Waste: How to increase margin from supplied parts or services?
Tuesday, 19 November 2013
How do we increase the margin on the parts or services we provide our customer(s)?
- We have three basic options:
- Raise the price of our product or service – in a competitive global market this is difficult.
- Lower the cost of the raw materials - with the increase of raw material and transportation cost this most likely will also be difficult.
- The third option is reduce waste – this is easy to say but difficult to do.
To help in the never ending quest for increased profitability, I believe it is a good thing to review what WASTE is:
Waste is defined as anything that does not add value to the customer. Overproduction – There are two types of overproduction:
- Producing more parts than are necessary
- Producing parts at a rate faster than is required
- Example: Using up the rest of a material even though the correct ship quantity was produced.
Overproductionmust be stored, managed and protected. Unnecessary Processing - Processing work which is unnecessary because it has no connection with advancing the line or improving the quality of the product.
Example: Inspecting of the product or services does not add value, only cost.
Transportation - Transportation is not something that directly contributes any added value to the product.
Example: Removing empty containers from the line.
Wasted Motion - Any movement of people or machinery which does not contribute added value to the product.
Example: Excessive walking distance between operations because of plant layout
Time - Idle time between operations or events
Example: Operator waiting for machine to finish cycling
Excess Inventory - Inventory is a drain on an organization's overhead. The greater the inventory, the higher the overhead costs become.
Example: Large amount of in-process material that is waiting for a purchase order from the customer.
Defects - Throwing out bad product after costs are in it drains resources. Correcting or repairing a defect in materials or parts adds unnecessary costs.
Example: the labor costs associated with scheduling employees to work overtime to rework defects.
All waste shrinks the margin that we expect to gain from the sale of our product or services. So in 2008 lets make it a goal to identify and reduce our waste. Additional resources may be found in the following books; The Toyota Way by Jeffery K. Liker and Value Stream Management by Don Tapping.