Waste-focused management

1. Introduction

Already entered the second decade of the 21st century, today more than ever before, it is necessary to fight against the irrational use or loss of resources. The current crisis in the economy of the central countries, added to the incorporation of new competitors on the world scene, the pressure on resources and the constant increase in pollution lead to the need to reformulate the classic management patterns that have hitherto been in force in the culture and behavior of many entrepreneurs. And this need for change is valid both for entrepreneurs in the central countries and in the rest of the countries, having this preponderance in the production of raw materials or consumer goods.

The economy at the global, regional, country or sector level is subject to business cycles, expansionary stages followed by stages of retraction. Trends are not always expansive, which is why when the trend is favorable you have to get the most out of it. When profits grow, many stop worrying about unproductivity and waste, so not only do they not achieve the highest profits that are feasible, but they also do not fully develop their competitive capacities to place their products and services in new markets.

The trends are not always expansive, when sales begin to contract, they begin to weigh what they stopped earning before, in addition to being exposed to falling demand and financial restrictions, companies are exposed nationally and / or internationally to competition from companies in other regions of the world.

Avoiding waste is critical and fundamental to enable greater profitability, it is also essential to reduce the amount of raw materials and inputs used for production in a world where the price of these is growing, on the other hand, an optimal use of resources allows avoid contamination and achieve a better relationship with consumers and the community.

It is normal to hear from businessmen and managers saying that they already know about waste and do not need anyone to tell them. They affirm that they are their own or natural to the activity they carry out, covering themselves with the marketing margins. It is also common to hear from them that all measures to reduce or avoid waste have already been applied or are being applied. Some even go so far as to say with a certain nonchalance that there are no ways to prevent or eliminate them.

Well, I must say to all this that although they may be applying certain measures to control waste levels, they do not systematically apply a methodology for their detection, elimination and prevention. This lack of systematicity leads them to attack some yes and others no, lacking a complete overview of the "vanishing points" and the amount with which these are affecting their earnings.

Perhaps some questions can serve as an alarm clock. How much do losses for underutilized fixed assets amount to? How high are losses due to having staff that does not respond to the characteristics and needs of the company? How high are production costs due to excessive plant staff turnover? How much is lost due to excess stock of materials, supplies, spare parts,products in process and finished products? How many orders have been billed due to lack of inventory? How many clients have we lost for different reasons and what amount of income have been stopped for it? How much does each type of failure that afflicts the production process amount to? What is the amount of losses due to failures in the layout? What is the productivity per process and how has it evolved over time? What is the degree of polyfunctionality of your staff? How up-to-date are staff and managers on new technologies and management techniques? When was the last time an internal control survey and evaluation was done,and how good or effective is this? Do you have contingency plans? What are these Are the various types of risks to which the company is exposed due to the activities it carries out are being properly managed? These are just a few of the many questions that the average or traditional entrepreneur is unable to answer.

This need to focus on combating waste in the company must be accompanied by a diagnosis that allows managers and owners of the company to know how competitive it is and to what extent economic and financial results can be improved. On the other hand, the Internal Audit must add to its traditional postulates those that allow to permanently monitor the good management of resources.

2. Concept of waste

Waste or waste can be defined as the consumption of resources that do not generate added value for the company, customers and / or consumers.

Concentrating on the company, waste involves consumed resources that prevent achieving better results, whether it is greater profits or less losses. Anything that does not contribute to profitability should be considered waste.

Thus we can affirm that waste is everything that is not absolutely necessary for the production of goods and the provision of services by the company.

There is waste of many kinds in the world. People waste time, space, buildings, products, money, among other things. Naturally, we can expect waste to exist in companies in many ways. When the waste is bad enough, the waste is no longer something that is present in the company, but it is the company that is fully in the waste. And we refer to companies because we refer to both industrial activities, as well as services, construction, mining and agricultural activities, among others.

3. Types of waste

We can imagine a system of pipes that transports liquid, along the way there is a consumption of the liquid but we also find innumerable leaks (waste) that prevent us from having a greater amount of liquid or final result at the end of the process.

Seeing the waste in such a way, the objective will be to detect all the leaks and eliminate them. Among the various types of waste that are present in a company we have:

1. Lack of focus Overproduction Excess inventories Excess of fixed assets in quantity and capacity Excess of personnel Failures Accidents Contamination High turnover of staff High turnover of customers Collection losses and bad debt Work-related illnesses and failures Inefficient processes Products or services ineffective Misuse of products or services and supplies Quality of machinery and tools is not acceptable Failure in the quality of personnel Internal transport Waiting times Excessive movements Excessive bureaucracy Energy waste Fraud Severe deficiencies of controls Lack of or lack of contingency plans

4. Lack of focus

The Sun is a powerful source of energy. Every hour the Sun bathes the Earth with billions of kilowatts. But with a hat and a good sunscreen, a person can sunbathe for several hours with few negative effects.

A laser is a weak source of energy. A laser requires a few kilowatts of energy and converts them into a coherent beam of light. But with a laser it is possible to cut steel and remove a malignant tumor.

When a company is focused, it creates the same effect. Create a powerful, laser-like ability to dominate the market. That's what being focused is about. When a company goes out of focus, it loses its power. It becomes a sun that dissipates its energy in too many products, too many markets.

A company cannot expand its product lines to infinity. Sooner or later it reaches a point of diminishing return. It loses its efficiency, its competitiveness, and worst of all, its ability to manage a heterogeneous bunch of unrelated products and services.

This is not only a problem for large companies, it also hurts small and medium-sized companies. It was seen in companies like IBM that produced everything from large computers to personal computers, software, and computer consulting. This is no longer the case, IBM has dismembered and is far from being what it was thirty years ago. But this can be seen even in a professional service. New services and more personnel begin to add to attend to the new benefits. As the spectrum of services increases, control over the quality of services, over the consumption of resources, over the contracted personnel is lost. Soon there are more losses and headaches, than what you gain from your new activities.

Two rules to keep in mind. Given a certain structure, any increase in products and services leads to a maximum gain at first, and then these begin to decrease as a result of the loss of focus. Second rule. Even increasing the structural capacity, the effects of a continuous blurring will be negative as a result of the loss of management and control capacity.

