Are you fully aware of everything that goes on inside your company and the effect it may have on
your business overall? Do any of your customers or staff understand what it means to have a
“Hidden Factory” and its impact on the products and services they provide?
Most business owners will have some awareness of tangible waste items such as excessive stock,
defective products, and office over-processing. But the hidden waste within your business may not
be as tangible or easily calculated. Hidden wastes may take the form of products or services
requiring re-work, lost labour and machine hours, or even unsatisfied customers demanding
compensation.
In many industries, the ubiquity of social media and online reviews can easily impact a business’s
bottom line. Many high-profile companies have been affected by bad publicity spreading over the
internet. The cost of lost income to your business due to potential customers taking their business
elsewhere is immeasurable. It is important for organisations to ensure their process get everything
right first time in order to eliminate costly sources of error and waste.
The term Hidden Factory is used to encapsulate these costs that business operations or
manufacturing processes create. It is an important consideration for any business to examine and
identify where costs can be reduced, thereby increasing profitability.
W H A T A R E T H E E F F E C T S O F A H I D D E N F A C T O R Y ?
A Hidden Factory ultimately effects a company’s financial costs, often as a type of compensatory
measure which results in unwanted and unrewarding consequences. There may be situations in
which businesses have to input more effort than required, leading to wasted time and resources,
and essentially, money. A Hidden Factory is set apart from other factors that cost a company due
to effects that are not immediately noticeable or tangible.
An example of this may be a situation where the machinery used in a product’s production
process cannot be operated by an employee who received incomplete training. In such an
example, the inability of the employee to operate the machinery will set off consequences that
include lost labor and man hours, decreased product quality and poor customer relations.
The cost of another employee helping out, as well as scrapped products due to quality control
will impact the company. If the company attempts to recuperate these costs by passing them onto
the customer and raising the price of the final product, it is likely customers will respond badly to
this. Unhappy customers may take their business elsewhere, leave bad reviews and ask for
refunds. These factors impacting the bottom line of the company are another element of its
hidden factory.
The cost of a defect that is not detected until the process is completed is often far more than if
the defect were found at an earlier stage. Consider a sub-assembly that is missing a nut. If the
sub-assembly is assembled into a finished good before the missing nut is noticed, the whole
product may need to be scrapped. The cost of the missing nut is a fraction of the price a new
product would be to replace the defective one.
Hidden factories do not just apply to physical products. An employee may spend an extra five
minutes on their break, and after lunch. Five minutes may only be around 1% of an eight-hour
workday, however, if every break is fractionally longer than expected the effect is compounded.
Multiply this across a workforce in an organization and suddenly it is clear that huge costs can be
a direct result of factors that may well be hidden from initial sight.
E X A M P L E O F A H I D D E N F A C T O R Y
Consider a company that sells a product for £10 to generate a desired profit margin of £5. Due
to damaged raw material, machines breaking down, and inefficient processes; their
manufacturing costs per product increase by £2. This additional cost reduces the profit margin of
each product to £3 and affects the company’s bottom line. It is likely that raising the price of their
product to reach the desired profit margin will result in less sales and a loss of customers,
especially in price-sensitive markets.
Conversely, if the company managed to identify their Hidden Factory and eliminate the waste in
their business and production processes, their manufacturing costs would fall by £2. The product
can now be sold for less, while retaining a £5 profit margin. This would not only help to secure
the future of the company, but also keep the customers and shareholders happy.
H O W T O D E A L W I T H Y O U R H I D D E N F A C T O R Y
If this is the situation in your business, then it may be time to reconsider how you deal with
hidden waste. By identifying and quantifying the extent of your hidden waste, steps can be taken
to eliminate as much as possible from being generated in the first place. This may be a complete
company overhaul and culture change, or smaller improvements to your company’s processes.
Whatever the action or combination of actions taken, a different way of doing things which is
more efficient and produces a better-quality outcome is possible. It is much easier for the
business owner or director to measure success by units sold and business turnover. It is much
more difficult however to measure costs in terms of failure.
After all, focusing on the negatives and highlighting failures is never a pleasant or enjoyable task
but it is essential if your business is going to continue to grow and remain competitive within
your industry.
C A N T H I S W O R K F O R A L L B U S I N E S S E S ?
Our team believes that it can.
Keeping costs down whilst increasing productivity and profit is at the heart of every business.
Here at Fluere we are specialists in analysing businesses to identify the Hidden Factory.
We typically generate savings for companies that are greater than the cost of our services, and
implement continuous improvement drives that provide sustained results and business growth
year on year.
Email us at sales@fluere.co.uk to find out what we can do for you and your Hidden Factory
