How a loss and waste analysis should guide your operational excellence roadmap
A loss and waste analysis is a focused improvement activity that identifies and quantifies waste, wherever it occurs. This blog outlines the benefits of a loss and waste analysis and the different types of waste, and looks at how this analysis provides critical intelligence for developing your roadmap to operational excellence.
Loss and waste, and eliminating waste – or muda, as it’s known in Japanese – is at the heart of the lean business methodology. Companies that use lean methodologies and practices work ceaselessly to increase efficiency and improve quality by eliminating waste.
In an operational excellence framework, all productivity gains are based on identifying and eliminating inefficiencies wherever they occur. Failing to do this results in a productivity initiative losing its direction and purpose. This means an organization will implement best practices with no meaningful impact on bottom-line results.
A useful tool to determine internal performance improvement methodologies is to conduct a loss and waste analysis. The analysis interrogates internal waste and quantifies all losses in financial terms.
The benefits of a loss and waste analysis
Performing loss and waste analyses and pursuing performance improvement projects offer the following benefits:
- A standardized method and template for detecting, quantifying and prioritizing specific losses
- Awareness of the extent of the losses
- Improved problem-solving capability
- Ability to select and execute quick-win improvement projects, and as confidence and maturity develops, more complex process improvement projects (PIPs)
- Enhanced operational and financial site performance
- Management buy-in to the improvement process
A loss and waste analysis can be performed within three contexts, each with slightly different outcomes. These are:
- Opportunity analysis, usually done during a baseline assessment
- Site-wide analysis to determine the high-level project focus
- Drill-down implementation area analysis
Remember, waste and resultant losses include all internal factors such as downtime and rejects, and lost revenue or prospects due to customer complaints or erratic deliveries. It’s also worth noting the presence of “hidden waste”. Less visible than obvious waste, hidden waste is work that’s necessary to produce a product that could be eliminated by using an alternative process or technology. However, for the purpose of this blog, we won’t go into more detail here.
Before you conduct a loss and waste analysis, you need to be aware of the seven categories of waste, as discussed below.
The seven wastes of manufacturing
The Seven Wastes of Lean were originally categorized by Taiichi Ohno, the father of the Toyota Production System. He separated the waste he saw into seven categories, which made them easy to identify and eliminate.
The seven wastes of lean manufacturing are overproduction, inventory, motion, defects, overprocessing, waiting and transportation. In the early 2000s, an eighth waste in manufacturing was recognized – the waste of human talent.
Let’s take a closer look at each of the seven lean manufacturing waste types:
Waste is anything a customer is reluctant to pay for, so producing more than what’s needed means you exceeded customer demand, leading to extra costs. Overproduction is the trigger for the other six wastes, since excess products or tasks lead to additional transportation, greater waiting periods, excessive motion, and more. In addition, should a defect appear during overproduction, teams would have to rework more units which means more time wasting. Another common example of overproduction relates to redundancies in the production process, where work activities result in little or no value – such as polishing a product part that no one can see.
“Just in case” inventories, where companies hold excessive inventory to meet unexpected demand or to protect themselves from production delays, low quality or other problems, don’t add value. Apart from depreciating, these excessive inventories often don’t meet customer demand, which is unpredictable and thus often difficult to cater to, and adds to storage costs.
Wasted motion by employees or machinery is detrimental to productivity, the bottom line and the efficiency of a process. If a process uses excess motion to add value that could have been added by less, the unnecessary movement is wasted. The solution is to design a more ergonomic process where workers or machines need to move less to complete the task successfully.
Defects often result in rework and in more extreme cases may lead to scrap. These products need to be replaced, require paperwork, and may potentially lead to a lost customer. The environmental costs of defects are the raw materials consumed, disposal or recycling costs, as well as the energy costs of the initial production. In addition, a defective product implies waste at other levels that may have led to the defect to begin with.
This type of waste refers to any component of the production process that is unnecessary. Essentially it refers to adding more value than the customer requires. It will increase the end price of the product for something that customers are unwilling to pay for. An example of overprocessing is adding features that won’t be used or do not meet customer needs.
Idle or lost time is probably the easiest waste to identify and refers to wasted time due to slowed or halted production in one step of the production chain while completing a previous step. To make up for this wasted time, the task that takes more time must be made more efficient or the workflow adjusted. Eliminating this waste streamlines processes and speeds the flow of value to customers by producing goods or delivering a service to customers at the required speed and timing.
Transport is moving materials from one position to another. Since this doesn’t add value to the product, minimizing transport costs using more efficient methods is essential. Excessive movement of materials can be costly in terms of handling, employing staff to operate transportation, training and using extra space. Transport can also cause the previous waste of waiting, as one part of the production chain must wait for material to arrive.
Although the lean approach to waste originated in manufacturing, it can be applied in organizations of any size, in any sector and anywhere in the world.
Once you understand the main categories of loss and waste, you can start to identify which of the seven losses in production occur most commonly in your organization.
Losses and wastes in operations can broadly be categorized as follows:
- Excessive operational costs
- Lost production time
- Labor losses
- Inventory losses
- Process type losses
Using a loss and waste analysis to guide your operational excellence roadmap
Identifying waste in the business is a good opportunity to improve work processes and, most importantly, optimize resources. Linking the identified losses and wastes to the strategic objectives and performance expectations for the site will prioritize and address the most important losses and wastes to deliver the required performance. It will also secure senior management buy-in to develop more effective lean waste management structures across the organization to ensure the important issues receive the appropriate attention.
Typical strategic focus areas may include:
- Quality, such as defects and customer complaints
- Costs, such as lost sales, excessive raw material waste, and high maintenance needs
- Delivery, such as erratic lead times and poor adherence to production plans
The focus areas for the loss and waste analysis will also depend on the type of production processes.
Depending on the level of loss awareness and the quality of data available, sites often find it beneficial to complete a high-level heat map to prioritize potential areas of waste across the main loss categories. Once you’ve gathered the appropriate level of detail, each prioritized loss then needs to be quantified financially and verified by the Finance team.
Because of the absence of historical data or an insufficient measurement system, it may not be possible at this stage to obtain accurate measures of all losses. Nonetheless, the approach should be to measure what’s available and to understand the relative size of losses, even if the exact figures are not known. For example, downtime such as equipment failures, changeovers, idle time, and startups are effective production lost indicators that can be pulled directly from the production log sheet or online monitoring system. Use this data to prioritize what to address first and to guide your operational excellence roadmap.
The objective of a structured loss and waste analysis is to establish a sound basis for targeting specific losses. We recommend you capture the losses on a standardized template to clarify the overall output and associated assumptions in one view.
The true added value of the loss and waste analysis isn’t just in finding the prioritized losses, but in mobilizing the resources, focus and effort to address them, integrated within your organization’s operational excellence plan.
Eliminating these wastes requires a journey of continuous improvement. Successful organizations embed an intentional improvement culture based on good leadership, teamwork, methodology and enabling technology. Performing strongly in these areas will build the operational excellence pillars that will give your business a strategic edge – now, and especially in the future
What is waste in lean manufacturing?
In lean manufacturing, “waste” is any activity that doesn’t contribute to increased value of the good or service being produced for the end customer.
What is yield loss in manufacturing?
Yield loss is the amount of product that is rejected or is defective and therefore unusable. Yield loss is a waste item, because the resources and material expended in the unusable product ultimately produced a nonvalue good.