Loss of focus is the basis for the loss of efficiency and generation of waste and unproductiveness that occur in the waste that is detailed below.

The 80/20 rule helps us to duly consider which are the vital few and which the trivial many. That is, those few activities in which the benefits are concentrated, and those others that increase the complexity of management and reduce profitability (a large number of activities that generate a minimum of

5. Overproduction

It can be defined as producing what is unnecessary, when it is unnecessary and in unnecessary quantities. It constitutes one of the worst wastes. It is worth asking about the reason for overproduction, and the answer is simple: the existence of machines and workers with excess capacity. In this way, in order not to decrease operating rates, excess capacity is used to manufacture products in excess.

Said overproduction can be intermediate or final products. This overproduction generates higher storage costs in terms of physical space, personnel, administrative controls, use of machines for internal transport, insurance, financial cost, and losses due to obsolescence, among others.

Many times this overproduction helps to cover up internal inefficiencies. The reasoning is "if 10% of the failed components are produced and 100 are required for the following process, then 111 units are produced in such a way that discounted the 11 defective units we can have the required 100". In this there are wasted materials and hours of work, and supplies and wasted work in reprocessing work if this is feasible.

It is also necessary to point out within this type of waste the overproduction of printed reports. It is quite normal the uncontrolled printing of unnecessary information, not used by the sectors to which they are directed, or the multiplicity of impressions for different sectors. In this we have the cost of stationery, cost of inks, amortization and maintenance of printers, personnel in charge of their care and subsequent distribution.

6. Excess inventories

It includes not only warehouse inventory, but also inventory related to all in-process stock. This means materials, assembled parts, and any items stacked at retention points located at or between process stations. Inventories are sometimes accumulated as stocks of finished products and other times as inventories in process.

In marketing companies this excess is due to the excess of resale products, and in services companies it is due to spare parts, supplies and different types of materials that exceed the immediate demand for said elements or components.

The reasons that generate such excess inventories are several. First, try to take advantage of special prices for purchasing volumes. Second, take inventory of possible cost increases. Third, overcome the problems caused by the deficiency of internal processes, such as quality problems, lack of coordination in the speed of processes, batch production, long tool replacement times or preparation times, organization of production by processes or functions, shortcomings in the projection of future demand. Fourth, shortcomings or doubts about the delivery time, the quantity delivered and the quality of it by the suppliers.

This excess inventory generates huge costs. On the one hand, the costs it generates reduce profits or contribute to the generation of losses, and on the other hand, it greatly increases assets, thereby reducing profitability on assets.

Among the costs generated by excessive inventory we have:

1. Financial costs. If you have debts with financial entities, the cost is the interest that must be paid unnecessarily to these institutions. If there are no financial debts, the cost corresponds to not using capital to generate financial income instead of being used to finance assets in stock. Opportunity cost. Many businesses cannot be carried out due to lack of funds when they have the same invested in stock. Maintenance. Labor, more physical space (rents paid by warehouses or warehouses, or rents that are no longer perceived because the warehouses have excessive stock). To the labor and physical space, general expenses such as electricity, depreciation, among others, insurance costs on stock, losses due to obsolescence or expiration must be added.Examples of obsolescence are the microprocessors of a certain power replaced by new and more powerful microprocessors. Regarding expiration, classic examples are medicines and food. Quality losses due to failures generated in the excessive manipulation of goods. Administration and inventory control costs. Custody and custody costs.

7. Excess of fixed assets in quantity and capacity

In the case of machines, tools, wheels, furniture and real estate, the excess in both quantity and capacity generates high costs. Maintenance, amortization, insurance, financial, security and opportunity costs, among others.

Just as having more stock than necessary leads to having funds dedicated to an asset that does not generate profits, the excess of fixed assets in both quantity and capacity implies incurring unnecessary costs.

What leads companies to own more fixed assets than necessary in quantity or capacity? There are numerous reasons, among them being carried away by the latest technology, wanting to have or have the latest in machines, wheels or computers. The obsession with hoarding assets that demonstrate economic power. The acquisition of high-speed machines that have higher processing capacities than those required by article demands or that exceed the needs of a production line.

8. Excess staff

It is worth asking about what are the reasons that generate excess personnel in companies. The reasons are several and all have a high impact on the results.

• Excessive organizational levels. Functions not clearly defined. Inefficient work methods. Failures in layout design. Excessive bureaucratic tasks. Excessive internal transport. High levels of disorganization, disorder and lack of cleanliness. Low level of polyfunctionality of personnel. Inspection of reception of materials and supplies, in terms of quality and quantity. Issues to inventory the stock of materials, products in process and finished. High staff turnover. Tendency to increase the size of the bureaucratic sectors to increase power and income of those who run them. In bureaucratic sectors, bad information systems.

Regarding the low level of polyfunctionality of the personnel, we refer to the existence of jobs with specialists by functions, which leads to having personnel for each type of work or process. So we have a tooling specialist, another in welding, another in machining. If there are 6 processes, we will have at least six people to attend to them. If production falls in half, we will continue with these six operators. In a company with a high level of polyfunctionality, the staff knows how to handle various processes, so in the factory to which we referred, the lower production can be attended by two workers instead of six.

When suppliers are selected based on the price of their inputs and not the total price, which is made up of the price of the input but also by its quality, by punctual deliveries and the quantity required, and by the non-need of physical inspections upon receipt. Not properly selecting suppliers and not having a high-level supply system organized with them leads to the costs of having personnel dedicated exclusively to control each receipt of materials and supplies, verify that the components are requested, perform the count and verify the quality of the material received. There are companies that receive in due time and form the inputs requested directly at the respective work station,with all that it means in savings including internal storage and transportation.

Having excess stock is not only a source of financial costs, but also of personnel for the care and handling of them, and the cost of personnel assigned to control such inventories.

The excess of personnel not only generates the salary cost, but also the cost of the physical space occupied, the cost of supplying them with fixed assets, plus all the other services of the company that they make use of.

9. Breakdowns

The lack of operation, the operation with small stops, the lack of speed and the generation of defective products or services are all generators of waste. Lack of proper maintenance not only leads to the generation of excessive repair costs, but also to the loss of hours of productive work, the lack of compliance with customers (unless there is a significant stock of finished products to deal with such orders), cost of materials and products to be discarded, and the costs of reprocessing, when these are feasible or possible to carry out.

