Where’s the Waste?
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12 August 2013 - 23:12, by , in Performance Management, No comments

A man walking down a dark street one night saw a person kneeling under a street light. He stopped and asked,“What are you doing? Can I help?”

The person responded “I’m looking for my gold ring.”

The Good Samaritan inquired “Where were you standing when you dropped it?”

“I was walking down there.” He said pointing thirty feet down the dark street.

“Then why are you looking over here?” asked the Samaritan turned investigator.

“Because the light is better over here.”

 

Many implementers of Activity Based Management incorrectly assume that the activity classification “Non-Value” will spotlight all the waste of their organization.   During the past ten years I have learned that the majority of cost improvement opportunity in an organization is not exposed by this one ABM technique.

Here are some other locations of waste to investigate with your ABM continuous improvement flashlight:

Excess capacity is Non-Value Added waste e.g. employees can produce more Value-Added output without increasing cost. Perform capacity analysis on your most expensive activities.

Activity cost in excess of best practice is Non-Value Added waste. If your cost per purchase order is $25.00 but the best practice is $1.00, your purchasing department has $24.00 of waste.

Duplication of activities is Non-Value Added waste. If you unnecessarily perform the same activity as your suppliers or customers, you have waste. Use ABM as a common language to identify duplication.

Excessive secondary activity is Non-Value Added waste. If you spending more than 10% of your resources on activities such as “Attend Meetings”, “Supervise Employees” or “Do Reports” you likely have waste. Ask yourself “What is the primary mission of my department?”

If you don’t know how to properly price your products or services, you have Non-Value added waste. Use ABC to determine if you are recovering all the activity cost consumed by your customers. Cost that is not recovered in revenue is waste.

Don’t be discouraged if your initial Non-Value analysis is less than 20%. Instead, use the “daylight” provided by these five techniques to find your cost improvement opportunities.

If you need the help of a Good Samaritan, send me an E-Mail … TomPryor@icms.net.

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Tom Pryor
TomPryor@ICMS.net
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