How to Identify Inefficiencies in Your Business
A great starting place for identifying inefficiencies in your business is to take baseline measurements across your organization, which you can then use like a road map to your inefficiencies. Working backward from each measurement, ask (or research) what contributes to that figure. Customer satisfaction scores, IT expenses, employee benefits, hours spent in meetings — every figure is worth investigating and reassessing.
Measurements aren’t the only way to arrive at the issues your company needs to address. A single brainstorming session with employees can provide a treasure trove of potential projects to take on. Reviewing customer complaints, talking to vendors, or simply looking over the receptionist’s shoulders can also reveal inefficiencies to tackle.
The Pareto Principle, named after the Italian engineer Vilfredo Pareto who developed the field of microeconomics, is the law that 80 percent of negative results are due to 20 percent of the inefficiencies. Identifying the inefficiencies that are making the biggest impact can lead to fast and tremendous improvements in efficiency across your organization.
Finding solutions to the problems you recognize is a similar process. While measurements usually don’t lead you to both a problem and its solution simultaneously, all the other tactics – namely brainstorming and researching what potential solutions exist outside the organization’s realm of knowledge – can lead you there. Finding and selecting the right solution to an identified inefficiency is the start of a new project.
Projects versus Six Sigma projects
Six Sigma doesn’t work for — and for that matter, doesn’t officially accept — just any inefficiency as a project. For starters, Six Sigma wants big, flashy gains. If you’re not going to save 70 percent of costs or reduce over 70 percent of defects, it’s not a Six Sigma improvement. (This doesn’t mean it’s not still worth doing. It just means it’s not a Six Sigma project.)
In Six Sigma, a project:
Has a financial impact to EBIT (Earnings Before Income Tax) or NPBIT (Net Profit Before Income Tax) or a significant strategic value
Produces results that significantly exceed the amount of effort required to obtain the improvement
Solves a problem that is not easily or quickly solvable using traditional methods
Improves performance by greater than 70 percent over existing performance levels
When a particular problem is selected to become a potential Six Sigma project, it goes through a critical metamorphosis — first from a practical business problem into a statistical problem, then into a statistical solution, and, finally, into a practical solution.
When you state your problem in statistical language, you ensure that you will use data, and only data, to solve it. Statistics force you to abandon gut feelings, intuition, and best guesses as ways to address your problems.
Two Lean ways to find inefficiencies
Lean provides a less-mathematical map to your inefficiencies, in fact, it literally provides a map in the form of a value-stream map.
To construct your own map to efficiency, start in the upper-left corner with an initial input, such as steel rods, an HTTP request, or a customer order. Trace that input along the entire path it takes to become your final output, whether that be pistons, a PDF file, or a box of books. At each step, dig deep to find inefficiencies in the transformation process that input goes through.
To take it a step further, you should question the mere existence of each step. The 5 Whys exercise — asking why five times in succession — works great here for really understanding why each step is necessary (if it even is).
One of the key takeaways is the idea of seven types of waste, known as muda. Reviewing a value-stream map seven times, each time from the perspective of identifying and eliminating a particular type of waste, is one highly effective way to uncover new inefficiencies.
The seven wastes — a.k.a. TIM WOOD — are (unnecessary) transport, inventory (any inventory goes against the Lean way), (unnecessary) motion (such as reaching across yourself to grab a part), waiting, overproduction, overprocessing, and defects.
To really draw out inefficiencies in a particular process, you can hold a Kaizen event. During this event, which may last just a few hours or extend for a number of days, all participants walk through a given process step-by-step at the place the process happens — often in slow motion.
At every point, the process is analyzed for both waste and potential improvements. Scenes are reenacted with small changes to see their impact on the later parts of the operation. Although Kaizen events are time-consuming — no normal work is planned or expected during workshop time — they can also be far more revealing and productive than merely hypothetical reenactments.
Taking it all in before trying to fix it
In the beginning phases, you want to capture as many inefficiencies as you (or your team members) can recognize, and correspondingly capture every possible solution that comes up. As with all good brainstorming exercises, you can’t start vetting solutions and narrowing down options until you’re relatively sure your current list of options is complete.