Not less are the risks involved in accidents related to breakdowns, which can affect both people and assets of the company, as well as external to it. In this sense we have from the breakdowns suffered by medical instruments, to the one that takes place in power generators in electricity companies, or those that take place in airplanes, trains, ships, trucks, or transmission antennas.

10. Accidents

Depending on the characteristics and magnitudes, they can even lead to a stoppage in the company's operations. They are often related to losses due to breakdowns and the lack of good maintenance management.

Accidents generate losses. Therefore, we must relieve and evaluate the risks and adopt precautionary measures to prevent them from occurring and plan preventively the actions to be carried out if they occur.

Although insurance can cover the effects of an accident, the bad press that it generates cannot be covered by a policy. Imagine a passenger transport company that regularly has accidents that cause deaths and injuries, insurance may cover this, but the loss in the sale of tickets cannot be covered.

11. Contamination

Both the productive processes of goods and services and goods and services must be of such characteristics that they do not generate processes that are harmful to the environment, human health and ecological balance.

Many countries have very strict legislation and controls regarding these factors, therefore a company must take measures to avoid incurring contamination that will bring loss of resources as well as very bad press.

From the emission of gases, to the overturning of polluted waters, through products harmful to health and the environment, are critical factors.

In many countries, companies must pay a fee for the amount of polluting gases or liquids. Therefore, improving the operation of machines, making processes more efficient and conveniently monitoring their operation is essential in reducing such costs.

12. High staff turnover

Every company undergoes staff turnover, but when it exceeds certain levels it generates significant drops in both the quality and productivity of benefits. The experience of the personnel is an asset of importance for the company, its loss implies a drop in productivity, to a greater or lesser extent, depending on the type of activity.

Staff turnover leads to personnel search and hiring costs, training costs, and losses incurred until staff gain sufficient experience and knowledge of activities and processes.

We must calculate the turnover of the company in general and by sector, analyze the causes, see its evolution over time and compare it with other companies in the same activity. We must assess the degree to which this rotation affects the quality, productivity, and costs of the goods and services produced, and how it can be prevented or corrected.

13. High customer turnover

A customer is an asset, an asset that has a cost. It is the cost incurred in obtaining it. Losing it implies losing much more than what was invested in achieving it, but also the entire stream of updated benefits that are no longer perceived or obtained.

Permanent monitoring of the client portfolio is crucial. Many companies do not, it seems unaware that the cost of keeping a customer is several times less than getting a new one.

A few years ago, a consultant brought in a videotape that he had been commissioned to show to the CEO of a scientific equipment manufacturing company. On the screen appeared the face of the president of one of the manufacturer's biggest customers, who, leaning over to the camera, whispered through clenched teeth: "I hate you." A similar sentiment was recently expressed towards the management team of a major telecommunications equipment manufacturer by one of the senior executives of one of its main clients: “Even if you gave us your products for free, we could not afford to work with you”.

What had sparked the anger of these customers, and countless others in all sectors, had nothing to do with the products, their characteristics, qualities or prices. Suppliers' products were up-to-date, well-made, and reasonably priced. In contrast, the huge customer dissatisfaction had everything to do with the fact that doing business with those two companies was overwhelmingly complex, troublesome and exhausting. These two companies we were talking about presented their customers with a description of their products so obscure that the customers had to put in a lot of effort to determine what exactly they should buy; its opaque procedure for ordering, so that buyers had to spend a great deal of time specifying what they wanted;their delivery process was so prone to errors that customers were forced to check all shipments and return many of them; her accounting system generated invoices so convoluted that it required a lot of patience to decipher them; and the main task of their "customer service" units, it seems, was to answer the customer's call, confess to being unable to solve the problem, and pass the communication on to another, even more useless, employee. Those companies were definitely not companies that were easy to work with.and the main task of their "customer service" units, it seems, was to answer the customer's call, confess to being unable to solve the problem, and pass the communication on to another, even more useless, employee. Those companies were definitely not companies that were easy to work with.and the main task of their "customer service" units, it seems, was to answer the customer's call, confess to being unable to solve the problem, and pass the communication on to another, even more useless, employee. Those companies were definitely not companies that were easy to work with.

A company that is easy to work with, means that, from the customer's point of view, interacting with it requires the least possible cost and effort. It means that the company accepts orders placed at the time and by the most comfortable means for the customer; It means that the orders are expressed in the terminology of the buyer, and not in the twisted nomenclature of the company. It means that it makes it difficult for the customer to check the status of his order; that eliminates the endless series of useless phone calls to officials who have no information or interest, and who have been trained only to pass the call on to some other equally ignorant official. It means that the company issues a single invoice that is written in understandable terms,and not with the hidden codes of the company itself, or in its internal references, and which since its inception has been designed so that the client can understand and use it; in short: an invoice that can be deciphered by someone who is not an expert hieroglyph analyst.

The importance of becoming a company with which it is easy to work derives from the principle that says: "The price of the product is only part of the cost of the customer." The check that he sends us is not the total cost he incurs for working with our company, there are other costs. The customer must also interact with our sales representatives, formulate an order, receive it, check it and store the merchandise; receive and interpret our invoice, pay it, return products that are not in good condition, and other tasks. All these tasks cost the customer money, and not everything goes to our Caja. In some cases, the overall costs of working with a company are almost as high as what the customer has actually paid for the order.

If the company's ordering procedure is opaque, the customer will have to waste time and money trying to translate it. If the company doesn't offer customers an easy way to check order status, they'll have to make their way through exasperating phone calls to answering machines whose recorded voice offers no information. If the delivery system is fickle and unreliable, the customer will have to waste time and money in devising how to cover the company's banalities. If the invoice sent to the client is difficult to understand, the client will have to waste his time clarifying the situation with the staff of the company's billing department.

If the way of working of the company has been designed for their own comfort and security, and not for the comfort and security of their clients, they must suffer the consequences; and in the long term, the company will also accuse them. The more difficult it is to work with a company, the greater the burden and costs it imposes on its clients and, of course, the less competitive that company will be. Lowering prices based on reducing the margin is a way for the company to differentiate itself from its competitors; but it is not the most desirable way.

