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During the first week, the concept of idle time was introduced. In general, idle time is the time during which a resource is not fully used because of low demand or bottleneck restraints, which, in turn, reduces productivity. Idle time is, however, not the only (and not even the biggest) source of waste. Taiichi Ohno – the father of the Toyota Production System – once stated that “moving is not really working”, which basically means that a loss of productivity does not necessarily need to be connected to idle time. While, for example, the re-configuration of a machine or the movement of materials is clearly “working time”, those activities are not directly adding value to the process.
The seven main sources of waste are:
(1) Overproduction: Producing sooner or in greater quantities than the customer actually demands. Overproduction leads to higher storage costs and material losses (e.g. because food products must be thrown away after a certain shelf time) and reduces the number of inventory turns. The solution to overproduction is to match supply and demand as closely as possible.
(2) Transportation: Unnecessary movement of people and / or materials between process steps. Transportation causes costs and production delays and thus often reduces the overall efficiency of a process (e.g. peeling crabs caught in the North Sea in Africa before shipping them back to Europe). The best way to reduce transportation waste is to optimize the process layout (“short ways”).
(3) Rework: Correction processes within the main process. Rework is always the result of a failure to do something right in the first place. Reworking something creates double labor costs while not actually producing more, thus productivity is reduced. It also requires holding additional resources just for reworking, so that normal production processes are not disrupted by reworking processes. The solution lies in – very simply put – making it right the first time as wells as in analysing and subsequently eliminating sources of failure.
(4) Over-processing: Doing more than the customer requires, e.g. keeping a patient in the hospital for a longer period of time than medically absolutely necessary. Over-processing is a form of waste that might have positive reasons such as workers having higher standards than the customers or employees being overly proud of their work. Still, over-processing adds to waste and thus to the reduction of productivity. One possible solution to this problem lies in the definition of quality and process standards, to which all employees then have to adhere.
(5) Motion: Unnecessary movement of people or parts within a process (similar to #2 but on a smaller scale), e.g. an office worker having to switch rooms every couple of minutes because the files are stored in different cabinets. One solution to this problem lies in optimizing the layout of workspaces (ergonomic design) in order to minimize unnecessary motion.
(6) Inventory: Too many flow units in the system. Inventory has already been discussed at length during the first week. It is by far the biggest source of waste in most companies and costs a lot of money because inventory requires costly storage space and drives down inventory turns. Possible solutions include “on time” production schemes and the reduction of so-called “comfort stocks”.
(7) Waiting: Employees or resources just sitting around waiting for something to happen, e.g. for a meeting to start, a customer to call or a customer waiting to be served. Per definition, waiting is an unproductive use of time. Waiting waste includes idle time as well as long flow times.
While the first five sources of waste are resource-centred (What did the employee do? Did it add value to the process?), the last two sources of waste are really an expression of Little’s law. Some scholars point out that waste of intellect (ignoring the ideas of employees for problem solving and process improvement because of hierarchical concerns) can very well be seen as an additional eighth source of waste. A production system that tries to reduce all types of waste at once is commonly called lean production.
|These lecture notes were taken during 2013 installment of the MOOC “An Introduction to Operations Management” taught by Prof. Dr. Christian Terwiesch of the Wharton Business School of the University of Pennsylvania at Coursera.org.|
A very basic definition of productivity – the average measure for the efficiency of a production process – would just be the ratio between process output units and process input units. The labor productivity might, for example, be four output units (such as car or netbook parts) per labor hour.
If one does not focus on a specific form of process input units (such as labor hours), but instead takes all kinds of input units into account (such as materials, energy, labor etc.), we are talking about the so-called multifactor productivity. Since both process input units and process output units are often difficult to measure and compare, fiscal measurements such as revenue and costs can be used instead. Fiscal measurements are also needed for comparing different input units (work time, materials) in the already mentioned multifactor scenarios.
These considerations lead to some basic mathematical expressions:
productivity = output / input
labor productivity = output / labor time
transformation efficiency = output / capacity
multifactor productivity = output (in $) / (capital + labor + materials + services + energy) (in $)
The two main drivers that reduce productivity are waste and inefficiencies. Inefficiencies and waste can be seen as the distance between a company and the efficiency frontier.