WASTE ELIMINATION - Part 1

As we have seen in my last post there are 8 Deadly wastes @ Manufacturing** TIMWOOD + UHP ( Untapped human Potential ) *** in all business entities, In this post we are going to look for the causes , Effects and  possible  solutions for Transportation and Inventory wastes.

Transportation

Cause :

A well known and co-ordinates system of transport plays an important role in the sustained economic growth of a country. The present transport system of India comprises several modes of transport including rail, road, coastal shipping, air transport, etc. Transportation in India has recorded a substantial growth over the years both in spread of network and in output of the system. but it is also a fundamental waste to be eliminated.  As important as it is to get a product to the customer, transportation does not add value to the product.  This can be easily seen.  Imagine you are in a store looking for product and find two identical products on the shelf.  One was transported from a factory 500 Kms away, and the other was produced 5000 Kms away.  Would you be willing to pay more for the product that had been transported farther?  Of course not.  For many products, particularly perishable products like food, long transportation times can actually reduce the value of the product.

Transportation can also occur within a facility.  When materials are moved around a factory, they are not gaining value, but resources are expended to move the materials.  This is an easy waste to identify. Although it may be impossible to eliminate all transportation costs, this should be the goal.  Otherwise, companies will grow complacent and accepting of transportation costs.

Most of transportation costs are generated by moving raw materials to a factory and moving finished goods to a customer this is because of  the centralized production of a product, and the design of the supply chain supporting production.  In most industries, large scale centralized production is a thumb rule.  The result is a product that may be produced hundreds or thousands of Kms away from where it is needed. The supply chain has a big effect on transportation.  Sourcing raw materials locally can reduce transportation costs.  When making sourcing decisions, the transportation costs are typically included in the total cost of the material being acquired.

Inside a facility, transportation is caused by wait time and inventory.  Every break in a process that causes wait time has the potential to allow WIP to accumulate.  As WIP accumulates, it needs to be stored, and in turn, transported to and from storage locations.  With high finished goods and raw material inventories, transportation costs also raise.  The bigger the warehouse, the higher the transportation costs expended in the warehouse.

In some companies the production has to take for heat treatment or cold treatment after 1^st stage to the different company in or out of city which will bring back the same place for the 2^nd stage , the transportation cost and the total time consumed is again a transportation waste.

In office environments, there are still significant transportation costs.  In this situation, the transportation is typically of workers and not products.  Many companies recognize the transportation costs of employees travelling.  Whether driving or flying, it is expensive to send a person on a trip.  Transportation costs also occur inside a facility.  If sales and production planning need to meet regularly, but are on opposite sides of a production facility, employees will end up walking back and forth a lot.

Effect:Transportation costs money, in equipment, fuel and labor.  Transportation also drives up lead times.  This is most commonly felt with imported raw materials.  A component from China can take weeks to arrive, and the company must either increase inventories or increase customer lead times to accommodate the transportation time.

Transportation also drives up other costs.  Every time a material is moved, there is a potential for damage.  Securing a product for transportation also requires labor, as the product must be stacked and packed to minimize damage.  For products shipped outside a facility, theft and security costs are also a factor.

In office environments, transportation can slow communication and cooperation.  Employees working in separate locations typically do not build strong relationships.  Even inside a facility, employees who are far away will be consulted less.  The barrier created by distance then slows communication of critical information and the ability for organizations to develop consensus.

Possible Solutions :In a perfect world, there would be no transportation and everything would happen where it is needed.  Manufacturing operations would be located near customers.  This may seem unrealistic, but some industries are set up with local manufacturing by necessity.  Every restaurant is a make-to-order manufacturing facility located as close to customers as possible.  In this case, a hot hamburger fresh of the grill loses substantial value if it is packed in a box and shipped across the country.  Companies strive to develop supply chains that minimize transportation (and other costs).

