No matter what industry, business is all about value creation. The value should be subjectively observed from the customer's perspective. Whatever costumers are willing to pay, that is value.
However, to create value, businesses face many operational challenges. It occasionally needs clarification to identify the actual value-added activity and which is not.
We undergo the status quo because we have worked for many years and are still creating profit. All actions seem essential, but the fact is that, on average, only 1-10% of total activities contribute to value creation. The rest of it does not create value, or in other words, is considered as waste.
Taiichi Ohno, the Chief Engineer of Toyota, first introduced the original concept of waste in business operations.
Back to the original version in the 70s, Ohno identified seven types of "TIMWOOD" wastes — Transportation, Inventory, Motion, Waiting time, Over-production, Over-processing, and Defects.
It has been revolutionized throughout the journey by adding "Skills" waste, becoming "TIMWOODS."
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The Eight Wastes and How to Reduce Them
1. Transportation
Transportation waste refers to moving raw materials, work-in-progress (WIP), finished goods, or machines.
Excessive transportation takes additional time and is cost-consuming, even increasing the possibility of altering product quality.
It could be reduced by selecting the nearest suppliers or vendors, or locating a facilities as near as possible. This is a basic solution, but it's not always easy to implement.
Another solution is by consolidating shipment. Having several materials are shipped together will improve efficiency and reduce cost.
Good to be noted is that we need to be careful for choosing materials to be shipped together. Some materials may quite sensitive with reaction or contamination.
2. Inventory
Inventory is a waste in the form of excessive stocks, including raw materials, WIP, finished goods, spare parts, and anything else costs capital without immediate movement or financial return.
In addition to trapped capital, it is space-consuming and directly impacts operational costs since some companies rely on third-party warehouse.
Implementing a pull system and just-in-time (JIT) along the supply chain and manufacturing could minimize this waste.
Pull system and just-in-time concept emphasizes to only provide the goods in right type, quantity, and timing when there is a specific needs from internal or external customers.
Solid practice of pull system and just-in-time will maintain the inventory in the lowest level that is still possible to make the process keep flow smoothly.
Another alternative solution is by improving the process flow by implementing one-piece flow.
In the one-piece flow, the goods move smoothly from one process to another with minimum interruptions. It enables to balance the stock within each steps, therefore prevent bottleneck and excessive inventory.
3. Motion
While transportation waste refers to the movement of materials, motion waste is more likely defined as the movement of people.
Imagine you must move into another floor or building to search, take some tools, and then return to your workspace — such a waste! This is time-consuming, increases fatigue, and might reduce workers' performance.
A spaghetti chart is a powerful tool to identify this waste, then continue with layout optimization and 5S implementation to reduce it.
4. Waiting time
Waiting time usually occurs to wait for other activities to be done.
For example, it could be waiting for the late shipping of raw material or repairing the broken machine. Unexpected waiting time could prolong the cycle time without adding value, even in some cases affecting quality.
Using waiting time for another activity parallel is one of the most common ways to tackle this waste.
5. Overproduction
Overproduction is producing an excessive quantity of finished goods beyond customer demand. It also means producing sooner than it should be.
Traditional industrial thinking thought that the manufacturer should make as much as possible as it is the best way to reduce production costs. Still, it could lead to massive inventory and trap the capital, causing uncertain financial returns.
To eliminate overproduction, it is essential to produce only by customer order. Creating accurate demand forecasts could reduce it if it's not possible due to the nature of business.
6. Over-processing
Overprocessing is similar to overproduction, but it observes the wastes from the process perspective.
Overprocessing means the processes or activities are done excessively than they should be, including trying to produce higher specifications than customers demand.
Why should we intensify the process without bringing value?
7. Defects
A defect is finished goods of low quality or not meeting customer specifications.
Deficiencies can lead to rework (considered extra processing waste) or even rejection if found internally.
A defect the customer finds could lead to more adverse consequences, such as a customer complaint, a company's bad reputation, financial compensation, or even a lawsuit.
8. (Unutilized) Skills
Unutilized skills waste refers to employees who can work beyond their current qualifications.
It also could be understood as the qualified employees not being engaged in improving the work or process. In fact, no one knows the process better than the people who do it daily.
This type of waste diminishes a continuous improvement culture, thus preventing the company from improving its function and business.
Which Waste is Most Dangerous One?
The eight wastes have their own mechanism to negatively impact business operations. But which one is the worst and should be prioritized?
According to Taichii Ohno, overproduction has the worst impact on business. The reason is simple — overproduction can trigger and amplify other wastes such as transportation, inventory, motion, waiting time, overprocessing, and defects.
Overproduction means consuming all resources — time, space, cost, workforce — more than necessary without bringing specific value.
Conclusion
Even though the eight wastes have various mechanisms to overburden the business, they have the same principle — consuming resources without delivering value.
The company should be able to identify those wastes along its business operations and reduce them to achieve operational excellence.
Those who succeed will gain competitive advantages in higher quality, lower price, and improved customer satisfaction.