14. Delinquency of collections and bad debts

A business cycle does not end with the sale, but with its effective collection. What is the use of producing quality goods and services, selling them, delivering them in a timely manner, and providing excellent services, if we cannot finish the operation with the collection. Both late payment and bad debts are factors that afflict and can end up jeopardizing the continuity of the company, especially in times of crisis.

In the same way that an excess of stock of materials or finished products, or an excess of fixed assets, generates higher costs and less profitability, delinquencies can produce equal damage.

Does your company have a permanent monitoring system and through the use of computer systems? Or do you do it manually?

15. Loss from sales

They are caused by a number of reasons to which many small businessmen tend to give it. From the lack of stock, through the poor quality of products or services, problems in post sales services, problems in billing, inconvenience or lack of consideration for customer complaints, not responding in time to requests of products or services, and poor telephone service, are a sample of the main reasons why customers can withdraw from an organization or the reason why orders for goods or services are canceled.

On the one hand, we have incomes that are not received, and on the other hand, innumerable expenses that have been incurred to generate sales that are deranged due to the lack of appropriate and effective response by the organization. Imagine sales representatives touring a vast region with all that this implies in terms of expenses and then due to lack of stock, inability to give a quick response, poor quality customer service or product failures such sales fail to be made reality. An example would be the thousand Euros that were no longer sold, but also the 200 Euros that were spent on advertising or the 3000 Euros that we spent with the representative.

Does the organization have statistics on these problems and inconveniences? Do you evaluate their economic effect? Is work being carried out to identify the causes and to solve and prevent them? Do you measure customer satisfaction levels? Are there statistics in the company that can be consulted? Are these problems and their solutions discussed at Committee meetings?

16. Diseases and accidents at work

They help reduce productivity levels, increase costs, reduce employee satisfaction with the company, and increase employee turnover. New employees with less knowledge and experience, leads to decreased productivity and increased costs.

The sole concern about diseases and accidents decreases the concentration of workers in their daily work, affecting the levels of productivity and quality in the processes.

17. Failures and defects in products or services

Disposable products and materials, reprocessing costs, lack of term deliveries, loss of customer and user confidence, repair costs and guarantees are some of the wastes that will be incurred by companies that cannot guarantee high levels of product quality. and services.

Today, a company that registers 66,807 defects per million opportunities (which is equivalent to a 3 sigma quality level) has a non-quality cost percentage with respect to sales volume of 22 to 32%. While a company with 6,210 defects per million opportunities (4 sigma) has a non-quality cost percentage with respect to sales volume of 15 to 20%.

18. Inefficient processes

Improper technology or design leads to waste in the processing work itself. Improperly distant access or excessive machine processing, unproductive press actuation, and removal of chips remaining when drilling a sheet are all examples of avoidable processing waste. At each step a workpiece or piece of information is worked, value is added and then sent to the next process. In this case, processing refers to modifying this type of work piece or information item. Frequently, processing waste removal can be accomplished with a low-cost, common sense technique. By combining operations some wasteful processing can be avoided.

The waste in processing also occurs, in many cases, as a result of a lack of synchronization of processes. Operators often try to be involved in the processing work to a much greater degree than necessary, which is another example of processing waste.

They are usually observed when analyzing the manufacturing processes the existence of unnecessary activities, others that are not carried out in the most convenient place, the person who performs it is not the most suitable for it, the moment is not indicated, or they could be combined with other tasks, or be simplified.

19. Inefficient product or service designs

Value analysis helps us detect those components of the product or service not valued by consumers. It is also necessary to detect all those formats or characteristics that increase costs, and that can be replaced by others of lower cost. Or find new ways, depending on new technologies, to provide the same or better features at lower costs.

It is very important to be able to reduce the number of components that make up a product, including being able to reduce the total number of components or supplies that a company manages. This will generate lower costs of acquisition, transportation, storage, and internal management of supplies.

20. Erroneous or late information

Being able to make decisions requires correct information and at the appropriate time. In a production process, not having reliable information that tells us what to produce, in what quantity to produce it, and at what moment to do so, largely determines the success or failure of the operations.

Similarly, information must be available on costs and their variations, as well as on faults or defects with their frequency, severity, volume and monetary importance.

Process management requires both internal and external information, reliable and at the appropriate time.

The quality and timeliness of the information is crucial when it comes to controlling, analyzing, improving and making decisions. The information is directly related to each and every other waste that is reported here. But it is also vital for financial, strategic, commercial and operational decision-making.

21. Quality of materials and supplies

Good purchasing management and supplier relationships allow the company to reduce inspection costs (both physical units received, and quality), stock maintenance costs, financial costs due to the resources invested in stock, and administration costs.

The quality assurance of materials and supplies allows the company to acquire and receive them "just in time", reducing processing costs and allowing for agile and safe manufacturing.

22. Quality of machinery and tools

On the one hand we have the good maintenance of fixed assets, but on the other hand there is the quality of them to carry out effectively and efficiently the various services for which they were purchased.

Just as the quality of materials and personnel are important aspects when producing goods and services, so is the quality of machinery, equipment, tools and instruments.

Quality is decisive when it comes to generating better production, having easier use and maintenance of them, and a longer duration. This quality above all things must be appropriate to the use to which it will be put.

23. Quality of human resources

It is impossible to achieve high levels of productivity or quality without first having quality staff. We call as quality personnel those who have the necessary skills and attitudes to carry out a process correctly, whether it is a production, service or management process.

If staff do not have the necessary experience, knowledge, or skills to properly perform the job, costs will increase. In the same way that the input is considered quality if it satisfies certain requirements, the staff is quality if they have certain skills and attitudes that make it reliable to properly carry out a task, task or management.

The company is responsible for selecting the most suitable personnel for the tasks to be carried out, but must also keep them suitable for the activities to be carried out in the company through training, training, motivation and correct leadership.

24. Internal transportation

Waste of internal transportation is another broad term that covers every aspect associated with necessary transportation due to poor layout, material handling (such as stacking items, picking them up, sorting them), and moving things from one side to the other. Sometimes the waste of the existing internal transportation system is due in large part to the complexity that includes excessive distances and weights, or under-utilization of in-band transportation systems.