When implementing lean in a facility, any effort that streamlines a process should reduce transportation.  Combining operations and eliminating a wait step will reduce WIP and the handling of that WIP.  Reducing lead times will reduce the amount of inventory held, and reduce the transportation of that inventory to and from storage locations.  The biggest steps a company can make are likely to be the development of process lines that transform raw materials into finished goods without any intermediate stops, along with a make-to-order scheduling system.  In this case, raw materials are the only items that need to be stored.  Once production starts, the only transportation inside the facility is the movement of material from the production line to the shipping trailer.

In an office environment, there are opportunities to reduce transportation costs.  These start with technologies such as video conferencing and document collaboration tools.  Designing an office around the processes within the company is also important.  Most companies organize employees by function, with all the purchasing people in one area, engineering in another, production planning somewhere else, and sales in another location.  Reorganizing this into cross-functional groups can speed information flow, improve collaboration and reduce transportation costs.

Inventory :

Cause :Inventory is one of the most important  waste in the lean system.  Because inventory does not add any value to the business as non of the customers will pay for the inventory running cost, but It has significant costs association with a smooth running of a business.  Many companies use inventory as a crutch to minimize the impact of inefficiencies in their processes.  The inventory appears essential and valuable, but as per as Lean is concern, the inventory becomes unnecessary.

Some versions of the 8 Wastes refer to this waste as “excess Inventory” instead of “Inventory”.  The reason being is that manufacturing cannot operate without  inventories.  This form of the 8 Wastes tries to introduce pragmatism into lean.  It is true that zero inventory may be impossible to achieve.  To achieve zero inventories, you would need to process incoming raw materials as soon as they arrive, process them in one operation or a linked series of operations, and dispatch the finished goods immediately.

Although it may be impossible to achieve zero inventories, it is important to strive for the possibilities.  Introducing an acceptance of a waste into the lean methodology compromises the lean philosophy.  Practitioners should continually strive to reduce inventory no matter how low the level.  There will be times when further inventory reduction is not possible or cost effective with existing processes, but that should not lead to a permanent acceptance of inventory as necessary.

Overproduction, one of the 8 Wastes, is a primary cause of inventory.  Processes and incentives that encourage producing too much product will lead to higher inventory levels.

Inventory is viewed by many as insurance.  It protects against unexpected events such as a material shortage, machine breakdown or natural disaster.

Poorly controlled processes lead to large lot sizes, inaccurate forecasts, poor communication with suppliers and customers, and errant management decisions.  All of these limitations will result in higher inventory levels.

Effect :The most common effect of inventory on the business is the blocking the capital required to carry the inventory.  The cost of inventory is significant, and that cost is  not generating any revenue .  It just sits idle.  By reducing the inventory required to operate, the business can reduce the capital it requires in order to support those operations.

Inventory affects a wide range of other expenses.  As inventory levels go up, the capital investment in warehouse space also increases.  Large warehouses mean more time is required to move product into storage and out of storage locations.

Higher inventory levels also drive up obsolete and excess inventory expenses.

Damage to inventory also increases as more inventory is stored for longer times.

The larger the inventory, the more labor is required to maintain inventory accuracy.  A plant that has one day’s inventory on hand will have an fast and easy physical inventory compared to a plant with a year of product in storage.  The number of cycle counters and inventory adjusters also increases with inventory levels.

 Possible Solutions:It is necessary for any business entity to streamline processes and reduce lead times.  Every reduction in lead times leads to a reduction in the inventory held.

Eliminating work in process (WIP)can be achieved by creating a one peace flow  through the production process. Every break in a process requires WIP to be stored and moved between processes.  Eliminating these breaks allows the elimination of WIP.

Better forecasting and a shift to a pull based scheduling system will eliminate the large forecast variances that lead to overproduction and increases in inventory levels.

Any effort seeking to reduce inventory must have incentives to motivate employees to minimize inventory.  Managers need to treat the capital tied up in inventory as a negative to be minimized.  This can involve charging a plant for the cost of capital or by making inventory levels part of the bonus calculation.

The most important thing to remember when looking at inventory is that all inventories as waste.  Too often, inventory’s ability to cover up for other problems makes people think inventory is essential.  In reality, correcting the underlying problems will make the inventory unnecessary.