I hope you have seen or read the first case in which I discussed the meaning of opportunity cost. Which in a few words means: that I am not earning something or doing something else, because I am focused on solving other problems or doing other activities not so productive.

In this case, I am going to talk about product waste in a company.

In this case, this company had product waste in various parts of the process, since the raw materials arrived and were emptied into silos, and then there was waste in the production lines and also in the finished product warehouse. The waste generated throughout the plant was more than $ 600,000 per year.

When the causes of this waste were analyzed, some were found that fall into the technical category, others were a human factor and finally there were also some causes that were a consequence of the policies and rules established by the senior management.

In the technical category, it was determined that the production lines had some design deficiencies, perhaps not considered when they were designed, which caused part of the product in process to fall to the floor, become contaminated, and have to be thrown away. In addition, when the raw material was emptied into the silos, part of it also fell to the floor.

Essentially, product was being wasted through multiple design flaw.

In the human factor category, it was determined that sometimes part of the waste was because the employees of the lines were not careful when moving the materials.

In the third category regarding company policies, it was found that some of these problems had already been detected, mentioned to the management, and even proposed some solutions.

In this case, after making an in-depth analysis of these causes, the personnel at the supervisory and management level were trained in both Supervisory and leadership, and process improvement issues, in Spanish.

This helped this team present cost-benefit solutions to management.

In addition, a training program was created for staff to take more care in handling materials throughout the process, which also contributed to reducing product waste.

All these ideas and suggestions, some of which were carried out immediately, resulted in a decrease in annual waste of at least 20% in the first year alone, resulting in savings of more than $ 120,000 per year. And it was expected that when implementing other suggestions, the waste was expected to reduce between 30 and 40%.

The key to achieving this extraordinary result was that all supervisory level personnel were involved in determining the annual cost of waste and after training them, they were asked to make suggestions to management on how to reduce waste in their own department, presenting cost-benefit proposals.

As in the previous case, here it was also evident that the owners could not start other projects because they had to find a solution to product waste, which implies an opportunity cost.

I hope this mini case has been clear, and above all that it helps you to analyze within your company the annual cost of product waste throughout the process, the technical, strategic and human factor causes in order to find a solution and make an analysis on the cost-benefit of the actions that could be carried out.

Please contact me to explain how we help companies with our Online Training for Supervisors in Spanish and how to make an analysis of the operational situations and costly problems.

We can help and teach your team of supervisors and managers how to determine the possible causes of these problems in your company, to propose solutions.

In the following case, I am going to talk about the situation of a poor-quality problem and its possible causes.

Thanks again for following this mini-series.

Regards

Eduardo Figueroa, MBA
President, Author & Leadership Trainer