Overproduction can be traced to many management and employee behaviors. Some of the most common causes are:

• Just-in-case logic
• Unleveled scheduling
• Unbalanced workloads
• Misuse of automation
• Long process setup times

Just-in-case logic is exactly what it sounds like. You make more product just-in-case—you fill in the blank. For example, just-in-case the machine breaks down, just-in-case our suppliers don’t send enough raw materials, just-in-case our customer orders more than we can make or deliver on time, etc. There are many reasons for using just-in-case logic, and they are all bad!

Just-in-case logic is one of the most common non-Lean employee behaviors present in companies today. It is responsible for productivity losses in any type of organization by robbing employee time when working on NVA overproduction. It is commonly found in other waste categories, such as the waste of motion, transportation, inventory, waiting, and defects. Most importantly, it reveals an inherent weakness in your current process capability and reliability. Managers that practice just-in-case logic invariably have poorly understood processes and poor process control. Instead of fixing the process, they prefer to mask the system with just-in-case overproduction. They have fallen into the just-in-case logic trap. Don’t do it!

Unleveled scheduling and unbalanced workloads can both lead to overproduction. When these conditions occur and employees continue to produce, even when there is no customer demand, overproduction occurs. In forecast-driven environments unleveled scheduling frequently occurs. In areas where the workload is not balanced properly between two or more process steps, one step will have excess capacity while the next may have excess demand.

Another common mistake is that owners, senior managers, and/or department managers want to see expensive equipment running, not sitting idle. This misuse of automation can cause severe overproduction. Not very often does customer demand exactly meet machine capacity. One of the most difficult challenges for LSS practitioners is to change the misconception that the machine must always be running. In environments where there is a combination of automated and manual production, the misuse of automation at one process step creates the unleveled scheduling and unbalanced workloads at downstream process steps. In this case we have one cause of overproduction (misuse of automation) forcing overproduction at another process step.

The length of time required to set up equipment has long been a primary justification for overproducing and carrying excess inventory. The traditional thought is that if your setup times are long, then you must build larger batches than are required. One traditional approach is to define an economic order quantity (EOQ) where the changeover cost + the inventory carrying cost are the lowest, and then you build a batch this size. This concept is shown in Figure 3.4. Do these assumptions on batch size selection make sense if changeover time can be significantly reduced? The answer is no. As you reduce changeover time, you reduce both changeover cost and the inventory carrying cost, and the EOQ moves toward the left on the chart. In this case, instead of using EOQ, target your processes to build just what the customer wants. The most cost effective EOQ is always what the customer wanted.

FIGURE 3.4

Batch size selection based upon changeover cost and inventory carrying costs.

This is a classic example of bad measures driving bad behavior. The primary assumption that you have to live with long changeovers and high inventory levels and inventory carrying costs, rather than try to eliminate them, was made based upon these two measures. In an LSS environment we focus on the process (long changeover time), identify the waste, and eliminate the waste by simplifying the setup process.

The learning to see overproduction checklist in Figure 3.5 presents several questions designed to help you identify overproduction.

FIGURE 3.5

Learning to see overproduction checklist.

• Poor market forecast
• Product complexity
• Unleveled scheduling
• Unbalanced workloads
• Unreliable or poor-quality shipments by suppliers
• Misunderstood communications
• Reward system

Many organizations decide what they will build based upon a market forecast. Basically they take a sales and marketing forecast and convert it to a manufacturing forecast and then in turn set up a build schedule. Unfortunately, the only thing we can say about a forecast with a high degree of certainty is that it will be wrong. When this occurs, organizations are typically left with large amounts of inventory, much of which may be unsaleable.

In a rush to get to market, many products are moved from the product development to full production before sufficient design for manufacturability has been completed. When product complexity is high, there are several issues that lead to excess inventory. These include raw materials performance issues, engineering changes that lead to supplier changes, production issues, and in-service performance, to name a few. In a competitive product cost environment, product complexity and high quality are often at odds with each other and are another source of excess inventory.

Similarly with overproduction, unleveled scheduling and unbalanced workloads can both lead to excess inventory. These conditions typically occur in forecast-driven environments. In areas where the workload is not balanced properly between two or more process steps, one step will have excess capacity while the next may have excess demand. In the end, you wind up with excess inventory.

LSS organizations can only be sustained with an LSS supply chain. Inferior materials can, and often do, produce myriad troubles during your VA activities. Unreliable suppliers that deliver materials of poor quality or insufficient quantities only serve to help your competitors. To achieve LSS performance, focus on developing relationships with LSS suppliers.

