Depending on which Google source you use, you will find the meaning of this proverb is to focus on not wasting what you may need in the future. Apply this concept to the everyday business world, and you will begin to question – why do so many businesses routinely waste assets day in and day out?
Many years ago, and after several years’ efforts to remove waste from their processes, Japanese automaker Toyota, identified seven areas where waste was found to be most prominent. These included:
Overproduction – producing too many units to meet perceived customer needs, essentially producing inventories to be available “just in case” rather than producing “just in time”.
Delay/Waiting – inefficient use of time in processes so that production is stalled. This could be the result of inefficient operations, poor materials flow or distances between work centers.
Transporting – excess costs may be incurred moving inventory around to various work centers in the production process, or moving finished goods from location to location adding unnecessary costs that increase the product price beyond what consumers are willing to pay.
Inappropriate Processing – includes using the wrong tools for the job or expensive high-precision equipment where simpler methodologies can achieve an acceptable result.
Unnecessary Inventory – linked to overproduction and waiting, unnecessary inventory ties up valuable resources of financing and physical space plus the costs of monitoring excess stock on hand.
Unnecessary Motions – wasted resources when workers have to bend, reach or walk distances to do their jobs; a whole science has developed around “ergonomics” to reduce these extra steps.
Defects – producing bad product by definition creates waste. Inspecting and quarantining these items incurs costs, rework may not be possible or too costly and scrapping is expensive. You might as well throw the costs incurred out the back door.
So what is a business to do? The first step is to recognize that there is waste in every business; some is easy to spot, some requires some hard work. Removing waste from any business is directly related to the ability to identify where and what is occurring. When times are good and profits feel right, this may not seem to be a big concern but, one economic adjustment can have you scrambling to ‘cut costs’. Often times, these costs could have been cut a long time ago and your business would have benefited from more efficient processes that yielded higher returns.
An effective way to identify waste and develop a plan for its removal is through a process known as a ‘waste audit’. Sometimes just asking your employees yields a number of ideas for process improvement (aka increased efficiency which results in lower costs, more profit). The waste audit and removal plan should be prioritized to deal with the most important issues first – where are the greatest opportunities to remove waste? The low-hanging fruit?
With the assistance of a business advisor, internal project teams can be tasked with reviewing processes and expenses using the seven waste areas as a guide. Be careful here – be sure to not create teams that are too large or provide too long of a project timeline lest you create waste trying to eliminate waste. Before starting any heavy lifting, Key Performance Indicators (KPIs) should be developed as a guide to target the goals for the teams and be used to establish cost/benefit milestones to be evaluated.
This process should be honed and repeated, regularly to chase down the waste – and prevent it from returning another day. Left unmonitored, it is surprisingly easy, at times, to see old performance and spending habits creep back into environment.
Wayne R. Pinnell, CPA, is a founding member and serves on the advisory board for the Center for Business Growth. Wayne has over 30 years serving business owners in his public accounting career. He is managing partner of Haskell & White, LLP, one of the largest independently owned accounting, auditing and tax consulting firms in Southern California, servicing public and private middle-market companies. Wayne consults with a number of companies on their general business operations including workflow, waste reduction, strategy, and growth/profit initiatives. He can be reached at WPinnell@hwcpa.com or 949-450-6200.