The well-known Toyota car company identified seven types of waste that had an impact on Productivity and Profit. An eighth has been added more recently. By gradually reducing these wastes, you can improve the Productivity and Profit of your business. In Japanese, this is referred to as reducing "muda" (pronounced Moo-da). This article discusses how these types of waste might show up in your business; and what to do about them. Waste reduction is an ongoing and probably never ending process. This article gives lots of examples of waste in each of the categories. To be most effective, you should tackle the largest waste items first so as to make the largest gains first. Waste reduction is a team effort ideally as those on the front-line probably already know what is wasteful; they are just not empowered and trained to combat waste.
Read this if: you are working on making your business operate more efficiently
Relates to: 80/20 Rule for finding the biggest issues, Kaizen for incremental improvement, Constraints and bottlenecks. Our Profit Acceleration optimization toolkits; Double Profit in 100 Days and Double Growth and Profit in 365 Days.
Audio/visual Materials: none
Degree of Difficulty: Yellow (entry level) . Not hard to do but requires perseverance. It is the first article in a series on managing waste to improve your profit
Eight Types of Waste
The well-known Toyota car company identified seven types of waste that had an impact on Productivity and Profit. An eighth has been added more recently. By gradually reducing these wastes, you can improve the Productivity and Profit of your business. In Japanese, this is referred to as reducing "muda" (pronounced Moo-da). This article discusses how these types of waste might show up in your business; and what to do about them.
A Journey Into the Waste Lands
In any business that has been operating for a reasonable length of time, various inefficiencies and wasteful activities will have crept into the system. Sometimes these are simple inefficiencies in existing operations and other times they are what is left of activities that may have ceased, or changed, but have retained some work practices that are no longer as effective as they might be.
Throughout Profit Savvy, we speak often of optimising your business to maximise its profitability. Clearly, waste is less than optimal. Spending time on identifying and reducing waste is spending time on identifying areas for improving your Profit and therefore thoroughly worthwhile.
Taiichi Ohno was a Japanese Industrial Engineer and a businessman who worked for the Toyota Motor Company. Toyota is very well known for its production system which has many innovations to improve productivity; in this case of car manufacture. The very effectiveness of these improved manufacturing systems caused a great deal of distress for Western car manufacturers who had not overhauled their production lines for many years. Now, car producers throughout the world use the highly efficient systems initially developed by Toyota.
This is an opportunity for you to use some of their techniques to optimise your own business.
The Japanese word for waste, in the context we use it here, is "Muda" (pronounced Moo-da).
Although this word is well known in some businesses, we will continue to use the word waste in this article.
Ohno identified seven traditional areas of waste, but more recently, practitioners of LEAN management (an optimising school of management thought) have added an eighth one to this list:
- Transport: where goods and products are moved more frequently than is strictly necessary to meet customer demand.
- Inventory: materials, products and other resources which are in excess of customer demand.
- Motion: any waste in movements of goods and products between various process steps in the workflow.
- Waiting: delays while parts of the system are waiting on product, people or machines in order to continue production.
- Over processing: processing of goods or products beyond what is required to satisfy the customer.
- Overproduction: producing more product than is necessary for customer demand.
- Defects: Passing poor quality down the supply chain where it later has an impact on productivity.
- Skills: not taking advantage of the expertise and creativity of one’s own staff and other human resources.
A straight forward explanation of waste is that it is anything that adds no value to the final product or service. This is something that the customer is not willing to pay for and therefore adds no value in their mind.
Sometimes waste is obvious to the customer and generally irritates them. A simple example of waste is when you buy a great looking punnet of strawberries only to find that the bottom layer is rotten. Poor supervision in the production of that punnet of strawberries has led to an irate customer who is likely to rarely buy punnets of strawberries with the same brand or from the same shop in the future having been exposed to a gross example of waste.
Unfortunately, a lot of waste is already "baked into" products by the time you receive them. You may not even be aware that the price you are paying for the product has been inflated because of waste in its production.
We identify the eight types of waste and give examples of where they might come about.
There is a whole body of knowledge about how to identify and reduce waste. Two commonly known approaches to removing waste are Six SIGMA and Lean Manufacturing.
We will not be going deeply into these methodologies but any business operator can use their common sense to identify and remove many of the types of waste that we are going to talk about.
Transportation waste refers to transporting items, resources and information, that is not required to perform a process, from one location to another.
Examples of this include:
- Unnecessary materials.
- Unnecessary tools or equipment.
- Production examples:
- A large distance between operations requiring unnecessary movement.
- Lengthy or complex material handling systems that unnecessarily move materials.
