Where’s the Waste?
Over the past year, I have become thoroughly convinced of one thing – if leaders really knew the daily cost of the waste all of their work processes were creating, they would make very different decisions. Do you really know where all of your process waste streams are? Do you know the true cost of that waste?
Where are Your REAL Waste Streams?
I am not talking about just direct labor waste. In fact, I think that waste stream is one our smaller streams these days. I am talking about the relatively unknown torrents of waste produced by our overhead cost centers. I am talking about the cost of lost customers we struggle to get back, if we get them back at all. I am talking about the true cost of daily human error and equipment failure that we often accept as part of doing the job. Most process owners rarely track daily errors and failures at the process level. In fact, we actually blend waste into our cost structure via allowances and multipliers to make sure we stay ‘under budget’.
The key waste indicator in most companies is the monthly budget variance. One of our most common performance review tactics involves comparing how different our actual cost center totals were from our budgeted amounts. This is only the tip of the waste iceberg. In most cases, if that variance is less than 10%, it might not even be explored. In so many organizations, it is okay to be consistently wasteful, as as long as we do it in an ‘under budget’ manner.
The Need for Daily, Process-Based Waste Tracking and Trending
I will ask the question a different way. What percentage of your work processes track the key waste events – such as human error and mechanical failures – that occur each day? How often is the cost of lost customers reviewed and examined, if we track our lost customers and calculate the cost of such loss at all. We used to be able to blame our inability to track such values on the time required to do so or the inability to manually track such higher frequency problems. If you are still using such an excuse today, you aren’t thinking 21st century, Marty!
In reality, comparing actual to expected costs for each cost center is really more of a measure of budgeting ‘accuracy.’ If you aren’t using activity-based costing methods, you probably can’t even link cost center waste to the processes that actually produced that waste. The only waste data many organizations can produce are aggregate waste, rework, and downtime percentages. With today’s tech however, we can get down to the process level daily. We can easily track those waste events that are really killing our bottom line. I know – I’ve been there, done that, and experienced success from doing so.
EVERY Process Owner Should Track Their Daily Process Waste
To make such a process-focused cost reduction effort work however, you have to take accounting out of the accounting department. You have to make process waste tracking and cost analysis part of EVERY process owner’s job, no matter what their job title is. You have to be able to roll up all of your non-value added process costs into the larger cost center waste total instead of trying to roll down to such values. Most importantly, you have to see all work as a process, not just the work that is performed by hourly people.
For example, do you know the average cost of the waste associated with every meeting held in your organization each day? What percentage of your teams even track meeting defects or know what a meeting defect is? Who are the process owners of your meetings? What responsibilities do they have for reducing meeting waste and optimizing the effectiveness of every meeting? Millions of dollars can be saved simply by measuring and improving meeting process performance. The same logic also applies to the daily e-mail and text message processes we execute at work each day.
Lost Customer Costs Pollute Our Real Waste Rivers
Sadly, we have not even begun to look at the real waste rivers – the cost of lost customers due to defects that they experience, but we rarely track. Most companies don’t even know how many customers they really lose each month. Leaders often don’t know how much business they lose from those customers that still do business with them, but at a reduced level. If you doubt me, check it out for yourself – visit the sales and marketing people and ask them to show you the data. I expect it will be a short visit.
In the 1980’s, Clare Peller become a pop icon by asking ‘Where’s the beef?’ in her restaurant of choice. She went viral before we even knew of the term, and she got the attention of hamburger eaters everywhere. Perhaps we need to start asking a similar question of all of our work processes – where’s the waste? What would happen if that question went viral in your organization?
The answers we discover might actually lead our leaders to make very different decisions. I think most of us, as customers, hope this happens sooner versus later. Until we start asking the question, we won’t even know the true magnitude of the process problems we have learned to live with and built into our product and service costs. How well do you know the real costs of your work processes?
Keep improving! – Kevin McManus, Chief Excellence Officer, Great Systems
If you liked this post, you might also enjoy my newest book entitled “Error Proof – How to Stop Daily Goofs for Good”.