The absence of waste makes for high productivity. The last couple of years it has become very fashionable to talk about lean operations. This session today is about lean. It is about waste. And it is about waste reduction which is the process of making an operation lean. Taiichi Ohno, the former chief engineer of Toyota, wrote a wonderful book outlining the principles of the Toyota Production System. Ohno writes, that moving is not necessarily working. This is really deep, let me repeat this. Moving is not necessarily working. And on a session on process analysis, we talked about idle time as a way that workers are unproductive. They're hurting us on labor productivity. Ono, by outlining these seven sources of waste that we're going to talk about in this session, reminds us that there are other ways you can be unproductive than being idle. We'll talk about the Toyota production system in great length, later on in this course. A cool byproduct of this is that you're going to have a little bit of Japanese vocabulary to impress your friends and your coworkers. Waste and and this session is about the seven sources of waste. So first of the seven sources of waste is overproduction. At a risk of upsetting my fellow Germans, let me share with you the following example. The average German trashes 81.6 kilograms of food every year. The reason for that? Germans like to buy in large package sizes. This, however, creates a mismatch between supply, what they get into their fridge, and demand, which is what they eat. This is inventory, which we know is bad just from a working capital perspective of the household. But since inventory can also get obsolete, described problem. Let me illustrate the second source of waste, transportation was another German example. Crabs are fished in the North Sea next to the German and Dutch coastline. They're then shipped 2,500km south to Morocco. Labor is cheap in Morocco and that's where the food is prepared. It is then shipped back to Germany. This shipment back and forth truly reflects on this idea of moving but not really working. There is no direct value ads by shipping these scrubs up and down through Europe. Whenever transportation occurs, we see a poor layout of the process. And we are creating lots of extra work that is not necessary at length to the productivity of the operation. The third form of waste is rework. Rework refers to repeating or correcting an operation because of quality problems. An old Japanese quality saying goes, do it right the first time. Rework is a pain. Rework consumes capacity and take it away from flow units that could be otherwise served. Rework is, by no means, limited to the world of manufacturing. For example, in healthcare operations, readmission to the ICU is often referred to as a bounce back. Patients get discharged from the ICU but then later on, develop complication in the regular units and bounce back to the ICU. From an operations perspective, this is rework. Re admissions to the hospitals are also a form of rework. Dealing with re admissions has been a major component of the Affordable Care Act, and has become a big thing these days in the healthcare operations community. Let me illustrate the first source of waste. Over processing is another healthcare examples. Oftentimes, you'll notice, when you're in a hospital, it's not entirely clear how long are you going to stay there. The discharge of a patient is crucial for the capacity management of the hospital, but often the hospital lacks clear policies and standards of how long the patient should stay. To the extent that the patient stays longer than needed, the hospital is wasting through over processing. In the day to day life, over processing simply corresponds to stirring a fully mixed cup of coffee. Again, typically the driver behind over processing is that the operator really doesn't know what the exact standard of his work is going to be. Just as transportation was a form of moving, but not working. You often find a similar effect within a work space. The idea of unnecessary motion, the fifth source of waste, is that you can achieve tremendous productivity improvements by a careful and economic design of the work space. You see this when you look at great athletes. I'm a big cycling fanatic. I often admire the great athletes as they sit on their bike with their upper body not moving at all, all the action being in the legs. They get all the energy, all their capacity is moved towards where it matters, opposed to moving the upper body, which really doesn't help them get forward on the bike. The sixth source of waste is inventory. Warner viewed this as the biggest waste of all. His view was product has to flow like water. Wherever there's inventory piling up, we have a mismatch between supply and demand. For physical products, inventory takes the form of raw materials, work in process inventory, or finished products. This type of inventory is bad because it costs us money. Remember our discussion on the inventory turns. But it is also bad because it requires storage space. Inventory, as we previously discussed, is by no means limited to the world of manufacturing. Loan applications in a bank might not require a lot of real estate, but certainly an expensive form of inventory because it leads to customer wait time which is a sudden source of waste. Waiting the seventh and final source of waste is often a direct consequence of inventory. This is a situation where a flow unit is waiting for a resource. However I noticed that also the opposite can happen. The resource can wait for the flow unit. In this case, waiting takes a form of idle time. Something that we have discussed at great lengths, earlier on in the process analysis module. The impact of of Arnaut work, and the success of the production system, was long ignored in the western world. It took until the 1980s and team of researchers of the International Motor Vehicle program around Jim Womack to demonstrate the real power of the Toyota production system. The researchers went out into the world and benchmarked the productivity of automotive plants. In this table here, we see a comparison between a GM plant of the 1980s and a Toyota plant. The table compares a couple of dimensions. Gross assembly hours per car captures the labor content that we've introduced previously. You'll notice that the Toyota employee take only about half of the time to put a vehicle together. Assembly defects for 100 cars captures how many rework needs there are at the end of the red line. You notice again there are factor of three difference in productivity. Similar patterns exist for the real estate requirements. And then more significantly in terms of the inventory. Our GM at the time took two weeks of inventory. Toyota employees only required two hours of inventory set at their assembly line. So this was the seven sources of waste. You notice that the first five sources, overproduction, transportation, rework, over processing, and unnecessary motions. In many ways we are resource centric. They look at the worker and ask what did the worker do in the last hour. Pointing out that not every thing that the worker does is actually valuette. An experienced management consultant has once told me the following trick. When you go through the process, when you visit a restaurant, a manufacturing plant, just stand still. Then you turn around for about 360 degrees. And you count the workers that you see as you're doing this. Count those that are directly adding value to the customer. And count those that are idle, or that our engaged and reworked transportation motions or other things that are waste. This gives you very quickly and very casually a sense of how much wastage is in the process. Now, a word of caution. Arguably, this is not how you're going to make yourself popular at work, so don't just stand there turning around and coming up with wise thoughts. But I think you will agree with me that lots of the things that we do at work is not necessarily adding value to the customer. As Ohno reported, moving is not necessarily working. The last two sources of waste, inventory and waiting, are really two sides of the same coin. This is just a reflection of little slow. They look at waste from the customers, from the floor unit's perspective. Pointing out that most of the time, we just sit in the process without getting any value for it. Now, people often refer to an eighth source of waste. This is the waste of intellect. Oftentimes, managers think of their workers as human robots. Just there to execute orders. Wasting the intellect of workers misses the opportunity of engaging the workers in problem solving and process improvement. This is one of the key ideas behind Kyzan, a piece of Toyota production system that is upon worker involvement.
