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The Seven Wastes - Robbing Organizational Value

Where's the Waste?

There are seven wastes found in every organization.  Each is highly visible.  Each frustrates customers and employees every day.  And each steals top line revenue and bottom line profits.  Yet for the most part, each of the seven wastes is allowed to fester and grow, even as organizations constantly look for ways to increase revenue and reduce costs.

Customer value is defined by the products or services produced by an organization that a customer is willing to pay for.  Waste is defined as everything that does not directly contribute to producing customer value.  Organizations exist to provide value to customers.  Although no one intends to produce waste, most organizations produce more waste than value. 

No customer wants to pay for waste.  If waste is produced instead of value, the result is a lost revenue opportunity.  Any organization increasing its waste to value ratio will also increase its revenue by giving customers more of what they are willing to pay for.

The production of waste and value compete for the same resources of an organization.  Waste creation consumes the same labor and capital used to create value.  Increasing the waste to value ratio reduces the production costs of an organization, dropping those savings directly to bottom line profits.

It is estimated that the waste to value ratio of most organizations runs from 1 to 9, with most being closer to 9.  This means that for every unit of value produced, from 1 to 9 times that much waste is created at the same time.  That’s a lot of waste, especially considering that most organizations are completely unaware of their waste production.  Recognizing waste for what it is, and systematically hunting for ways to reduce it, is a simple way to increase any organization’s top and bottom line performance.

What are the Seven Wastes?

Each of the seven wastes can be found anywhere in the processes of every organization.  Employees already know where the wastes are.  They just don’t recognize them for what they are: value robbing activities or resources that can and should be reduced.  The first step towards reducing waste is training employees how to recognize each of the seven wastes:

1.   Defects – Activities that result in error, rework, or a work around

Of the seven wastes, defects are the most widely recognized.  Most organizations equate increasing quality with reducing defects.  But of the seven wastes, defects are the hardest to eliminate.  But eliminating or reducing the other six wastes automatically reduces defects as well.

2.   Inventory – The amount of materials or work-in-process within the system

Materials or work-in-process that hasn’t been sold to a customer represents unrecognized value.  Accelerating its conversion to a product or service increases cash flow.  Reducing inventory or work-in-process also reduces lead times and the amount of labor and capital an organization typically invests by managing excess inventory.

3.   Overproduction – Producing more work that is immediately needed

Those who said procrastination was wrong were mistaken.  It is a waste to produce more than is needed at any given time.  Instead, producing work “just-in-time” reduces: the chances it will not be needed, early defects, and the amount of work-in-process.

4.   Transportation – Any movement or motion from one place to another

Most organizations group functional specialties into their own areas.  Since the work of an organization typically flows from one specialty to another, rather than between similar specialties, this causes the waste of transportation.

5.   Waiting – Someone or something waiting with nothing to do

Waiting is an obvious waste, but surprisingly common.  Someone always appear to be waiting for something, usually with nothing better to do than to create the waste of overproduction.

6.   Unnecessary Processes – Activities still performed but no longer needed

Most new processes are added over time just like patches on top of patches.  Rarely are processes ever removed.  In addition a lot of work in any organization is done “just-in-case.”  Just-in-case processing leads to work performed every day, but so rarely needed, that they cause a net loss to the organization.

7.   Variation – Multiple methods or tools for performing the same activity

Allowing activities or information to be managed many different ways by many different people is not creativity but waste.  Variation reduces predictability, increases the need for training, and hides defects.

Making Business Better Every Day

Whether or not something is identified as a waste is not a matter of individual judgment.  The definitions are pretty clear.  Everyone should be able to agree on whether or not something is a waste.  This makes waste identification easy.  Once trained on the seven wastes, it’s easy to spot hundreds if not thousands of wastes in any organization.

The harder part is to figure out what to do with a waste once it is identified.  Not all wastes can be eliminated; or should be.  For example, sometimes it’s absolutely necessary to carry a large amount of work-in-process, or wait to start a high priority task.  For every waste that cannot be immediately reduced there are many more that can.  Any organization that engages employees to continuously reduce waste and make the business better every day, will soon have happier customers and more money on their bottom lines.

AGILEAN Corporation shows organizations how to use Agile Program Management and Lean Office Implementation to produce greater customer value in less time with fewer errors.  For additional information, please contact us or visit www.agilean.com.

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