8 hidden wastes impact small business profit

Hidden wastes in our work place becomes so familiar that we fail to see it for what it is.

Today’s fragile economic scenario demands high performance, high profits and low expenditure. This means only one thing for SME’s: minimum wastage. And what better way to cut hidden wastes drastically than by implementing Lean Six Sigma methodologies. Yes, you may have heard it from big companies like GE or Toyota, but guess what? Lean Six Sigma is also applicable to small business.

Why hidden wastes are so important

There are almost 28 million small businesses in the US. The problem is that 7 out of 10 new employer firms survive at least 2 years, half at least 5 years and a third at least 10 years. Only a quarter stay in business 15 years or more in the US.  I was inspired by Fundera, a small business loan marketplace, to help give some insight into what may be happening and how we can fix it.

Around the world almost 80% fail by the 5^th year. What’s wrong? As per the The Global Entrepreneurship Monitor report, the dominant reason for discontinuation of the venture is that the business is not profitable.

Lean methodologies look forward to reducing eight wastes or non-value-added activities. As a result, SME’s are more efficient in serving the end customer and at the same time more profitable. Elimination or reduction of them can result in savings for your business by more than 50%.

The first step towards cutting company costs is to uncover these hidden wastes.They are related to three main drivers: Quality, materials and people.

Quality

1. Defects and scrap: Making defective products that have to be reworked, repaired or scrapped.  Not only there is wasted material on the scrap, but there’s also wasted time and wasted human energy, generating customer complaints, returns, reworks,
   

   Materials

2. Overproduction: Producing more than needed. It is due to lack of resources and production planning, volume of sales not estimated correctly, a desperate intent to avoid late deliveries or to have enough inventory while changeover is too long
3. Transportation: Movement of material or data from one place to another. Is the touching, moving, relocating of raw materials, tools, finished goods, etc. for use at different stages of a process.
4. Inventory: supply in excess. It is developed when more supplies that needed are ordered, the inventory is tracked poorly. Anything getting dusty or pushed into corners is probably inventory in excess that soon will be obsolete or spoiled and you are spending money to store it.
   

   People

5. Waiting: Idle time before next processing step. Examples of this waste are waiting for a meeting to start or for a prior step to be completed in a production line. It can be caused by a lack of raw materials or by an unbalanced workload among employees and shifts.
6. Non-value added processing: Performing activities that add no value to the product or service from the customer’s perspective. While sometimes we can try to make products even better than the customer expects, we need to check first if the customer will pay for the extra effort. A simple example of overprocessing is when Ticket counter reps put printed tickets on game day into an envelope before handing it to the buyer, who then trashes the envelope (wasted process step and material).
7. Motion waste: Movement of employees and equipment that does not add value to product or service. Examples of this type of waste is walking to and from the copier and where something is reversed or undone.
8. Employee underutilized skills: Not using people’s abilities, skills, and experience to the fullest extent. Having employees with good ideas and experience is valuable, and the worst thing to do is to ignore it all.

Now check out your work environment. Look for your hidden wastes and prepare an action plan to get rid of them as soon as possible. Contact us to train your team on detecting hidden wastes!

Luciana Paulise

CEO Biztorming Training & Consulting

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