Belt conveyors and material handling systems not only impose a high toll on productivity, but also absorb valuable factory space. Additionally, the more times an item is moved or manipulated, the greater the probability that it will be damaged.

25. Waiting times

Also called idle time, it is a broad term that includes the idle times of people and machines and covers a wide variety of cases. Waiting time, idle time, or dead time is generally time wasted waiting for something. However, the causes of such waiting can be divided into causes originating from the “waiting side” and those originating from the side that makes the waiting side wait. In many cases, the causes come from both sides.

Timeout wastage occurs when the operator's hands are inactive; when an operator's work is stopped due to imbalances in the line, lack of spare parts or time of non-work and operation of the machines; or when the operator simply supervises a machine while it performs value-adding work.

The main causes on the source side of downtime production include personnel, machines, workpieces, and internal transportation items. On the waiting side, there is still a greater variety of causes, but the main factors are related to the personnel and the machine.

26. Excess movements

Not everything that is done during a workday adds value. In fact, the vast majority of typical worker tasks are "movement" and very little is actually work. Movement is waste. Movement that adds no value is nothing but waste. Work operations are the movements that workers make while doing their jobs.

Operational waste can be created by poor equipment layout or poor placement of parts, templates and tools. To improve such situations we must begin by asking ourselves why is this operation necessary? to check first if it is feasible to delete the operation entirely. But if the operation serves a necessary function, we then start working to reduce the amount of movement required of the worker to do the operation.

27. Excessive bureaucracy

Excessive bureaucracy has its reason for being for different reasons.

• Organization of work by functions. Personnel specialized in certain functions who cannot perform multiple tasks. Administrative processes with serious design flaws. Duplication of information and controls. Not making optimal use of new tele-computing technologies. Excessive controls. Generation of overlapping partial solutions. positions and functions. Creation of jobs for reasons of friendship or search for power. Absence of clear and precise concepts of bureaucratic productivity.

Organization by functions leads to problems similar to those seen in the productive area. In this case we will have an office in charge of receiving credit requests, at the end of the day all requests will be sent to the credit analysis sector, and the next day another sector will be in charge of authorizing them or not. Excessive number of steps, personnel, response times. This is what led to the first process reengineering.

Badly designed administrative processes record the existence of unnecessary activities or processes, carried out by non-competent personnel, badly located in the organization's layout, carried out at the least convenient or appropriate time. And finally done in the least effective and efficient way. You get to know about it by asking yourself about:

• What is done? Why, who does it? Why, where? Because when? Why and how is it done? Why?

The Zero Base Budget is a good way to compel the rationale for each activity and the raison d'être of its cost to justify the heads of organizations. Benchmarking is also a way of comparing the administrative processes of a company with those of a company taken as a guide.

The irresponsible generation of an increase in the fixed costs of the organization is something that must be given a disciplined and systematic fight. Excessive bureaucracy not only generates higher costs in itself, but also makes the other areas and processes of the organization less productive.

28. Waste of energy

Among the causes of higher energy consumption than required we have:

• Excessive internal transportation Spaces greater than necessary (light consumption, cooling and heating) Failures in production and reprocessing work Machines with malfunctioning Times of excessive vacuums Loss of steam or electricity Inefficient management of energy resources and lack of controls on energy consumption

Aiming at the seven classic wastes we can give a first shape to the work of reducing energy waste.

The procedure for obtaining the final good, which is called the process, is not always the same because in some cases the machinery may be older and in others more modern, even the process itself may be more or less efficient. If we achieve that the required quantity of energy is less to obtain the same quantity and quality of product, we will be in the presence of energy saving.

29. Fraud

Fraud can be defined as that behavior whereby one person tries to take advantage of another by surprising them in their honesty. While society reacts to manifest acts of violence and terrorism, concentrating resources and dedication in the search for solutions, there are huge covert losses, possibly even more damaging in the long term caused by fraud actions, which are not paid due Attention.

In recent years, and due to the large increase in international violence, companies have tried to improve physical security measures. While the attention paid to manifest losses has increased, they have stopped addressing the most surreptitious risks, such as those derived from the action of the unfair or corrupt employee, dishonest connections or competition, the industrial spy or the organized criminal.

The very secrecy with which fraud occurs hides it from our attention: it acts as a malignant tumor that corrodes the company itself and, through this erosion, it is society as a whole that pays its consequences.

In such a circumstance and given the effect that frauds have on the running of the company, it is good to adopt measures conducive to detecting, preventing, reducing and eliminating them.

The rule that must always be kept in mind is the one that states that "the easiest way to earn money is to stop losing it."

Fraud includes aspects as varied as:

• The use for personal or personal purposes of materials, supplies, energy, services, information and working time by staff, whether they are employees or managers. The sale of information, is that generated by research and product development, Market research or customer base. Counterfeiting of brands and / or products. Bribes. Theft of supplies, materials, products, formulas and documentation. Delivery by suppliers of material or components of lower quality, and in less quantity than the contracted., with the clear intention of benefiting to the detriment of the acquiring company.Use of the company's funds illegitimately, collection of interest and commissions not agreed, collection of services not agreed. Misrepresentation or manipulation of accounting data in order to show the achievement of goals;in many cases with the purpose of obtaining special prizes. Accounting manipulation to hide errors or management shortcomings (hide bad credit management or an over-stock, among others).

We can see from the exemplified cases that fraud can be carried out by internal or external agents or a combination of both, in order to obtain benefits, which result in an explicit or implicit loss, and a mediate or immediate loss for the company.

30. Serious shortcomings of controls

This shortcoming is not only linked to the commission of frauds but also to the lack of optimal management of resources. Thus a lack of control and analysis on the evolution of repair costs leads to a misallocation of resources, correcting symptoms instead of the root causes of the problems. Similarly, the lack of control, monitoring and evaluation of consumption such as water, electricity and fuel can not only lead to the flight of resources due to possible fraud, but also due to a malfunction of machines and equipment.