Poor communication invariably leads to excess inventory. In the age of information overload, it is staggering how much bad information our employees are using and how much good information is being unused or misused. There are basically three fundamental areas in all organizations. (See Figure 3.6.) These are product development or service delivery, operations management, and information management. Most companies are good performers in one or two of these categories, but rarely all three. Depending on the nature and structure of the senior management team, more emphasis usually goes to one area. For example, companies with a perceived technology advantage tend to pay more attention to product or service development at the expense of the other two areas. When communication breakdowns occur, inventory increases, quality decreases, and profitability is hurt. These are signs that you are in a poor communication environment:

FIGURE 3.6

The organizational universe.

• Poorly understood customer requirements
• Product or service is frequently delivered late
• Poor customer satisfaction
• Incomplete or inaccurate documentation
• Poor work instructions
• Inadequate information management system
• Barriers between departments
• Conflicting measurements system

There are several factors of company-wide rewards systems that can contribute to excess inventory. These factors can originate from senior management or from most departments. Since we know that measures drive behavior, poorly defined measures tied to rewards often result in excess inventory and many other wastes.

One example could be if an operations group has a measure of “on-time delivery” without regard for inventory levels. Another may be how the sales group gets compensation. Still another may arise from inadequate knowledge of the true cost of carrying inventory. Regardless of the reasons, if a large level of inventory exists in your facility, review the rewards program for an inadequate measurements system.

The learning to see excess inventory checklist presents several questions designed to expose inventory waste. (See Figure 3.7.)

FIGURE 3.7

Waste of inventory checklist.

Defects can result from myriad causes. These causes can be classified into a few basic areas listed below. Each is followed by a brief description.

• Customer needs not understood
• Poor purchasing practices or quality materials
• Inadequate education/training/work instructions
• Poor product design
• Weak process control
• Deficient planned maintenance

Establishing comprehensive customer requirements is essential to defect-free products. More often than not we think we know what the customer wants or we make many assumptions about how he or she will use our product or service or what’s important to him or her in terms of product or service performance. The more we can know in this area, the better we can develop our processes to respond to customer requirements.

In the global marketplace, controlling the supply chain is an ever-increasing challenge. Purchasing departments typically have their own stand-alone measures based upon dead materials costs. Material costs are typically very visible in financial statements and a common target for cost reductions. This never-ending pressure for cost reduction frequently pushes product quality below levels expected by customers.

What’s not present on most financial statements is the cost of quality, which includes repair and rework. Oh, it’s present on the bottom line; however, there is no individual expense line item that can be targeted. Many defects can be traced to inferior quality materials. Repair and rework costs for these defective materials increase dramatically the further into the value stream your product gets before the defect is discovered. Numbers for how much this costs vary greatly across industries. Some of the components of this cost may include:

• Cost of communication with supplier
• Cost of storage until a disposition can be made
• Cost of employee time for physical moves or quarantine
• Cost of employee doing this NVA activity instead of a VA activity
• Cost of repair if required
• Cost of returns to suppliers
• Cost of re-engineering
• Cost of re-inspection
• Cost of productivity losses on new products due to staff re-assignment to complete rework

Here is an important rule of thumb: At any given point in time, you should have cross-training capacity at 150% of full production at each process step. To accomplish this, there needs to be a well-defined and executed cross-training program and effective work instructions to carry out the program. Often employees are asked to produce a quality product without adequate education, training, or visual work instructions to complete the task. One of the most effective means of defect reduction is the preparation of visual work instructions.

Many defects can be traced to poor product design. In examining product design failures, look for cost restrictions, poorly understood in-service product performance requirements, poor materials’ selection, little or no product performance testing, and poor supplier performance. Regardless of the root cause of poor product design, the cost for a part design change increases dramatically the further into the value stream the product is before the defect is detected. The relative cost to mitigate a defect detected along the value stream using design engineering as a baseline of $1 is:

• $1 product design engineering
• $2 product manufacturing engineering
• $4 production
• $5 to $10 if the product reaches the customer

In some industries the cost could be significantly more. Many pharmaceuticals, for example, have limited shelf lives. If defect detection occurs at the customer, there may be insufficient time for return and repair or rework, requiring a complete write-off of the shipment. In this case, material/labor/facilities’ costs plus profit are lost, not to mention the bad will created with the customer.

In all process environments either you control the process or the process controls you. Weak process control can stem from several sources, including deficiencies in materials, machines, manpower, methods, or measurements. It is easy for weak process control to creep into your processes. The three telltale signs you need to work on process control are defects, rework, and high scrap rates.