- Large batch sizes.
- Working to a faster rate than customer demand requires.
- Multiple storage locations requiring travel to several places for resources.
- Poor delivery route planning.
- Distant suppliers requiring resources to be hauled longer than strictly necessary.
- Poor layout of the workplace requiring unnecessary movement between the work stations.
The strategies to reduce these types of waste include:
- Store materials as close as possible to the point of use.
- Avoid transportation over long distances both from external suppliers and within your own production system.
- Avoid over-production to reduce storage of work in progress.
Inventory may be physical goods or it may be such things as information that is sitting idle or information that is collected and not being used and therefore the collection energy is being wasted. The more idle time there is in production or service delivery, the greater the wastage costs.
Inventory generally comes in two types.
- Excessive "Work in Progress" inventory that tends to mount up in front of various work stations in your workflow.
- Either excessive stock piles of the raw materials required for your production and/or final completed production which has not yet been sold and which mounts up in inventory pending its sale.
Examples of inventory related wastage include:
- Over production.
- Big batch sizes (see Small Batches Tool).
- Long lead times.
- Local optimisation (see Local Optima Problem Tool).
- Large minimum order quantities.
- High rates of defects requiring re-work of defective items.
- Suppliers that are not able to deliver small quantities "just in time" so force you to hold larger than necessary stocks.
- Inefficient inventory management processes.
- Inefficient purchasing practices.
- Data collected at some expense but not processed.
- Promotional materials produced at some expense but either not used or used ineffectively.
- More infrastructure than is required for the production of your goods or services.
Good inventory management encourages you to dispose of any unnecessary stockpile of materials and to attempt to avoid the re-occurrence of the problem in the future by supplying only the volumes required by current customer demand. You should aim to produce products no greater than this demand and which you are unable to dispose of - at least in the short term.
Wasted motion refers to lost time due to workplace layout.
Time can be wasted by people moving about, information being transmitted unnecessarily (perhaps in written reports never read) and by equipment undertaking unnecessary movement.
Examples of wasted motion include:
- Poor work station layout: the work station requires excessive bending, walking to its various elements or having to physically move to reach resources required for undertaking work.
- Poor method design: requires moving parts from one hand to another or from station to station unnecessarily.
- Disorganised work spaces and storage locations: requiring people to move to those locations to obtain components for their work.
- Unclear and non-standardised work instructions: cause people to take unnecessary steps or repeat work that is not done correctly the first time.
- Unclear processes and material flows.
- Searching for data, documents and information that is not filed in clear categories.
- Unnecessary movement to various pieces of office equipment: like printers and photocopiers.
Waiting refers to the time lost while an operator, or other resource, is waiting for the previous step, in a production system, to be completed.
Conversely, undertaking a job before it is necessary to fill some time available, (see Parkinson's Law article) also masks the fact that there is waiting time being lost in the system.
Examples of waiting time include:
- Unsynchronised processes: mean that some steps in the cycle take longer. The faster steps have waiting time while they wait for the slower steps to catch up.
- An inflexible workforce: not able to do more than a few tasks, being forced to wait until tasks become available to them.
- Over staffing: means that there are more people than necessary to do the work and therefore waiting for work to arrive.
- Unscheduled system outages: leave people with nothing to do. These might be machines, computing services or other necessary inputs to production.
- Long setup times: to convert a system from doing one thing to another means that people are waiting for that conversion process.
- A shortage of materials: or a delay in their arrival means waiting.
- A shortage of human resources: means that production waits while those human resources are made available.
- The time wasted by customers: at a service centre within your business that could be used for something else.
Over processing refers to performing any activity that is not strictly necessary to produce a functioning product or service that the customer wants.
Very often this manifests itself as "bells and whistles" that staff within the business find attractive but which customers hardly care about.
Examples of over processing include:
- Unclear customer specifications: leading to "guessing" what the customer wants and putting in elements that are not required.
- Frequent engineering changes: cause over design.
- Excessive "polishing" of products: with functionality that the customer does not really require, particularly prevalent in software.
- Unclear work instructions: workers spend more time than necessary on the product and/or incorporate more functions than necessary to satisfy the customer.
- More paper work involved than strictly necessary to do the job.
- The same data is collected at several points in the operation unnecessarily.
- There is wasted time in following up activities and/or correcting faults found only after production is finished.
- There are too many approval stages in the process.
- The level of reporting required by management is more than is necessary to successfully manage the work flow.
Over production refers to producing more of a product than is necessary to meet market demand at any point in time.
