Monday, June 13, 2011

Policy Creates Waste

Executive Summary:
Most organizations have a list of policies that must be followed.  Unfortunately, policy in general has a tendency to drive waste.  Evaluate your policies and decide if the rule is really worth the waste it creates.

The Rest of the Story:
Policy is a variety of rule that we impose upon ourselves for a number of reasons.  We install policy to be fair, to give guidance for decision-making, and to protect against abuse of privilege or responsibility.  We install policies or other rules with good intent, but often those policies inadvertently drive unwanted waste.

Waste takes on many forms.  Simply put, any effort or resource (including time) that is not directly furthering the mission of the organization should be considered waste.  The Lean methodology gives us a list of names or categories for the common forms waste takes such as waiting, motion, transportation, defects, and over processing.  Do you experience any of these in your work place as a result of following the rules?

I was talking with a friend last week, just getting caught up and socializing, when he described some of the waste I’m talking about here.  His experience is typical and it makes a good example.

My friend works in a logistics function supporting the maintenance of heavy equipment for a mining operation.  While making his way back to his office, he noticed that the supply of some important consumables was low, but couldn’t recall seeing an order for more.  When he checked the ordering activities, he confirmed his suspicions.

He talked with the operators and warned them that they need to tell somebody to order more before they get so low.  He got an annoying, “that’s not my job” response, and was reminded that the warehouse function is responsible for such activity.  In spite of the less-than-helpful attitudes, he was able to confirm that the operators were consuming the supply faster than usual.

When he talked with the warehouse function, he confirmed that orders for the consumable parts of concern are made on a schedule, which was established based on typical rate of consumption.  He communicated his observation that the supply was low.  Together they reviewed the schedule for delivery and determined that the current supply would run out before the next order was received. 

Naturally, this consumable part is necessary for the business’ operation and business, and the work of numerous employees would be impacted if the supply ran dry. 

When my friend suggested that the warehouse function immediately expedite an order, he ran into the policy.  Policy stated that the warehouse function could not place an unscheduled order without a written request from the operators.  Yes, those guys with the not-my-job syndrome.

To let you out of the cliffhanger, my friend ended up elevating the situation to the correct management levels to get the roadblock moved and the warehouse found, through an unusual source, enough supply to last the operation long enough for the regular supply to arrive.  Also, the operators with the attitude got an earful from their manager when he returned to the office later that week.  Happy ending, except…

How much waste was created in that story example by the rule that said that a formal request was necessary to do the work to solve the problem?  Ignoring the many technological or process solutions that could be employed to prevent the problem, let’s look for a moment at what was necessary to get past the rule.

My friend had to raise the issue to several managers in order to get authorization to make an unusual purchase.  What if my friend decided it wasn’t worth his time or effort? 

Both my friend, and at least one warehouse person had to set aside their normal work for a few hours to address the issue with management.  Now, you also have managers setting aside their work to address the issue.  We can argue that such is management’s job, but we can also say that if the problem didn’t need permission to get solved, then the manager’s time wasn’t necessary and could have been spent where it was more valuable.

Now, they were able to resolve the issue within a few hours, but what if the managers were busier or less responsive and the resolution didn’t occur until the next day.  That might have been enough wasted time to prevent the emergency supply from arriving soon enough to prevent a significant business impact.

We can look at it practically too.  Let’s say, for the sake of argument, that the whole issue, between my friend, the warehouse operator, and the managers involved required a total of 7 man-hours to get permission to get the proper paperwork filled out.  That’s only about 1-hour per person give-or-take.  Let’s say that the average burdened rate for a man-hour of time for the people involved is $50 per hour.  That’s $350 of people’s time and salary and benefits expended trying to satisfy the rule.

I know, it doesn’t sound like much, and it’s a small price to pay to avoid the shutdown of a whole function due to a lack of supply.  However, how many rules do we all follow, and how often do we waste time, energy, or resources trying to follow those rules?  If your business experienced just one $350 rule per week, it adds up to $18,200 per year.  If it’s three of those each week, your business wastes $54,600 per year. 

