Profitable Waste
There were many improvement efforts going on during my time at GM, not the least of these being Lean and TOC. In the beginning, there were a few clashes between the two groups, but over time it became clear which problems would be addressed by each of the methods.
A few clear advantages of the TOC methods, especially for operations, are the following:
- System wide perspective
- Net Profit and ROI measurements
- Prioritization of efforts
The Lean tool that typically has the best system view point is a Value Stream Map (VSM), and we often created this map (or at least a Throughput version of it) when starting our original efforts. Usually after that, in the Lean world, an attempt is made to fine the largest source of waste. Waste seems to be unit-less measure, and can be dollars, minutes, production units, etc.
With that said, Lean efforts that are taken on without a TOC perspective often are cost focused, and are broken down into groups, usually by silo. In GM, however, with the existence of bottleneck information in every plant and department, it wasn’t much of a stretch for the Lean guys to work on the bottleneck. After seeing the cause and effect of their work on the throughput of the area, it became a more widely accepted practice. Not completely accepted, to be sure. Acceptance by Lean groups in GM of TOC ran the gamut, from avoid at all cost, to peaceful and profitable co-existence.
The toughest concept, especially when designing new systems, was the concept of protective capacity. From a strict Lean interpretation, this additional inventory is “waste,” and should not be allowed. But by using simulation and data from the plant floor, it becomes clear that this inventory in this specific area keeps throughput at desirable levels. If these products are in demand, as large trucks were a few years ago, this protective capacity can be proven to be “profitable.”
Thus the term “profitable waste” was created. We used it to communicate to management our understanding of this important concept (and teach them about it at the same time).
We also needed to demonstrate that not all inventory was beneficial. Simulation could be used to challenge many of the inventory or buffer sizes in the plant. Usually, from an overall perspective, inventory was less at the end of the simulation/design process than in the beginning. Buffers that were installed to protect the throughput of a sub-area (to help ensure that area could, say, over-build to hit it production numbers) were demonstrated to be unprofitable waste.
The process ran roughly like this. Once a simulation for a process was complete, and the throughput running to desired rates, we could begin to challenge buffers. A new version of the simulation model was run without the buffers being scrutinized. If there was no decrease in throughput, the buffer location is ineffective, and thus does not impact profits. With the buffers removed, the ROI of the system would be higher, since the inventory (and more importantly, the equipment used to store it) would no longer have to be purchased and maintained.
Overtime, we stop using the term, as the need for protective capacity became clear to designers and management. But in my work now as a consultant, I have found that I have to revisit some key aspects of my past work. The term “profitable waste” has once again found its way back into my glossary, and the term itself begs the curious to ask questions. It’s a good way to start the thinking process around these concepts.