Poor equipment maintenance is often a cause for defective products. The justification for not completing planned maintenance can range from not enough time to do Total Productive Maintenance or autonomous maintenance, to can’t afford to have production down, to equipment repairs are too expensive, to name a few. In the long run, effective equipment maintenance is always less expensive than equipment breakdowns due to poor maintenance, the cost of scrapping defective parts, or the added cost of rework.

Defects are often only defined as something that an employee can tangibly see in the product. However, a defect is better described as anything that contributes to a product not meeting exactly what the customer wants. The list of questions in Figure 3.8 should help you begin to expose a number of possible defects. This list could be greatly expanded; however, it should give you an idea of how to begin your search for anything that may possibly affect your product or service and be considered a defect.

FIGURE 3.8

Defect detection questions.

Processing waste can stem from many sources and is often present regardless of the activity type. Processing waste is predominantly waste that is found in front-office areas, such as order processing, information gathering and dissemination, and all accounting functions. It is also dominant in service industries where service-delivery requirements may be ill-defined or difficult to achieve. Industries like the medical field, janitorial, or food-service industries may have extensive processing waste from several apparent causes. These causes can be classified into a few basic areas listed below. Each is followed by a brief description.

• Product changes without process changes
• Just-in-case logic
• True customer requirements undefined
• Overprocessing to accommodate downtime
• Poor communication
• Redundant approvals
• Extra copies/excessive information

When a product or service is changed, production staff or service personnel need to be properly informed. For example, visual work instructions or service-delivery instructions need to be modified and training conducted for the new process. In many growing companies, products or services are changed frequently, often with little or cursory regard for production or service-delivery personnel. This can be a major source of processing waste for a range of product or service quality issues.

Just-in-case logic is exactly what it sounds like. You make more product just-in-case—you fill in the blank, for example, just-in-case the machine breaks down, just-in-case your suppliers don’t send enough raw materials, just-in-case your customer orders more than you can make or deliver on time, etc. There are many reasons for using just-in-case logic, and they all contribute to decreased company profitability! Just-in-case logic is a primary cause for overprocessing waste.

When customer requirements are poorly understood or not documented properly and employees are not adequately trained on requirements, extra processing is bound to occur. AN LSS process starts with a clear fundamental understanding of customer requirements. This typically involves a critical to quality (CTQ) assessment and definition of all product or service requirements from the customer standpoint.

In traditional organizations, one belief is that people must be busy on production at all times. Consequently, managers order people to produce products even when none are required by a downstream customer. This results in overprocessing and creates overproduction and excess inventory. Alternatively, this time should be used for additional LSS training, cross-training programs, or other continuous improvement activities.

Poor communication is typically one of the top reasons that organizations lose effectiveness. Communicating information along the entire value stream is critical for a great customer experience. The earlier in any process that the communication breaks down, the worse is the resulting waste. A typical communication cycle includes:

• Identifying critical to quality (CTQ) customer requirements
• Transitioning customer requirements into product or service specifications
• Engineering the product or service
• Creating instructions for producing the product or service
• Product or service delivery to the customer

Although there is a need to have some cost and quality control approvals in any process, it is easy to stifle the process by requiring redundant approvals that can dramatically increase lead time and increase total product cost. After reviewing many approval procedures over the years, this has been identified as a significant example of extra processing.

Information sharing can be a significant source waste. How many reports are printed and not read? If they are read, how many items are actions taken on? Then there are charts, graphs, memorandums, e-mail distributions, etc., leading to information overload for employees. One example is what can essentially be described as the e-mail soap opera. The saga begins with one controversial statement or aspect that was sent to too many employees. It quickly evolves into long series of clarifications and reclarification e-mails, with each e-mail raising more questions than it answers. These types of e-mail dialogues rapidly consume significant employee time and energy of everyone involved.

The learning to see processing waste checklist presents some basic questions to uncover process waste.* (See Figure 3.9.)

FIGURE 3.9

Waste of extra processing checklist.

Waiting time waste may be caused by several sources. Some examples include materials conveyance delays, machinery or equipment breakdowns, operators working too fast or too slow, and an insufficient number of employees, to name a few. Causes of waiting waste include:

• Raw material outages
• Unbalanced scheduling or workloads
• Unplanned downtime for maintenance
• Poor equipment or facility layout
• Long process setup times
• Misuses of automation
• Upstream quality (flow) problems

A prevalent root cause of waiting waste is raw material outages. Poor purchasing practices or purchasing measures can often lead to inadequate raw materials’ inventories. Without raw materials you cannot add value for your customers and you bear all the material-related liability. For example, if you make a product that has 25 components and you are out of 2, you cannot build your product. However, you have the inventory carrying costs for the 23 components in stock. In addition, allowing outages to occur almost guarantees some of the other wastes, such as overproduction and extra processing. You cannot build the entire product, so you start building parts, and soon mountains of incomplete sub-assemblies begin to appear around the facility as work-in-process (WIP). Raw materials outages and management can be an LSS project focus topic.

