Sunday, August 9, 2020
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Process Value and Waste in the Family Owned Business

There are two major types of processes, continual and discrete.

  • Continual processes – processes that are initiated and run continually, with a continual and measurable output. These processes require a steady stream of input resources and can be altered along the way to adjust the quantity and quality of the output. An assembly line is an example of a continual process.

  • Discrete processes – processes that are initiated and ended with only one set of inputs and outputs. Outputs can be measured on a case by case basis, and changes must happen before the process begins again. The service counter at a fast food restaurant is an example.

The purpose of a process is not simply to function and product an acceptable output. That’s because all processes are comprised of value-added and non-value-added portions within the process as a whole. As one portion shrinks, the other grows, and vice versa. Problems can arise when the non-value added portions take over the process, even if the end result of the process is acceptable.

What is value?

When we speak of value vs. non-value added parts of a process, we’re speaking of the parts of the process that your customers would be willing to pay for versus the parts they wouldn’t. In other words, non-value-added parts of a process are considered waste.

The methodology dedicated to the removal of process waste is called “LEAN.” Trimming off process waste is just like trimming the fat. A LEAN family business is one that continually analyzes its processes for waste and removes it where possible.

What is waste?

Waste comes in many forms, but in LEAN methodology, the focus is on these eight basic types:

  1. Defects. This is a fairly easy concept at first, but the definition encompasses many things that we may overlook. Defects are any deviation from what the process or customer requires or an unintended departure from the original specification. The cost associated with this form of waste includes reworking the product, re-inspecting product (Quality Control) or dealing with rejected material. There are also reputation costs and lost sales.

  2. Overproduction. Processing before the customer needs or requires it. You may think your business is running efficiently if it can out-process demand, but in reality, you’re adding to your costs with no commensurate return.

  3. Waiting. This can pertain to resources sitting idle waiting for materials, operators, or both. Causes are usually supply-chain shortages, poor workforce flexibility, breakdowns in other process, or faulty or poorly engineered production planning. This type of waste incurs costs by causing bottlenecks, long lead times (assets not earning), and failed delivery schedules.

  4. Transportation.  Any time we have to move resources, people, materials, or information from point A to point B, this incurs a cost. Do you send forms or paperwork through the mail? Do your employees have to travel in order to send or receive information?

  5. Inventory. This is often regarded as the deadliest form waste. Poor inventory management creates excessive work and results in excessive storage of raw material or product. You’ll realize the cost of this waste when your book-keeping reveals how much of your assets are sitting idle and not generating a return. You also get to spend even more on storage, utilities, and retaining idle employees.

  6. Motion.  Similar to transportation waste, this is a kind of waste usually confined to the shop floor. It can also manifest itself in the office environment in the form of tasks switching. Are your employees constantly searching for things like tools, paperwork or information? Primary causes of this form of waste are lack of standard procedures, poor housekeeping, or inadequate training.

  7. Over-processing. Adding unnecessary steps or features not required by the customer. Sometimes this is confused with “high-quality.” Culprits of this kind of waste can include complaisance and outdated standards.

  8. Underutilization of People. When you don’t leverage your in-house skillsets and talents of your employees, you are experiencing this kind of waste.  If you are constantly hiring consultants or contractors, you may be underutilizing the people you already have.

Some waste may be required. We call this “business non-value added.”  These are process steps needed for lawful compliance, etc.

The main problem with waste is that it can be so hard to recognize, especially if you feel that your family business produces an acceptable product or service. However, if you really begin to examine your own processes, you may be surprised at how much waste you will be able to find – and eliminate.

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