I believe that most businesses experience waste in following the rules every day.  It occurs for multiple rules and different people, but it’s certainly every day.  Not every encounter will cost $350, but let’s just speculate that if each day’s total of time and resources expended for the sole purpose of satisfying rules amounts to $300, we’re looking at an annual waste in personnel’s time and other resources of $78,000.  That’s one more professional employee you could have on staff.

If you want to debate my crude math for example’s sake, make a few calculations for your own team and I think you’ll find that $300 a day for a medium-sized organization is very conservative.  Besides, I’m only trying to make the point that all of these little things can add up across an employee population, over time, to some significant waste.

If you want to investigate and address some of these possible savings, here is some advice.  Focus on rules and policy that insist upon permission, or forms to be filled out.  Also focus on quotas.

Quota’s tend to drive over-processing or work that isn’t necessary to get to an answer that is already known.  Forms can be a great way to prevent defects and rework by ensuring that the correct information is provided correctly the first time, but if that’s not what is happening, then the form drives similar unnecessary work.  Permissions result in waiting.  I’m certain no further discussion is necessary to explain that. 

If you think that you have your hands on a rule that generates waste, examine it from both sides.  What event or problem is the rule instituted to prevent?  Is that likely to be more costly than the waste it drives? 

Also, consider whether there might be another, less wasteful way to prevent the problem.  These are the best ways to address the waste created by rules and they are often easy to negotiate and install.  It’s not typical for the waste to considered when the rule is created so a less wasteful solution is often welcomed.

To finish up, let me toss out a few other examples of policy that both do and don’t drive waste.  I find that examples are the easiest way to perceive what someone else sees.

Example:  Dress Code Policy
Your company’s dress code is not likely to drive or create any waste.  It’s there to provide a guideline and to keep things fair.  It’s important to understand that the reason it doesn’t generate any waste is that it relies purely on good judgment and involves zero process, unless someone violates the code.  Employees don’t have to ask for approval every time the get dressed.  It’s an example for how to set policy without driving waste.

Example:  Unemployment Policy
Most states institute a quota of business contacts an unemployed person must make in order to remain eligible to receive unemployment benefits.  It’s a quota.  The policy is intended to reward those who are actively looking and discourage people from taking advantage of the benefit and get paid for watching TV.

However, intuitively we know that people out there are compelled to make contacts that aren’t especially serious just for the sole purpose of satisfying the quota.  Now, not only is the job hunter wasting time with resumes and applications that aren’t serious, but businesses are also hit with unwanted or “defective” applications.

If you are a hiring manager or HR generalist, you might be very sensitive to the waste described in this example.  Current conditions probably drove you to screen many more applications than you cared to do.

Example:  Signature Authority
Most of us with signature authority have it only for a certain finite amount of money.  If we want to purchase an item that is even $5 more than our amount, we need to get another level of permission to proceed.  It’s a good policy to prevent abuse of company funds at inappropriate levels of responsibility.

The last time you had to get permission to make a purchase over your own authority, how much time and work did it take to get that permission?  It may have been next to nothing.  Good.  Or it might have taken days and required multiple explanations, or even the development and delivery of a formal presentation.  Ouch.  I know I’ve had to go so far.

Example:  Work Orders
This example fits the story above.  We insist on work orders to ensure that unnecessary work isn’t done and to ensure that the correct information is provided before the work begins.  It facilitates prioritization and prevents rework or work on requests that aren’t serious.  Work Orders are good.

Where work orders become a problem is when there is a policy that says that work shall not begin unless the work order is filled out.  Here is where the dress code model can be an example to follow.  If you give your personnel the authority to refuse to work without the work order, or to proceed at their discretion, they can enforce the benefits of waste prevention, and also avoid the waste described in the story above by initiating work that is clearly important and urgent.

As you go through your daily work this week, take a look at how much of your work is done for the sole purpose of satisfying policy.  If it begins to add up, it might be worth your time to start looking for alternative ways to satisfy the intent or purpose of the rule without wasting so much time, energy, or other resources.  If you do, you’ll not only improve business efficiency, but everyone will respect you for making work life easier.

Stay wise, friends.

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