It is worth asking if the interest charged by financial institutions is calculated, verifying that the previously agreed interest rates and commissions are being applied. It has been observed in important companies that the external audits, carried out by important international firms, verified that the accounting imputations will agree with those invoiced or debited by the Banks. Both the Internal and External Audit considered the data provided by the Banks to be good. A big surprise came from the company's managers when they were shown that the financial institution had debited much more than was due in the interest of applying a higher rate than that established between the parties.

Similarly, it is necessary to control prices and apply bonuses established by the payment date or amounts purchased. The same is true for bonuses awarded to customers.

Flaws in the calculation and application of taxes and wages lead to equal risks of loss. It may be operating in good faith, but a calculation error detected by the comptroller agencies will not only require the payment of what is not paid at the time, but also the payment of fines and interest.

31. Lack of insurance

Not having risk management appropriate to the activity carried out by the company constitutes not only a risk in itself, but the loss of resources in the event of an unexpected event.

From fire, theft, exchange rate or bad debts insurance, as well as accident insurance and personal life insurance. Not only does it count to have the insurance contracts, but also that they are not expired, that the amounts are the corresponding ones and that the conditions that make the insurance collection feasible are being fulfilled.

Not being properly insured not only generates the possibility of monetary losses for the company, but in some circumstances even puts its own continuity at risk.

32. Lack or defect in contingency plans

Very few think beforehand what to do about certain circumstances. Not being aware of what can happen and what to do if it happens is very serious.

We can give as examples contingency plans in the event of a cut in the supply of a certain imported input, contingency plans in the event of a flood in the plant area. Or contingency plans in the event of a cut in the electricity supply.

If a specialist in a certain activity leaves the company, are there personnel with sufficient knowledge and experience to replace it? Who can take your place in the current squad?

If a certain supplier ceases to exist or increases the prices of inputs too much, have a list of alternative suppliers been established?

Making plans of this nature implies having contacts with replacement suppliers, having alternative means to respond to a situation.

This type of plan highlights the capacity of the company's managers and advisers. They clearly show the need to continually think about the progress and development of business.

Contingency plans must also be related to business intelligence in order to assess changes in consumer demand and tastes, new competitors in the market, changes in technologies for both the product or service and its production. A company can be very efficient and competitive today, generating a very good profitability, it falls asleep and its clients move to a new supplier with different products or services, or of better quality and prices. While changes are never sudden, being unprepared for them can then lead to a lack of time and resources to act as quickly as each case warrants.

33. The traditional Results Table and the Focused on Waste

Traditional accounting has little or no importance to reflect the various costs and how these affect the bottom line. For traditional accounting, the results table reflects the total sales from which the costs of the goods or services sold, and the administration, marketing and financial costs are subtracted. This chart says nothing about waste and how it affects the bottom line. The waste is given as integrating the inventories and the costs of sale, administration, marketing and financial.

It is true that no manager or executive will sign a document showing acts of malpractice. But one question is the traditional formula of the Results Table that makes up the Company Balance Sheet and a very different one is the Results Table destined to the management of the company. Only by acknowledging inefficiencies and quantifying them can an improvement in results be achieved.

Whoever does not want to know the authentic table of results of the company taking into account the various wastes is like the person who refuses to do a blood test for fear of detecting a malfunction or condition of his body. If you do not know how your body is, you cannot cure it, in the same way if you do not know what happens in your company, you cannot overcome the problems that you have.

In many cases the growing and important benefits convince them of the correct management of the company, in others they tend to underestimate the importance and magnitude of the waste.

Detecting and quantifying the different types of waste allows, on the one hand, to increase profits and with it profitability, although the results are already positive, an increase in them not only improves profitability but also allows you to obtain resources that can be critical in a future when the macroeconomic reality is not favorable to the normal development of activities. If what is presented is a loss in the last line of the Results Table, detecting and quantifying the waste can range from reducing the loss to moving on to obtaining profit.

It is unfortunate to see how small and medium-sized companies at a time when the operation of the macroeconomy is favorable to them and they make profits, neglect and pay little attention to the countless waste. When the macroeconomic situation is no longer favorable, the problems begin, with fewer sales, large inventories, financial debts, high costs due to unproductive processes and quality deficiencies. Inventories that are difficult to market and the urgent need for funds to meet the demands of suppliers, banks and operators, end up convincing managers and entrepreneurs too late about the need to change the way the company operates. Many times when this happens it is too late to be able to get the company afloat.

Below we show, synthetically and by way of example, the difference between a Traditional Results Table and one focused on Waste.

Both give the same result, the difference is that the second one shows the existence of waste, what they are and how much each one amounts to. Therefore, the Final Result is $ 3,100.- but the Table of Results Centered on Waste indicates that there are $ 2,800.- corresponding to different types of waste. These $ 2,800.- represent 14.00% of Sales and if they were corrected in their entirety, they would expand benefits by 90.32%, bringing it to $ 5,900.- In the example illustrated, the Cost of goods sold is reduced by $ 9,500.- to $ 8,500 as a result of the waste contained in the cost of production.

In this case, profits can practically double without the need to increase sales. But in real cases it is also feasible to increase sales as part of the waste elimination process by reducing customer turnover and lost sales.

I ask the entrepreneur or company manager the following questions: Do you know what wastes your company has and how much each of them amounts to? What do you do to detect, prevent and eliminate them? In what way are you working for it (detect it, quantify it, prevent it and eliminate it)?

Results Table	Traditional	Focused on Waste
Sales	20,000	20,000
Cost of goods sold	-9,500	-8,500
	10,500	11,500
Less
Marketing expenses	-3,500	-2,300
Administrative expenses	-2,200	-1,750
Financial costs	-1,700	-1,550
	3,100	5,900
Scrap		-390
Reprocessing		-290
Excess Inventory Cost		-650
Machine Breakdown Losses		-150
Excess sales staff		-500
Administrative staff excess		-450
Bad Debts		-200
Internal transportation		-170
Waste	0	-2,800
Final score	3,100	3,100

Sales	$ 20,000.00
Final Result without Correction	$ 3,100.00
Waste Difference	$ 2,800.00
Diff. Waste / Final Res.	90.32%
Diff. Waste / Sales	14.00%
Corrected Final Result	$ 5,900.00

34. Difference between Traditional Internal Audit and the new Internal Audit focused on waste

The traditional internal audit is fundamentally conceived to relieve and evaluate the internal control of the companies, observing the fulfillment of legal norms and internal norms, to verify the existence of the goods and rights that compose the patrimony according to the accounting, as well as of the obligations contracted.

