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How to uncover hidden wastes with a loss and waste analysis

How to uncover hidden wastes with a loss and waste analysis

Though manufacturing is the heartbeat of every industrialised nation, mass production is a complex process that requires vast amounts of energy and resources to transform raw materials into finished goods. A loss and waste analysis offers a framework with which to assess the status quo and optimise manufacturing performance while reducing environmental damage.

Some of the more common shop floor wastes include: overproduction, unnecessary transportation of materials and excessive wait times between workstations. These deficiencies are often caused by flawed systems design or employee error. All of these wastes increase the cost of manufacturing and reduce a company’s competitive advantage in the marketplace. A loss and waste analysis is vital for identifying improvement opportunities and eliminating these types of wastes. The article Burning Fat: Improved shareholder value through true waste reduction clearly illustrates that the relentless removal of waste from processes is the key to sustainable cost reduction and improved shareholder value.

Focus areas

A clear understanding of the site improvement strategy is required upfront to highlight specific wastes and losses. This understanding will isolate current problem areas and identify high-level performance targets. Linking the loss and waste analysis and improvement actions to your site’s strategic objectives will not only secure senior management buy-in, it will also ensure that important issues are being addressed.

Typical strategic focus areas could be:

  • Quality, such as defects, poor first pass yield and customer complaints
  • Costs, such as excessive material waste, high maintenance costs and lost sales
  • Delivery, such as poor production plan adherence and unpredictable lead times

Losses and wastes in operations can be grouped into different categories, depending on their focus area or process type. Broadly, these losses and wastes can be categorised as follows:

  • Lost production time
  • Material wastage
  • Labour losses
  • Inventory losses
  • Excessive operational costs
  • Losses by process type

Quantify the losses

As soon as you’ve identified and categorised the losses, you need to decide on the period over which these losses will be analysed, e.g. the next 12 months. Once this review period has been decided and you’ve gathered the appropriate level of detailed data, quantify each loss financially.

Even if it’s not possible to obtain a very accurate measure of all the losses initially, the approach should be to measure what is available and to understand the relative size of the losses. For instance, most of the downtime, such as equipment failures, start-ups, changeovers, idle time when there’s no work and so on can be obtained directly from the production log sheet or online monitoring system.

Where additional costs are incurred to make up for the lost production time (such as overtime), the additional direct production cost is generally easy to determine. Here it is only necessary to consider the variable direct cost as the fixed cost exists regardless of production volumes.

Prioritise the losses

The objective of the loss and waste analysis is to establish a clear rationale for targeting specific losses. This is an important decision as it has implications for resource allocation and performance improvement. It is therefore necessary to determine a sound basis for prioritising the losses. Having a sensible way of quantifying each loss is the starting point.

You could use a Pareto diagram to prioritise the losses by highlighting the relative scale of the losses by category. A comparison of loss categories at more detailed lower levels will provide a clearer perspective of where to target improvements.

See how a loss and waste analysis helped Kellogg’s Latin America determine their main breakdown causes and subsequent efficiency improvements at their plants in Mexico.

Summarise the losses

It is recommended that the losses be captured on a standardised template to clarify the overall output and associated assumptions in one view. The template usually consists of simple spreadsheets that capture the loss categories and automate the quantification and prioritisation.

Use the template on an ongoing basis to reflect the progress made in reducing the losses and to identify further priorities in the future. Ensure that the template can be easily deployed for use in lower level loss and waste departments, areas and work teams.

While it may be possible to eliminate or reduce some of the identified losses through day-to-day problem-solving, and through the implementation of other best practices such as asset care, some wastes would require a concerted effort by a focused team. For these wastes and losses, specific profit improvement projects (PIPs) need to be defined for quick results.

The loss and waste analysis is the precursor to the selection of PIPs. These projects will typically improve internal efficiency, reduce costs, provide better customer service, faster delivery or produce better quality. DOWNLOAD The ABC of profit improvement projects infographic for a quick overview of the PIP fundamentals that will set you on the path to focused improvement.


The TRACC framework helps organisations build standardised and integrated good practice and performance capacity across their Plan, Source, Make and Deliver functions. Simultaneously it accelerates their collaboration and alignment capacity to build world class end-to-end value chains, enabling the organisation itself to become the ultimate source of sustainable competitive advantage.
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