Over production ties up money in inventory and quite possibly hides the fact that there is surplus production capacity that could be streamlined for cost reductions.
Examples of over production include:
- Volume incentives to encourage people to buy more or where more raw materials are purchased than necessary to get purchasing discounts.
- High capacity machinery with the capability of more than is necessary for that point in the work flow (see Local Optima Problem Tool).
- Poor scheduling means that over production happens before the system is aware of it and can take steps to wind it back.
- Adherence to traditional cost cutting practices that have the adverse effect of encouraging a build-up of inventory in search of spurious "cost efficiencies".
- Information, data and paper work that is sent automatically even when it is not required.
A defect is always a waste because, at best, it means that it needs to be remedied and at worst it means that the materials used to date in the production workflow are completely lost.
A defect essentially is something that does not meet with a customers' satisfaction.
- Unclear customer specifications causing the wrong things to be built into the work flow.
- Lack of process control to identify defects and preferably their cause well before they get deeply built into the system.
- Unskilled or untrained personnel.
- A lack of standardised systems that reduce the room for error.
- Departmental rather than total company quality improvement initiatives that lead to inconsistencies between departments.
- Suppliers that provide defective materials or introduce defects through their actions.
People are a special class of resource in any organisation. Some types of organisations, like service industries, rely almost entirely on people.
People waste include:
- Inappropriate policies that cause them to lose efficiency.
- A lack of tuning between the workers capabilities and the rate at which work is delivered to them for their function.
- Not taking advantage of the deep knowledge an "on the spot" operator has of the work that they do, where waste exists in what they do and how to improve the operation of what they do.
- Top down improvement ideas with "expert" inputs without taking into account shop floor knowledge and engaging them in the process.
- Limiting the authority and the responsibility of human resources to the point where they do not feel able to make constructive contributions to their work flow.
- The wrong person in a position either because of skills or temperament.
Pause and Reflect
We have now identified the 8 types of waste.
We do not know your business and therefore cannot make more than general statements about where waste might be accumulating in your operation.
But we have listed some simple ways to identify and reduce waste to get you started.
It is not possible to give universal statements of where waste is occurring in all businesses in this article. However, there are going to be some reasonably common indicators of waste. As you move around your production work flow you should look for these types of indicators of waste.
Work in Progress (WIP) Stock Piles
Wherever Work in Progress builds up, it indicates that there may be unnecessary over production in the work station before. Alternatively, it might identify a capacity problem after the point at which it builds up. Sometimes these capacity problems are genuine bottle necks and can be very useful to streamline your business (see Theory of Constraints menu).
To remove waste, whatever processes are generating the unnecessary WIP can be wound back to the point where there is only sufficient WIP stock piled in front of the next stage in the work flow to act as a "Buffer", sufficient to smooth out variations in demand.
Raw Materials Inventory
Unnecessary inventory at the start of your work flow reflects that you have less than ideal purchasing arrangements.
Sometimes this means that you simply buy in more than is necessary of products at any point in time. This may mean that you are chasing a quantity discount, for example. Examine whether the amount you save on the discount is offset or is greater than the amount of money you are losing in having your cash tied up in surplus raw materials.
Alternatively, it might mean that you are using suppliers that demand that you buy larger quantities than you need. Look around for other suppliers to see if they will provide smaller, timelier, supplies. Suppliers requiring you to buy more than you need may be quite inefficient.
You may be buying more product from a supplier because they are unreliable in their ability to supply you with what you need when you need it. Effectively, you are supporting their inefficiency and this is costing you money. Perhaps a wake-up call to them and/or a change in suppliers might reduce this problem.
Completed Work Inventory
If you are stock piling completed work beyond the rate at which your customers are purchasing from you, you are tying up your cash in inventory. Worse, you will be facing an increasing probability of deterioration in the product (for example if it is a perishable good) or technological redundancy meaning that you are less and less likely to sell that product because it has been replaced with something more advanced or more in demand by your customers.
If completed products are piling up at the end of your work flow, it suggests that your production systems are not closely coupled to your customer demand systems. By changing production to be dependent upon customer demand, this will cause the demand to "pull through" production in your system and will minimise the amount of surplus completed product that you have at the end of the production cycle.
Watch Your People
If you have waste in your system, your staff may give you an indication of where that is happening.
- You might find staff that are highly stressed, complain, have sick time or vote with their feet by leaving the business. This would be an indication of waste occurring where your conjunction of staff and demand on their time is not well tuned.
- You may have staff that have surplus time on their hands, which is another form of waste.