In this way, internal audit is defined as the activity whose main objective is to examine and evaluate the adequate and effective application of internal control systems, ensuring the preservation of the integrity of an entity's assets and the efficiency of its economic management. proposing to management the pertinent corrective actions.

In their intention to adapt to the new needs and requirements of the market today, internal audit organizations define internal audit as an independent and objective activity of assurance and consultation designed to add value and improve the operations of an organization. Its objective is to add value through advice aimed at protecting the entity's assets and continuously improve the performance of the various indicators of efficiency and effectiveness of the organization.

What does this new definition not contemplate? The detection and quantification of the different wastes that lead to the generation of less than potential losses or profits in an organization.

A few examples will help us to differentiate the different points of view, or conception.

If the question to be audited is the INVENTORY of the company, the traditional internal audit focuses on the following points:

• Survey and evaluation of internal controls regarding the acquisition, reception, storage and dispatch of materials, supplies and merchandise for sale. Physical count and valuation of the different elements, comparing the amounts with what appears in the accounting In the event of a difference between the valued count and that expressed by the accounting, find the reason or reason for the difference, and propose the adjustments entries. If there are significant differences, define responsibilities for them.

The new internal audit focused on waste has the following focus:

• The same activities carried out by traditional auditing, to which is added the calculation of losses generated by excessive inventories (something that traditional auditing will never question). If the function of internal audit is to protect the assets of the organization, there is a clear need to detect and quantify the different types of losses. Propose visual management measures that allow rapid and effective detection of anomalies, with a strong emphasis on prevention.

What is the difference between how to control REPAIR EXPENSES in a traditional audit and in the new one focused on waste?

The traditional one focuses on:

• Survey and evaluation of internal controls Verify that all expenses for repairs have their supporting documents duly authorized.

The waste-focused audit focuses on:

• The same issues observed in the traditional audit. Classification by type of repair / breakdown. Losses generated by. a) repairs, b) times without working (cost of untapped labor), c) the decrease in speed of processing or small stops, d) due to failures in the goods or services produced, e) due to Reprocessing tasks. Evolution of the different losses over time. Quality of the information on the costs of repairs by machines, processes, and type of repaired faults. Expenses or losses assigned by processes and machines. Its evolution over time. Paretian analysis. Analysis of the reasons for the losses, and advice aimed at reducing or preventing their occurrence.It is essential to verify that no expenses are made to correct the final effects but rather the root causes. If the root causes are not attacked, breakdowns and maintenance and repair costs will continue to occur with the effect of this in the Results Table. I ask how many of the internal auditors verify the causes and statistics of the different repairs, delving into their root causes and advising in order to avoid the repetition of said expenses over time?delving into its root causes and advising in order to avoid the repetition of said expenses over time?delving into its root causes and advising in order to avoid the repetition of said expenses over time?

Let us now analyze SALES DEBTORS and the different way in which this is audited. In the case of a traditional audit, the focus will be on:

• Survey and evaluation of internal control. Take a sample and verify the movements of sales, collections, debit and credit notes, and balances. Verify that the sum of all the Debtors by Sales coincides with what is expressed by the accounting. Verify the amount of delinquent and bad debts. In the latter case, verify compliance with all internal requirements to be considered uncollectible.

In the waste-focused audit, the focused aspects are:

• Those already seen in the traditional audit. Financial losses due to late payment and bad debt. Reasons for late payment and bad debt. Its evolution over time. Total evolution and by client. Analysis of the root causes that originate them. Verify evolution of sales by clients, and which clients have stopped buying and why. Evaluate the quality of the information on the evolution of the different debtors by sales.

In the case of manufacturing or service processes, while traditional auditing pays attention to the correct calculation, distribution and accounting of costs, waste-focused auditing pays attention to the efficiency of the various processes. In a highly competitive economy, with increasing and better competitors in foreign markets, it is critical and essential to achieve the lowest costs, achieving this with maximum efficiency and productivity, which implies reducing waste levels to a minimum.

35. Return on Investment

From the point of view of its calculation, the Return on Investment is the result of multiplying the Sales Margin by the Investment Rotation.

The Sales Margin is the ratio of Profit to Sales, and the Investment Rotation is the ratio of Sales to Total Assets.

SALES MARGIN = Profit / Sales

INVESTMENT ROTATION = Sales / Total Assets

PROFITABILITY ON INVESTMENT = Profit / Sales x Sales / Total Assets

PROFITABILITY ON INVESTMENT = Profit / Total Assets

The reduction and elimination of waste allows to increase profits and reduce total assets (inventories of materials, products in process and finished products; excess of fixed assets; delinquent customers), thereby increasing the Return on Investment.

The question is, what does your company do day after day, week after week, to reduce waste, expanding profits and reducing total assets? Doing it is a discipline, it is not doing it one day yes and another no. It is something that everyone, managers and employees, must focus on every day. In the same way that an athlete to compete must take care of himself every day, a company that wants to be competitive must concentrate on the fight against waste every day.

36. Leakage Management

Waste of resources may be detected in all companies or entities. But there is a big difference in having waste that represents 40% of the total invoiced, than having only 3 or 4%.

The question therefore is to be aware of its existence and to proceed accordingly. We can see this loss of resources as numerous leaks or leaks that must be detected, eliminated and prevented.

Companies focus on producing goods, managing collections and payments, managing sales, and the various processes or activities that run the business, but there is never a concentration on detecting, eliminating, and preventing waste.

It is not about creating new positions, but rather raising awareness and training personnel to detect waste or leaks of resources, and improve activities and processes in order to eliminate them.

