Tuesday, April 7, 2009

Analysing wastage

Every business model has a value proposition and to create this value cost is incurred. If the cost incurred shoots up disproportionately then the whole picture will change and could affect the profitability of a company. Value should be there for both the company and its customer. If either of them suffers then the value will be distorted. One aspect of poor performance that can alter the value significantly is 'Wastage'.

Anatomy of wastage

Wastage takes many forms and prime among them are

  • Material Wastage
  • Time wastage
  • Knowledge / Skills wastage
  • Technology wastage

These aspects are in turn caused by various operational issues and problems as given in the diagram below. This diagram (OIP - Wastage) is built keeping manufacturing industries in mind. It can however be easily adapted to other sectors with modifications where necessary. Even for the manufacturing industry, the diagram below can be expanded and enriched further. Click on the picture to expand it.

Deep analysis of each sub aspect will help us unearth deeper and finer reasons why wastage happens. But even at this level (as given in the diagram above) it is clear to us on what is causing different types wastage and where to look at for each of them. For example Rejects, Rework and high material consumption points finger to process and quality management while high inventory, idle stock and storage loss points to materials management. Outmoded systems and bureaucracy points finger at poor management practices while unused or poorly used technology speak about the work culture and people attitude. Like this each sub-element can be localised and further analysed for exact reasons why they happen. It will lead to uncovering the roots of different types of wastage. Once the root cause is identified and understood, solution to set things right would be much easier.

Less tangible wastage

Traditionally material and time wastage attracted much of management attention. Knowledge/skills and technology aspects of wastage rarely attracted time and energy of managements for the simple reason that they are less tangible. Even today some companies do not accord necessary importance to these two types of wastage. It is criminal, in a business sense, to use a comprehensive ERP system for just transactional purposes. But still many companies do that, spending millions on a ERP system but failing to use the analytical and informational power of it. Like wise there could be different technologies that are not fully utilised to their potential. This type of wastage is less tangible and hence escapes attention. The best way to measure technology wastage is to figure out different usages for which a particular technology is intended and how much of it are put to no or sub-optimum usage. By quantifying benefits missed we will get a fair idea on how much a company loses due to technology wastage.

Knowledge/skill wastage is another aspect that was long ignored but gaining importance now. People are more aware of the potential of Knowledge/skill inventory that an organisation in possession of and therefore emphasise on better utilisation of it.

Removing wastage

  • Focus on all aspects of wastage
  • Identify various forms of wastage in vogue, term and specify them
  • Tolerate 'zero' wastage and make it known to everyone, clear and loud
  • Collect data, analyse and interpret
  • Implement necessary changes to systems and processes
  • Link it to performance of units / departments / individuals
  • Make wastage data known to all and invite suggestions to remove it
  • Reward and encourage sharing of best practices, suggestions and actions
  • Penalise inaction and continued poor performance on this front

Try to modify the generic OIP - Wastage diagram given above to reflect your own industry / company. Give me your feedback and inputs.

No comments:


Related Posts with Thumbnails