You need to keep in mind that people are very well versed in hiding the fact that they do not have much to do and will generate work to fill the time available (see Parkinson's Law article). Even your good people will do this because they want to be conscientiously seen to be working. The price that you pay for having surplus human resources is that very fact that they are finding something to do. This not only generates unnecessary work but can also lead to things like unnecessary supervision, demands for reports and other activities to fill the time available.
If parts of your business are experiencing an unusual number of workplace accidents, this could be an indication of something out of tune. Naturally, we do not want workplace accidents and you should be acting to remove their occurrence in any case. However, we do not want to address just the symptoms causing accidents and stress; we want to dig deeper and remove the original problems.
You should be paying close attention to the satisfaction level of your customers. If this unexpectedly changes, or if dissatisfaction is higher than industry norms, this can be an indication of wasteful practices, such as, an increased number of defects in your production.
It is well known that it is far harder to recruit a new customer than to continue an existing customer. Any wasteful activity that causes customer dissatisfaction not only increases your cost of servicing that dissatisfaction but may lead to a loss of the client altogether.
Throughout Profit Savvy, we talk about finding and embracing your bottlenecks (see Theory of Constraints).
Left unaddressed, these bottlenecks are usually symptoms of wasted opportunities to streamline the throughput of your business operation.
Some of the 6 different types of bottlenecks are called policy constraints. Policy constraints are company policies that are wasteful of company resources.
It may be mandated, for example, that there shall be no overtime among staff at a time when some limited overtime might dramatically increase throughput.
It might be mandated that we will always go for a quantity discount of a product which causes us to buy more than we need in the way of raw materials to get the quantity discount. However, it may not adequately consider the commitment of your cashflow to maintaining that quantity discount and it may in fact be that you are moving backwards.
Defects in your product can be very expensive.
- It may cost much more to rectify a defect once made than to produce a product without defects to begin with.
- Defective products may need to be destroyed costing you the labour and materials.
- Defects that slip through to the customer may leave them very disappointed. They might exercise consumer protection laws to get their money back. They may bad-mouth you on social media and they may not buy from you in future. All events that you do not want.
Albert Einstein is alleged to have said that “the definition of insanity is doing the same thing over and over and expecting a different outcome”.
If you have the same defect over and over, you clearly should be taking action to reduce their occurrence.
A habit you might consider is to empower all staff to place any product with a defect into a red coloured receptacle immediately rather than let it go further down the processing workflow.
Periodically, more senior staff, and (importantly) the operator, should diagnose the cause of the problem and implement processes to remove it from recurring insofar as possible. The operator is important because they are the person most likely to know the root cause.
If you keep a simple tally at each red bin, over time you will see if things are improving.
Wrap Up on Finding Waste
In your initial passes through your "waste management" program on your business it probably suffices to use your powers of observation to find them.
However, a sensible manager will attempt to actively involve their front-line staff in this process because if anybody has any idea where things are inefficient, it will be the people who do this every day of the week.
Unfortunately, in many businesses, staff have not been trained and encouraged to provide feedback on waste and it might take some time to get them into the routine of advising when they do come across a cause of waste. Good staff have learned to manage waste by implementing work-arounds.
This is the equivalent of someone with one arm learning to manage that unfortunate situation. It doesn’t mean that one arm is better, they are just making do with what they have.
Managers will need to learn to dig beneath superficial reasons for activities being undertaken and learn to encourage and facilitate the staff learning to take responsibility for giving feedback on waste.
Once you get into identifying waste, you are going to find literally hundreds of instances of waste.
You will never be able to keep them all in your head. Listing them on paper does not allow you to manipulate the information.
We suggest a spreadsheet and ideally one like Google Sheets that several people can access simultaneously without mixing up everyone's data. Being in the cloud also allows you to wok on desktop, Ipad and mobile phones so you can do data entry in the field.
As an extension to this, you can use a user friendly Google Form set-up which will drop the completed forms into a spreadsheet for you.
You record one problem per line in the spreadsheet.
What to record
What you record is up to you but, a few suggestions include;
- the location of the problem. If a lot in one location, you could open a special tab in the spreadsheet for every location if you want to manage them somewhat separately.
- the nature of it
- maybe a photo inserted into the spreadsheet if relevant
- some indication of the cost arising from the waste. Maybe score it 1 (very low) to 10 (very high). Note that a small cost repeated many times will add up so, when considering cost, consider if for (e.g.) a month and rank everything on the same score
- the ease of fixing - 1 low and 10 high.
- people who are knowledgeable about the problem/solution so you can use their knowledge
- some possible remedies that have already occurred to you while inspecting the problem
Since you will likely have hundreds of entries in your spreadsheet, we need a way to focus on the most important.