Leakage Management includes:

• Raise awareness among managers, managers and staff about the effects of waste on the company's profits and profitability, encouraging them to systematically fight to detect, prevent and eliminate them. It seems simple, but it is not. There is a mentality on the part of both managers and staff to deny or minimize the waste generated. Being aware of what is happening in companies and what is at stake is vital. Training on: a) definition of waste or leakage of resources, b) classification of waste, c) statistics for monitoring and analysis, d) tools for prevention and elimination, e) programming activities for prevention and elimination of leaks. In order to detect waste, it is necessary to know what it is about, what to talk about when trying to detect it,prevent and eliminate resource leaks. Being aware of what waste is allows everyone to be alert and understand the consequences. Keeping in mind a classification of the different types of waste allows them a better analysis of the activities and processes that take place. Establishment of an information system that allows having amounts and amounts related to the various types of waste. To control you must measure, and to improve you need to control. Having information is critical and essential to know what is happening or taking place in the company. Appoint a leader for the implementation of management activities and who is also responsible for monitoring the various indicators of waste, taking charge also of the activities destined to the reduction,elimination and prevention of various types of leaks. Although everyone is responsible for detecting and combating leaks, it is necessary to have someone to lead this fight, otherwise everything would end up being diluted.Composition of a Committee made up of at least those responsible or managers of Production, Finance and Sales.Regular generation and regulate reports on detected waste and the steps to be taken to solve it. Of the solutions already implemented, report on their implementation. Organization of periodic meetings at the managerial and sectoral levels to deal with the waste detected and the actions to overcome them. If there is an Internal Audit, it must be required that it focus your work on waste.Although everyone is responsible for detecting and combating leaks, it is necessary to have someone to lead this fight, otherwise everything would end up being diluted.Composition of a Committee made up of at least those responsible or managers of Production, Finance and Sales.Regular generation and regulate reports on detected waste and the steps to be taken to solve it. Of the solutions already implemented, report on their implementation. Organization of periodic meetings at the managerial and sectoral levels to deal with the waste detected and the actions to overcome them. If there is an Internal Audit, it must be required that it focus your work on waste.Although everyone is responsible for detecting and combating leaks, it is necessary to have someone to lead this fight, otherwise everything would end up being diluted.Composition of a Committee made up of at least those responsible or managers of Production, Finance and Sales.Regular generation and regulate reports on detected waste and the steps to be taken to solve it. Of the solutions already implemented, report on their implementation. Organization of periodic meetings at the managerial and sectoral levels to deal with the waste detected and the actions to overcome them. If there is an Internal Audit, it must be required that it focus your work on waste.otherwise everything would end up being diluted. Formation of a Committee made up of at least the managers or managers of Production, Finance and Sales. Regular and regular generation of reports on detected waste and the steps to be taken to solve it. Of the solutions already implemented, report on their implementation. Organization of periodic meetings at the managerial and sectoral levels to deal with the waste detected and the actions to overcome them. If there is an Internal Audit, it must be required that it focus your work on waste.otherwise everything would end up being diluted. Formation of a Committee made up of at least the managers or managers of Production, Finance and Sales. Regular and regular generation of reports on detected waste and the steps to be taken to solve it. Of the solutions already implemented, report on their implementation. Organization of periodic meetings at the managerial and sectoral levels to deal with the waste detected and the actions to overcome them. If there is an Internal Audit, it must be required that it focus your work on waste.Regular and regular generation of reports on detected waste and the steps to be taken to solve it. Of the solutions already implemented, report on their implementation. Organization of periodic meetings at the managerial and sectoral levels to deal with the waste detected and the actions to overcome them. If there is an Internal Audit, it must be required that it focus your work on waste.Regular and regular generation of reports on detected waste and the steps to be taken to solve it. Of the solutions already implemented, report on their implementation. Organization of periodic meetings at the managerial and sectoral levels to deal with the waste detected and the actions to overcome them. If there is an Internal Audit, it must be required that it focus your work on waste.

The aim is to improve the profitability of the company by detecting and eliminating waste, but this will not only be due to simple voluntarism or desire. Everyone wants better results, but they do not come as a gift, but it is necessary to raise awareness, organize, train and work systematically every day to achieve such results.

37. Opposition to change

Being able to establish a new perspective regarding the view that one has of the Results Table and its conformation makes a paradigm shift essential. And every paradigm shift involves fighting great opposition to change.

This opposition comes on the one hand generated by the company's own inertia, that is, the inclination to continue with the same way of managing. On the other hand, there is a way of looking at management from a very conservative and traditionalist point of view, making these points of view something like a divine law. On the other hand, there is the search for ease and avoiding collision with other interests. It is always easier to control the sector or process itself, than to intervene in other areas of interest.

In contrast to such attitudes, we can say that continuing with inertia, and especially if there are negative aspects of management and its results, will end up destroying its own ability to become more competitive and continue offering its products and services in the market. Sooner or later the economic cycle will account for these companies, as they cannot face the greatest restrictions imposed by the prevailing situation.

For those managers for whom there is only one way of doing things, there is only one way, and it is the way to their disappearance. In an ultra-competitive world, those managers or directors who bet on the traditional do not have many more years to continue fighting.

And finally for those who favor ease and non-confrontation, it should be noted that the company is one and that the sectors are totally interdependent. The losses of one sector if they are serious end up sinking the ship, knocking down all the other sectors. And the ease in which it is to incur to improve the march without committing to significant changes is very little viable. Nothing can be accomplished without sacrifice and discipline.

38. Diagnosis

A company needs to know where it stands in terms of the level of waste and what it must do to overcome these resource leaks or leaks. For this, it must require the services of professionals specialized in observing the organization and its processes. Professionals who have the sensitivity to detect waste, not only in production or bureaucratic processes, but also in everything related to asset management and controls and information systems.

The result of this diagnosis should allow us to know what percentage of the billing reaches the level of waste, the causes of them and what measures should be taken to overcome these leaks.

39. Conclusions

The vast majority of companies ignore the calculation and monitoring of productivity by sectors and processes, with which they tend to continue accumulating expenses and assets while the economic situation is favorable to the joyful waste of resources.

Organizations need a change of perspective that leads them to pay maximum attention to waste, following a methodology and calculating the monetary effects they have on the result table and in calculating the return on assets.

There are organizations that do not have waste, but they are in waste. They are those entities that live with serious management problems, completely lack planning and control, and have no process, activity or sector that does not generate waste of resources. And there are those others where, behind an appearance of order and good management, serious shortcomings are hidden, leading to considerable waste.

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DATE OF THIS MONOGRAPH: June 24, 2013.