Eight Areas of Waste

Eight Areas
of Waste
CHAPTER 7
Waste (Definition)
A situation in which something valuable is not being used or is being used in a
way that is not appropriate or effective (Merriam-Webster Dictionary)
Eight Areas of Waste
Overproduction
Waiting
Transporting
Unnecessary Paperwork or Processing
Unnecessary Inventory
Excess Motion
Defects
Underutilized Employees
Overproduction
 refers to the production of a given output in excess of what is required.
To address this, organizations perform cycle counts and physical counts, build/rent and use climate-
controlled facilities, implement access controls, and in general build an infrastructure to address
overproduction
Waiting
 is the delayed action that happens until some other productive action is done on the item produced
 The auditor can help the organization by examining what is happening, where, why, and by whom,
then recommending improvements to the process that will allow production to occur more evenly.
Transporting
 refers to the action of moving an item from one location to another
 Transportation waste is the unnecessary movement of parts, excessive handling of materials, or

shuffling of inventory to get access to the correct components.
 Eliminating transportation waste requires a focus on the flow of materials, machines, and people.
Unnecessary Paperwork or
Processing
 While the concept and vision of workplaces where paper is redundant for routine tasks like
documentation, bookkeeping, and communication has a lot of merit, the reality is that we still use
paper for a multitude of reasons.
Ways to eliminate or greatly reduce the use of paper in the workplace:
 Convert documents into digital form
 Adopt digital signatures to digitally sign documents rather than relying exclusively on manual signatures on
paper documents.
 Employ some technologies like:
 E-forms (electronic form) to create, integrate, manage, and route forms and data with other processing systems
 Workflow applications to route information and documents
 Web servers to host the process, receive submitted data, store documents, and manage information
Unnecessary Inventory
 Excess products, materials, parts, and documentation not being processed immediately, or ahead of
requirements, constitute unnecessary inventory.
Why manage inventories:

 It incur carrying costs
 It ties up needed capital
 Susceptible to damage, obsolete, and being lost/stolen
The goal should always be to maintain a balance between the future demand and the inventory on
hand.
Excess Motion
Superfluous activities or additional steps in the required minimum number of steps to achieve a stated purpose and
to deliver a product or service
Main cause: Poorly designed work environment
Use spaghetti diagram to track routing through factories and other types of workplace to identify inefficiency
within the flow of the system
Why it becomes a concern?

 every action is paid
 causes wear and tear on people and machines
 requires time to be completed
 Employees’ disability time off
 May increase workers’ compensation insurance premiums
Spaghetti Diagram
Defects
a physical problem that causes something to be less valuable, effective, healthy, etc., something that
causes weakness or failure and an imperfection that impairs worth or utility (Merriam-Webster)
Defects prompt the need to rework the item to correct the error made, so the organization must then
spend additional resources to correct and deliver an acceptable product or service as initially expected.
Internal auditors should ascertain as best they can what the expectations are in the first place, then
comparing the end result to that standard.
Underutilized Employees
Employees are instructed to perform activities beneath their capabilities, or they are prevented from
being employed in positions where their capabilities would be better utilized.
Business leaders should:
i. Perform skill assessments in their organizations to identify the entity’s present and future needs.
ii. Collect information about the skills and competencies of their workers to perform a gap analysis.
iii. The information gathered should inform their training and development programs, their hiring practices,
outsourcing/cosourcing plans, and alignment of strategic plans with resource availability.
Internal auditors should audit employee engagement as it influences productivity, retention, customer
satisfaction, and the quality of internal controls.
Identifying, Assessing, and
Preventing the Occurrence of Muda
I. Identify the auditable universe in the organization.
 consists of all auditable entities, accounts, programs, processes, and systems relevant to the organization
II. This audit universe should be reviewed and updated periodically to assess the risk level of each of
these items, which in turn informs the priority that should be given to each of them and to schedule
the review.
III. Perform audits at the beginning of the entire cycle

 This way auditors can check the system development life cycle, check the feasibility studies, planning
documents, bidding and contracting process, vendor selection procedures, and the process to embed internal
controls in the design.
 examine these Eight Areas of Waste from a prospective perspective and anticipate their occurrence and their
impact on the organization
Using the Eight Areas of Waste
during Internal Audits
Standard Areas of Waste
Achievement of the organization’s strategic Any of the Eight Areas of Waste occurring en masse
objectives over extended periods of time can limit the
organization’s ability to achieve its expansion goals,
profitability objectives, and accomplishment of its
mission.
Reliability and integrity of financial and operational Excessive waiting during the financial reporting
information cycle can delay the timely publication of financial
reports. Defects in accounting transactions, or notes
to the financial statements can result in costly
restatements and significant decreases in stock
price.
Using the Eight Areas of Waste
during Internal Audits
Effectiveness and efficiency of operations Any of the Eight Areas of Waste will limit the
and programs organization’s effectiveness and efficiency. By eroding the
efficiency of operations, they can collectively limit the
ability to achieve organizational objectives.
Safeguarding of assets Misusing limited financial resources and increasing the
need for operating capital due to waste is contrary to the
concept of safeguarding assets. Unskilled workers are more
likely to be inefficient in their transportation planning,
motion assessment, and inventory management, and cause
more defects to occur. Furthermore, by not having the skills
to perform their duties, they may engage in waiting as they
try to figure out how to get the work done.
Table 7.2 Using the Eight Areas of
Waste during Internal Audits
Compliance with laws, regulations, policies, There are many ways that noncompliance can occur,
procedures, and contracts based on specific laws, regulations and internal
expectations. Environmental laws frown upon
excessive waste, which is caused by overproduction
and defects. Compliance with clean air regulations
are hindered by idling vehicles, excessive transport,
and vehicles carrying heavier loads due to
overproduction and inventory accumulation.
Workplace safety laws, and in-house ergonomics
expectations would be compromised through
excessive motion.
“The most dangerous kind of
waste is the waste we do not
recognize.”
- SHIGEO SHINGO

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Eight Areas

Unnecessary Paperwork or Processing

 Transportation waste is the unnecessary movement of parts, excessive handling of materials, or

Why manage inventories:

Main cause: Poorly designed work environment

Why it becomes a concern?

III. Perform audits at the beginning of the entire cycle

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