In the last section, we recommend that you have a data column on 'importance' and one on 'ease to remedy'.
Go back over your spreadsheet and make sure that each wastage item has been scored (a guess is good enough) on these two criteria.
Now add a data column to multiply these two numbers together to give you a composite score of importance times ease. That means that a big source of waste that is easy will fix will score (e.g.) 10 x 10 = 100 whereas a small source hard to fix might score 1 x 1 =1. Clearly you are smart to spend your time on the 100 and not on the 1! Add a cell at the bottom of this column that totals (sums) all the scores in the column.
We suggest you now sort your spreadsheet on the 'score' column of data with biggest score at the top. This will rank them by importance.
We further suggest you create another column title "cumulative score" and add each score to the previous one with a simple formula like C2=C1+B2, C3=C2+B3 and so on. This will give you a cumulative score for each row. The results might look like 10,10+20=30, 30+25=55 and so on.
Add one more column called "percentage" Add a simple formula that puts the cumulative score divided by the total cell mentioned above. The formula would look something like C3/$B$120 where B120 is the total cell.
Now you can quickly scan down the list to find the rows (wastes) that represent 80% (or any other figure) of the impact of the wastes listed.
You can get some priority into what waste you address by arranging the removal process according to the 80/20 Law (see The Amazing 80/20 Rule Tool) so that you work on the ones with the greatest impact first. This will make the fastest contribution to your bottom line. It also allows you to ration out what might be scarce human resources to work on the problems.
The same Tool tells us that we probably can stop removing waste once 80% of the sources have been worked on. Some techniques like Lean teach that you can go on forever removing waste and no doubt that is true.
But you are likely the manager of a fairly small business unit and have a lot of demands on your time. It makes sense to knock off the big-ticket waste items until you reach the point where you sense your time could more productively be used elsewhere; and move on to that task. You can always circle back later.
Once you have identified waste within your business, you should certainly undertake to remove it as best you can.
Find the root cause
There is quite a lot of information around on methods of finding the root cause of waste. The cause may not always be obvious. You will soon know if you haven’t found the solution as the waste will continue to occur.
One technique for finding the candidate cause that we write about is known as “5 Whys Problem Solving Technique”.
Once you have identified and removed these wastes, you want to avoid them creeping back in.
For this reason, you might develop some "Metrics" that measure the efficiency around what was previously a wasteful area. If those measurements creep up again, you know that you are experiencing increasing waste.
It is difficult to know exactly what might work in your business but typically it might include things like:
- Defects per thousand items produced: This might be a ratio of defects over, say, every thousand units of your product produced.
- Defect dollars divided by sales dollars: This might indicate the cost of defects as a percentage of your total sales.
- Labour productivity: This might be the ratio of labour costs divided by revenue. If this labour productivity ratio goes up it means that you are throwing more people costs without an associated increase in revenue. This is a very easy thing to do, throw people at solving problems rather than solving the problems.
An Ounce of Prevention
It is also important that you train and encourage front line staff to identify wasteful activity and events and to escalate an alert to more senior management – along with any proposed solutions.
There is no doubt, further waste events will be better managed if everyone is engaged on reducing waste.
Any assembly line worker in a car manufacturing plant who spots an emerging problem or product defect can press a button and stop the entire assembly line rather than continue and build the defect into the finished product.
If major manufacturers are prepared to incur the costs of such holdups, maybe your smaller business should also?
This article has been an entry-level (yellow belt) article on waste management. It has not gone into any sophisticated ways of identifying and eliminating waste.
That will be the subject of future articles.
What is important, though, is that managing the 8 types of waste in your business is an important optimising tool that can increase your profit without any associated changes elsewhere in the business.
Assuming the same throughput in your workflow, by eliminating waste, you automatically increase profit.
Coming Up Next
This article (L1.1 Eight Types of Waste) has covered the eight types of waste. Next is L1.2 Capturing Waste in the Wild which will convert your knowledge about the eight types of waste into data that you can now use to actually begin to reduce waste.
The final article in this series is L1.3 Prioritising Waste Removal which will show you how to decide what waste to focus on for removal.
Muda (Japanese Term) meaning futility, uselessness, wastefulness.
Lean Manufacturing - systematic method for waste minimisation.
Six Sigma - set of techniques and tools for process improvement.
A useful Yellow Belt level book is "Lean for Dummies" which is pitched at our Yellow Belt level. There are many, many other more advance books that cover the topic to Blue and higher belt levels you the subject takes your fancy.