What You Can’t See Can Sink You

Discovering the hidden waste in your organization is where the most significant opportunities for improvement exist.

As global competition continues to drive and change the business landscape, the ability of distributors to remain profitable and sustain positive results gets harder every day. It is easy for distributors and suppliers in the gases and welding industry to lose sight of their long-term focus due to these constant changes. Like navigating through an unchartered sea filled with dangerous icebergs, what appears on the surface does not divulge what may lie underneath. How much is hidden below the surface is either misunderstood or simply overlooked, leaving organizations in a state of uncertainty and facing a plethora of unexpected obstacles. While some tend to believe if they don’t see these obstacles they must not exist, sooner or later they will hit an iceberg. The truth is – what you can’t see can ultimately sink you.

Many distributors and suppliers have come to realize that what brought them to their current levels of success guarantees nothing for their future. As good as these companies are, they recognize that changing the way they manage the business and make decisions is imperative to their long-term survival and profitability. One of the most significant challenges facing the industry today is how to effectively manage costs and become more efficient, while increasing the quality of service and products required by the end-users. To be blunt, organizations must change or face the possibility of extinction.

What Can’t You See?

From a business perspective, issues such as duplicated and lost transactions, dispute reconciliations, reworks, errors and poor communications are just the visible peak of the iceberg resulting from waste and inefficiencies in the processes and systems throughout the value creation stream, and are often hidden from view (Figure 1). This “peak” is easy to spot, yet represents only about 10 percent of the total mass that exists. The other 90 percent is hidden beneath the surface and if not uncovered, can sink even the most successful organizations. Much is the same regarding waste and inefficiencies that exist within an organization. No one is exempt.

Because even 10 percent can be overwhelming, many organizations fail to drive performance improvement efforts beyond what they see on the surface, resulting only in short-term gains in profitability or productivity. Meanwhile, that iceberg of problems continues to silently create obstacles for anything in its path. It impacts every process in the value creation stream, from the time the customer places the order until payment is received by the supplier. The value creation stream starts with a clear and unambiguous understanding of customer requirements, maximizing effectiveness and efficiency of every process from supplier to end-user in order to deliver those requirements as expected – nothing more, nothing less.

Discovering the hidden waste in your organization is where the most significant opportunities for improvement exist. Waste is considered to be any activity performed that does not add value for customers. These non-value added activities account for approximately 35 to 40 percent of the industry’s current value creation stream. It includes things like complaint handling, expediting costs, time with dissatisfied customers, overdue receivables and customer allowances. While these must be addressed, they create no value for the customer. In fact, data show that only about five percent of activities that take place in an organization that has not strategically embraced Continuous Improvement create any value from the customer’s perspective (Figure 2). World-class organizations, where Continuous Improvement is the managing philosophy, have processes that generate upward of 20 percent value for their customers.

Continuous Improvement is too often misunderstood. It is frequently used as an ad-hoc project or limited to the operations side of a business. Continuous Improvement is a comprehensive business strategy and management approach that focuses on delivering value to customers through the relentless pursuit of excellence in every process, in every facet of the business. It starts with the admission that all processes contain waste, errors and inefficiencies, then puts the appropriate tools in place to identify and eliminate the underlying causes. Simply stated, it is about making small improvements every day, by every employee, at every level in the organization.

Why Can’t You See?

Why is it so difficult to see these hidden icebergs, or waste, that exist in the value creation stream?  Factors which act as “blinders” include existing company cultures, not knowing how to identify waste, and little to no pressure from customers mandating distributors or suppliers to improve performance. Waste can be difficult to see because it hides in how the work gets done and throughout the resources used to accomplish it. It shows up as things like corrective action, waiting for information, equipment breakdowns, backorders, excess or obsolete inventory and issuing credits to customers. It becomes embedded in the “normal” practices to which everyone grows accustomed.

There is also pride of past success. Success is an achievement to be celebrated, yet can also get in the way of accepting the truth about the existence of the hidden part of the iceberg. The unwillingness to challenge past practices is one of the most threatening blinders of all.

Once you learn where to look, waste can be easy to find. Looking for waste and inefficiencies starts with a thorough examination and a clear understanding of all activities that occur in a company and learning how to question everything. For example, one distributor’s  billing department questioned the need to mail duplicate proof of delivery tickets with every invoice,  enabling them to eliminate over 2,500 hours of waste by discontinuing this practice. This resulted in an annual savings of almost $50,000 in labor and supplies, and gave the billing department more time to focus on value-added activities. Another distributor analyzed their hardgoods receiving process and discovered that over half of the steps being performed to receive product into inventory created no value. The revised process now takes less time and has improved the company’s ability to have product to customers faster with less backorders. These small but significant improvements were all achieved by frontline employees who learned the value of asking, “Why?”

Full Speed Ahead

Distributors and suppliers must navigate a new direction to stay competitive. The leap forward only comes from perpetually challenging the status quo and asking, “Why do we do this, why do we do it this way, why do we do it in this order, and why don’t we do it differently?”  Change is always challenging, but we can learn from those who have successfully navigated through or around icebergs that have stood in their path.

Inevitably, your organization will face its own iceberg. How you choose to deal with it will determine the future. Changing the cultural paradigm of how to manage an organization is at the heart of Continuous Improvement and is the foundation for removing icebergs. No single “tool” used as a stand-alone approach to Continuous Improvement can make that happen. It requires unrelenting commitment and, at times, sacrifice. Yet the hard work and effort today can provide long-term benefits and profitability for all stakeholders in the entire value creation stream tomorrow.

Many distributors have started taking actions to expose and eliminate waste, the hidden part of their icebergs. The adoption of Continuous Improvement as a key business strategy has helped expose these underlying threats. Innovate, create, and take risk. Remove your iceberg and take control of your future. Or someone else will.

Meet the Authors

Bob Werner is president of Edwards Group International, headquartered in Manchester, Connecticut, and at www.edwardsgrp.com.
Jonda Vance is senior associate consultant for the firm.

Gases and Welding Distributors Association