Eliminating Waste: Seven Potential Wastes That Could Be Keeping Your Business From Profitability

This article originally appeared in the December 2015 issue of Smart Business Philadelphia magazine.

When operating a business, whether you are manufacturing a product or offering a Steven E. Staugaitis, CPAservice, there are processes that are developed over time. These processes either add value or they add waste. The ability to eliminate waste is one of the most effective ways to drive additional profits.

“In eliminating waste, it is important to understand what waste is and where it can be found,” says Steven E. Staugaitis, Director, Audit & Accounting, at Kreischer Miller. “The automobile manufacturer Toyota is credited with identifying the seven prominent wastes that have become the foundation for lean manufacturing.”

Wastes can be identified by walking the business or brainstorming with team members in an organization.

Smart Business spoke with Staugaitis about the seven prominent wastes that could be holding your company back from achieving profitability.

1. Overproduction

Overproduction occurs when more of a product or service is produced than what is needed.

It can also occur when a product or service is produced before it is required. Companies that carry inventory can be guilty of this when they manufacture products to have ‘just in case’.

2. Waiting

Inefficient use of time causes waiting in an organization. This time can be identified as the lead time needed in waiting for the next step in the process. Waiting can be caused by ineffective layouts of shop floors, poor material flow, or production runs that are too long.

3. Transporting

Transportation between processes is a non-value cost that can lead to damage or loss. This often occurs because of an inefficient layout of a manufacturing operation or the shuffling of paper in an office environment.

4. Inappropriate processing

Another common waste is when organizations misuse their resources. This waste occurs when a company uses a CNC machine to cut a piece of sheet metal when a pair of shears would do.

In a service oriented organization, this often occurs when a senior partner is preparing information that a first year staff would be capable of preparing.

5. Unnecessary inventory

Unnecessary inventory is a direct result of overproduction and waiting. By reducing the unnecessary inventory, an organization can get to the root of other underlying problems.

6. Unnecessary motion

This waste is caused by the ergonomic layout of each employee’s workspace. It occurs when there are unnecessary instances of stretching, reaching or bending. These costs are often not apparent until a lawsuit ensues.

7. Defects

Defects can come in a variety of forms. Reworking and scrap incurred during a process along with the time delay that is required to fix a defect is the common source of this waste before the shipment of a deliverable product or service.

After a defect has been detected, the costs to fix it can be great and even detrimental if it costs the business a customer.

Identifying these wastes in your business is only part of the process. Short-term gains can be realized when you begin to eliminate waste. But organizations really profit when they engrain waste reduction as part of their culture. Making the long-term commitment can transform a company from good to great.

In order to achieve this objective, both employees and leaders at every level of the organization must be diligent about finding ways to make their own individual contribution to the effort.

Steven E. Staugaitis can be reached at Email or 215.441.4600.

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