Similarly with overproduction, unleveled scheduling and unbalanced workloads can both lead to the waste of waiting. These conditions typically occur in forecast-driven environments. In areas where the workload is not balanced properly between two or more process steps, one step will have excess capacity while the next may have excess demand. In the end, you wind up with equipment, materials, and/or manpower waiting.

When a machine breaks down unexpectedly, there is a significant opening for the waste of waiting. In addition, during the waiting period overproduction or extra processing can follow when management decides the result of finding things for employees to do until the equipment is back on-line. These extra activities are often viewed as steps that would be necessary to complete and not as waste. However, as shown in overproduction and extra processing, these are truly wastes and should be measured and subsequently eliminated.

Equipment placement and facility layout are primary sources of the waste of waiting. The position of equipment within a facility is frequently decided based upon (1) shortest run from electrical service, (2) currently open floor space, and (3) a position near similar equipment, or in an expansion location. None of these criteria are based upon a proper manufacturing sequence or limiting any of the nine wastes. Poor equipment and facility layout can result in significant motion, transportation, and waiting wastes.

When the time to change equipment over to a different product is long, this can be a contributor to the waste of waiting. Although long process setup times can vary depending on the equipment and complexity of the transition, process setups are necessary for most equipment. Every minute, hour, or day consumed by setup is time permanently lost to waiting and contributes to lower productivity and profitability.

A common mistake that owners or managers often make is that they want to see expensive equipment running, not sitting idle. This misuse of automation can cause the waste of waiting. Not very often does customer demand exactly meet machine capacity. One of the most difficult challenges for LSS practitioners is to change the misconception that the machine must always be running. In environments where there is a combination of automated and manual production, the misuse of automation at one process step creates the unleveled scheduling and unbalanced workloads at downstream process steps.

Product quality issues can lead to a number of wastes. Two prominent wastes are extra processing and waiting. In the case of many complex products that contain sub-assemblies, as soon as quality issues are uncovered upstream, remaining downstream steps are caught in a waiting game for completed quality sub-assemblies. Every process step should target 100% first-pass quality.

Waiting waste can be present across the entire value stream. Regardless of the reason for the waste of waiting, the objective of learning to see is to identify where and when in the process waiting waste occurs. The checklist in Figure 3.10 is an effective tool to identify where, when, and how the waiting waste is occurring in a process.

FIGURE 3.10

Waste of waiting checklist.

There are many possible causes for the waste of motion. Some of the major sources are:

• Poor people, materials, and machine effectiveness
• Inconsistent work methods
• Poor information management
• Unfavorable facility or cell layout
• Poor workplace organization and housekeeping

Employee interactions with materials and machinery may result in the waste of motion. This happens when employees have to walk distances to pick up or deliver materials by hand. It can also occur when information must be hand delivered from one process step to another. One example may be delivering a completed order back to accounting to complete the billing cycle. Another example may be delivering a completed order to shipping for scheduled delivery.

Whenever work methods are not documented properly, a number of inconsistent and poor practices slip into any process. The best counter to inconsistent work methods is the creation of standard operating procedures or visual work instructions. These become the foundation of all effective employee training programs. In their absence employee learning occurs through the passing down of “tribal knowledge” known only to “experts” in your organization. Learning that occurs under these conditions is open to interpretation by the employee on “what to do next” or “how to do” specific activities in the process. This frequently results in several employees doing the exact same activity differently. Inconsistent work methods not only result in the waste of motion, but also are frequently the root cause of product- or service-delivery quality issues.

The transition of information between employees, departments, and customers often leads to the waste of motion. Information management systems that are not set up to make required information available to employees when and where it’s needed often results in employees doing printouts and manual document transfers around the organization. As with many wastes, the waste of motion can also cause several other wastes. For example, when shipping instructions for a specific customer are not completely defined in the information management system, an employee in shipping must stop to track down the proper information, which can require going to order processing or customer service to obtain the information. This initial waste of motion produces the waste of waiting and the waste of extra processing before the order can be properly shipped.

If the facility layout is weak, the waste of motion will be present. By facility we mean any department in an organization, wherever value is created for the customer. The layouts of administrative areas, such as order processing, customer service, accounting, and warranty claims departments, are seldom considered as areas where waste can occur, but often are significant sources for the waste of motion. This is due to the frequent manual transportation of documents necessary in these areas, as well as an inordinate amount of information exchange required to produce your product or service.

