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Increasing Productivity through Reducing ‘7 Wastes’ in Operations

by Kevin Chan

In this competitive market, companies need to look into many business aspects and strategies in order to stay in business. Many companies often neglect basic issues and are faced with difficulties in improving or sustaining the productivity of their operations, especially during periods of rapid growth of the company. Studies have shown that companies could have saved millions of dollars if they had strategically made efforts to reduce wastes found in all aspects of their operations.


Ineffective management of the conversion process often results  in different types of wastes.Figure: Ineffective management of the conversion process often results
in different types of wastes (Source: Teian Consulting International, Singapore)

A simple and proven technique known as ‘7 Wastes’, developed by the famous Toyota Motors of Japan had been used by many companies all over the world to improve the productivity of their operations. This technique is based on the “non-cost principle” that emphasis on reducing cost to achieve higher productivity for the company.


Conventional Approach: Cost + Profit = Price
“Non-Cost Principle” Approach: Price – Cost = Profit

In the conventional approach, we set the price of our products or services by adding the cost of production to the desired profit. If the cost increases, we have to increase the price in order to achieve the desired profit and this makes us less competitive!

However, in the “non-cost principle” approach, the price is treated as an independent variable. Unless it is a monopoly, the price is beyond the control of the company and is determined by market forces. Thus, the higher the cost, the lower the profits. As such, the only way to secure the sales and at the same time increase profit is to reduce the wastes in operations. Waste is defined as any activities that do not add value to the product or services.

The fundamental philosophy is the thorough elimination of the ‘7 Wastes’ found in the operations. In fact, many referred to the technique as a “system to squeeze water from a dry towel”. The ‘7 Wastes’ is comprehensive and includes wastes in Waiting, Transporting, Processing, Inventory, Motions, Defects and Overproduction. Well, it sounds very ‘manufacturing’, but over the years, many service companies have adapted to the concept in their operations to help them improve productivity and profitability.


Figure: The ‘7 Wastes’
Source: Teian Consulting International, Singapore

In a restaurant, the management found that there were wastes in motions where employees had to search for items each time when they have to serve customers. The searching motion resulted in man-hours wasted and also caused delay in serving customers.  Upon realising this problem, the company introduced a visual management system to arrange items in fixed locations. The standardisation of the system helped in eliminating motion waste thereby allowing employees to serve more customers over the same period of time.

In another case, poor purchasing policy of an SME electrical contractor resulted in inventory waste causing other issues like extra manpower needed to handle the stock of raw materials and extra warehousing space needed for storage. Each time, at the end of the project, the contractor needs to bring three lorry loads of leftover raw materials back to the warehouse. To address this problem, the company started to purchase their raw materials in smaller lots and reordering is only done when the lot of raw materials are used up. With this new purchasing policy, the left over materials at project sites are now reduced to just three small carton boxes each time. The improvement had helped the company reduce its warehousing space by 50% resulting in reducing its property rental cost, manpower and inventory carrying cost, achieving a total savings of US$35,000 a year.

The ‘7 Waste’ technique will serve as a good framework that will help companies identify opportunities for elimination of wastes in the operations.

The ‘7 Waste’ technique can be implemented either as a ‘driver’ or as a ‘tool’. The earlier require companies to set up a company-wide organization to manage the program and to regularly set waste elimination objectives for deployment down the organization. When used as a ‘tool’, companies use it to compliment other company-wide productivity improvement programs like Lean Management, 5S, Quality Circles, Green Productivity and so on. Both approaches require strong commitment and leadership from the top management, and a structured implementation process so that improvement initiatives can be coordinated and sustained.

This article have been written by our Principal Consultant, Mr. Kelvin Chan for the Asian Productivity Organization for their APO News published in October 2009 under the category of Productivity Methodologies, Tools and Techniques. The PDF version of the Newsletter is available for downloading from the Asian Productivity Organization website at this link.

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