money at the same time. The danger is that you could be making more than you lose, thus hiding the problem and opportunity to earn much much more. If you are hitting or exceeding your profit targets, self-congratulation and complacency sets in. Chances are, nobody in management will suspect or investigate any wasteful operations and decisions made in the prior year.

Effects of Wastes

Wasteful operations are not sustainable in the long run. High sales, market share, and industry leadership will be eroded eventually by wastes that remain unchecked. The most immediate effect of wastes will be on cost. Higher wastes mean higher unit production costs or service costs. Waste become integrated into material and labor costs. Overhead will similarly rise. Inevitably, products which do not have wasteful processes will get their share of overhead wastes allocated from wasteful product lines. By applying the cost-plus formula, higher costs means higher prices. Market share will shrink as a result of the exodus of your price-sensitive customers. Profits will shrink as a result of higher costs and lower market shares.

The other effect of wastes will be on quality and delivery. Wasteful operations have a tendency to hide and aggravate quality problems - defects, scrap, and rework. Wasteful processes add to lead times like manufacturing cycle times and order processing times. The result will be delayed deliveries and long waiting times. Poor quality and poor delivery due to wastes will lead to lower markets shares, lost customers, and lower profits. The bottom line of all wastes is that there will be no bottom, just a line.

Waste or muda in Japanese, can be defined as anything unnecessary used or done in the process of coming out with any output. This output can be a product, service, or information that is required or ordered by a user or customer. Waste can be a non-value adding input, process, or product feature. Value analysis and value engineering (VA/VE) addresses the first and third items. VA/VE aims to eliminate unnecessary product or design features, and inputs or raw materials. Process wastes or unnecessary activities or steps are examined and removed by the industrial engineer's work simplification technique and by the business process reengineering (BPR) approach.

Obvious and hidden wastes

There are two major categories of waste that are useful in waste management:

1. obvious waste

Japanese companies, known for lean and mean manufacturing systems, have discovered that the second type, hidden waste or waste we do not see, is much bigger than the obvious wastes. Most obvious wastes are trivial and easily eliminated. The problem is the hidden wastes that are hard to spot and therefore hard to stop. The lesson is that companies should devote their efforts and resources in uncovering and identifying hidden wastes, rather than waste their time firefighting obvious wastes. Hidden wastes are not necessarily unseen. They are visible, but not normally recognized as wastes. There are four types of hidden wastes.

1. waste from overproduction
2. waste from unnecessary processes
3. waste from unnecessary transport
4. waste from unnecessary waiting

Waste from overproduction

When defective products pile up, we easily recognize these as wastes or obvious wastes and raise hell. When good products pile up, we call these inventory and continue with our work routine as if nothing unusual has happened. Ironically, unnecessary inventory is one of the biggest hidden wastes in any company, and probably more wasteful than defects. We see inventory, but we are indifferent to it and recognize it as current assets, something of value. Unless inventory can be sold or used right away, waste is incurred continuously in terms of holding costs - interest, space, insurance, manpower- and obsolescence or spoilage cost. These huge costs are carried in the books as "normal" operating expenses as if they are necessary in running the business. Just-in-time manufacturing systems and the fastfood business have debunked this assumption. Customers can be served and satisfied while carrying a minimum if not zero inventory. Do not be deceived by neatly arranged stocks in shelves, and warehouses. These may be wastes lurking for years and eating your profits away. Inventory wastes can be in the form of excessive purchases of raw materials and office supplies, and overproduction of work-in-process and finished goods. There are also wastes in issuing your employees too many pencils, paper, punchers and other supplies that they do not need or cannot use right away.

Waste from unnecessary processes

When an employee comes to work and sits down the whole day behind his desk doing nothing, we easily recognize this situation as waste, and quickly reprimand him. But the next day, he comes to work, picks up a pen and starts writing something, anything, the whole day. We call this event "work". We leave the employee alone and may even tap him at the back saying "Keep up the good work". We don't bother to ask what he is writing, why, and for whom. We confuse motion with work. If there are no users or readers of his written output, then all his efforts are wasted. There are more waste in people doing something, then in people who are not doing anything. In the first example, the daydreaming employee is just wasting time; in the second, the busy employee wastes both time and paper. Rarely do employees daydream the whole day; most employees do something, or "move" the whole day. Underneath this busyness lies a vast potential of hidden wastes to uncover. Unnecessary processes, operations, steps, activities abound in the hustle and bustle of a typical working day in both the office and factory. We feel good if we see people busy doing something, whether or not it adds value to the product or service. We confuse efficiency and hard work with effectiveness. We see employees and managers afflicted with AIDS or As If Doing Something, and this is infectious.

Waste from unnecessary transport

When an employee walks back and forth the corridor or takes the elevator up and down the whole day, we call this situation loitering, and reprimand him right away. Of course, rarely do we see this obvious waste. When the same employee walks back and forth, this time carrying an envelope (possibly empty), we call this activity "work" or "transport" of document. We don't bother to ask why he's transporting it. After analysis and work flow simplification, maybe there is no need to transport the document at all, or transport to a closer location would be sufficient. In much the same way, if we see an empty company truck or vehicle plying its route back and forth, we right away call the transport waste. If the vehicle does the same thing, this time loaded with goods or people, we are easily deceived and call the process "necessary transport". We transport people, goods, materials, supply, documents, checks back and forth everyday. We see this activity as productive work because, again, people look busy. We do not see the hidden wastes in unnecessary transport of something. In most cases, we could not fault the carriers - employees, drivers, haulers, messengers. They are just complying with the wasteful systems and procedures designed by management.

Waste from unnecessary waiting

The most subtle or most hidden waste is unnecessary waiting. We waste time everyday waiting for something or someone before we could start an activity. We wait for delayed raw materials or supplies to start production. We wait for latecomers to start a meeting. We wait for delayed transport (cars, elevators, carts) before we can move things or ourselves. We wait for maintenance to fix broken equipment before we could resume our work. In the situations above, we obviously waste time and our time is wasted by somebody else. What is difficult to spot is the hidden type of unnecessary waiting.

If an employee comes to work and stands up in the middle of the office or factory the whole day staring into the distance, we immediately call his attention and ask him why the hell he is doing what he doing. This obvious waste of course very rarely happens. But when the same employee stands up the whole day, doing nothing, in front of an equipment (machinery, fax, printer, copiers, etc.) we consider this "staring" and "waiting" activity "work". We are deceived into thinking that he needed there to watch the equipment, when in fact the equipment can run by itself without his presence. In many factories, we see workers "manning" equipment when in fact they are just watching and staring at them. Unnecessary waiting can be minimized by making the equipment faster and more reliable, or assigning employees several equipment to handle.

Spotting Waste

Wastes come in many sizes - big and small, and magnitudes - trivial and dramatic. They come in many shapes and colors. Not all wastes are black, ugly, and dirty. They are not always in the wastebasket. Wastes can be bright and pretty. Do not be deceived by appearances and sizes. Let us look for the wastes that we do not see - the hidden wastes. Before we can stop wastes, we have to spot them first. In fact, recognizing wastes is more difficult and important than eliminating them. Many managers find it most difficult to admit that there are wastes in their respective departments. Finding wastes is 80% of the solution. Failure to eliminate uncovered wastes or tolerating such is tantamount to dereliction of managerial responsibility. Remember that in waste, there is wealth.


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