In a production environment poor facility layout results in excess waste of motion regarding moving raw materials in a position to add value, securing tools and fixtures, or delivering materials to the “next process step.”

It never ceases to amaze me how little attention is paid to workplace organization and housekeeping. Managers would rather employees spend hours searching for tools, materials, documentation, etc., than allow 30 minutes/day to maintain an organized work area. This philosophical fixation that every employee activity must be producing product is responsible for many of the wastes observed in organizations today. Every day managers can walk by piles of obsolete materials, in-process rework, and mountains of defective warranty returns, while continuing to allow no time for employees to correct the conditions that produced these results. All process improvement programs begin with workplace organization and housekeeping.

Motion waste can be present across the entire value stream. Regardless of the reason for the waste of motion, the objective of learning to see is to identify where and when in the process motion waste occurs. The checklist in Figure 3.11 is an effective tool to identify where, when, and how the motion waste is occurring in the process.

The learning to see transportation waste checklist presents some specific questions that can help you uncover transportation waste. (See Figure 3.12.)

There are a number of causes of underutilized employees or people waste. Each of these stems from some aspect of traditional belief systems.

• Old guard thinking, politics, the business culture
• Poor hiring practices
• Low or no investment in training
• Low-pay, high-turnover strategy

Old guard thinking, politics, and general business culture often stifle using employees’ creative skills or producing innovative assignments that could result in significant process improvements. Unfortunately, in many organizations an employee’s perceived importance to the organization is generally directly proportional to his or her salary or directly linked to his or her title. This is common in the United States and seldom seen in Japanese companies.

Most human resource departments are faced with the difficult task of how to attract and retain skilled employees. Poor hiring practices usually stem from the structure of the department and management’s mandate for critical components of the hiring process, such as pay level, required skills, or required experience. All of these could hinder getting the best candidate for the position.

There are many factors that can go into poor hiring practices. A few common mistakes include:

• Inadequate job advertisements
• Position definition
• Nepotism
• Not matching skills to position requirements
• Not understanding the technical aspects of job requirements
• Inability to identify the skills necessary to add value to a position

Good data on training time, although readily available from many sources, is often difficult to translate to an organization. The American Society for Training and Development (ASTD) puts the dollars per year per employee at about $1,400. For a $40,000/year employee, this equates to about 3.5% of annual salary. It has been cited in the literature that top-performing companies spend approximately 4 to 6% of annual salary on training. It has also been reported that average American companies spend less than 5% on employee training. LSS organizations often approach 10%, with 3 to 4% of annual salary direct spending on new training and 6% employee time committed to improvement activities.

All companies tend to view training differently. One observation is unavoidable—poor-performing companies tend to invest little or nothing in training, while higher-performing organizations invest in training and focus on process improvement.

Another common trait of traditional organizations is the “low-pay, high-turnover rate” philosophy. This is characterized by hiring to a specific hourly or salary level regardless of skills, and living with the performance that pay rate returns. Because the conditions are poor, employees either leave to pursue a better opportunity or are let go by the company for myriad reasons. This is an internally focused philosophy and completely ignores the voice of the customer.

The learning to see underutilized people checklist in Figure 3.13 points out some questions you can use to assess your current employee utilization and expose some apparent causes for lack of effective employee use.

Behavior waste is classified as either personal (yourself) or people (between two or more employees). Identifying these behavior wastes in your organization is the first step to elimination of this disruptive waste.

Personal waste is waste that comes from within oneself. It stems from the way you view yourself, your goals and objectives, or possibly your position in the organization. Oftentimes personnel who prefer a Theory Y organization (empowered-employee environment) and are working in a Theory X organization (command and control environment) feel underappreciated. As a consequence, they become an underutilized employee and can exhibit low morale. The personal waste they generate comes directly from their individual belief system. Gossip, self-imposed barriers, deceptions, and ego are a few of the many examples of personal waste.

Personal waste has been described as the little voice inside your head that provides constant running (negative) commentary. It can control an employee’s inability to suspend judgment and projects unresolved internal conflicts of the employee. It does not take much personal waste to bring continuous improvement to a screeching halt. In fact, personal waste will restrict process improvement and Lean deployment at any process step that touches this employee, which is basically your entire value stream.

People waste has to do with relationships between fellow employees. This includes between department managers and senior managers, as well as the manager-employee relationship. Some categories of people waste include turf wars, fiefdoms, or politics. Some specific examples of what people say when they are exhibiting people waste are:

• “Bill’s initiative is so stupid!”
• “Forget about what Jane says!”
• “John is impossible to work with!”

One can see how personal waste, when coupled with people waste, can stifle all process improvement.