What should we do to make drastic cost-cutting group layoffs the last option? Read the article and check out where to start and why it is worth knowing the VSM tool when beginning your adventure with process optimization.

Key aspects of process optimization

At a time when the effects of the global economic crisis are affecting more companies in a variety of industries and services, many entrepreneurs are looking for help. Cutting costs by firing employees is unfortunately the worst possible scenario. The morale of the subordinates drops to zero, and the best employees start looking for safer and better paid jobs. The company is getting decimated.

Is it possible to do things differently? Are there other solutions that will strengthen the organization in the long run? What can we do to make drastic cost-cutting group layoffs the last option?

Process improvement and cost optimization

Optimization of a company’s costs and its processes is possible by using many tools from the lean toolbox, process management, management systems, etc. In general, optimization is identifying and removing broadly defined losses, in various areas of the company. A great tool to start the adventure with process optimization is lean audit. Lean audit allows not only to identify losses, but also to measure specific benefits thanks to implementation of improvement actions. These benefits are most often expressed in terms of monetary value, inventory value, improved production efficiency and reduced quality costs.

Identification of process losses – VSM

Another cost optimization tool is value stream mapping – VSM. While mapping, we are able to observe various types of waste. VSM, however, is different from process analysis, which we conduct, for example, when implementing ISO systems. The primary difference is that VSM looks at the process of how a product or group of products flows from shipment to the customer (“end to end”) to the ordering of components/materials used in production (“to start”). Moreover, during the mapping we collect additional information, such as cycle times of individual production processes, number of operators working on a given process, changeover times, etc. The observer also collects data on how information is communicated within the organization and between the company and the customer.

And what does it look like for process analysis during ISO implementation?

The analysis performed during ISO implementation verifies only selected, disconnected processes without linking them to customer orders. Many managers fall into this “trap” and come to wrong conclusions. A holistic view of the process gives a more accurate picture of what the reality is.

Impact of overproduction and inventory on process flow

Overproduction is the “worst” of losses – it is shown on the value stream map as inventory between processes. For example, between the welding process and the grinding process there is a stock of 50 products. If we assume that the daily production is 20-25 pieces, then only in this one place we have a stock for 2 – 2,5 days of production. It can be painful for managers to realize how much inter-operational inventory we accumulate and convert it to days of production. If, in addition, we compare the value-added time (the duration of production processes) with the time that products or semi-finished products “wait” between production processes, it may turn out that 95% of the transition time, i.e. from placing an order by the customer to its shipment is…. waiting to be processed by another process. Recognizing this problem is the first, most important step toward process flow optimization.

What can we expect to see with reduced inter-operational inventory?

The effects can be impressive. First of all, it will result in faster passage of products through the production process. The company will be able to fulfill customer orders faster (which in turn will translate into a competitive advantage). In addition, production flexibility will increase – the company will be able to meet unusual orders and customer needs (which will also improve its position in the market). Less inter-operational inventory also means less frozen money, which in turn translates into lower manufacturing costs and ultimately more profit for the company.

Faster response to changes and problems with VSM

Inventory reduction is also the first step to changing the job layout and implementing the so-called continuous flow. Continuous flow improves the organization within the company and allows for faster response to changes and problems encountered. When non-conforming products occur, the internal customer (usually the upstream process) returns the products to their internal supplier for improvement – this is immediate feedback. Such a response would be impossible if there were large inter-operational inventories and production in large batches. An additional benefit of reducing inter-operational inventory is that it reduces the risk of outdated products remaining in the company (for example, before a design change). In this day and age, where the pace of change is tremendous and product life is getting shorter, this benefit seems to be extremely necessary.

Value stream mapping isn’t dedicated only to manufacturing organizations. VSM works great also in companies from service sector – banks, accounting, insurance companies or medical organizations.

Value stream mapping is one of many tools that the Toyota Production System recommends. However, it is worth remembering that using tools alone does not guarantee success. Changing the way of thinking, noticing losses and realizing how much they really cost us seems to be the biggest challenge managers will face.

Optimization is nothing more than a common sense approach to business management. The problem is, that…