[Muda] Cash-flow depleted startup freezes cash in defective products

This post is inspired by an assessment of a successful startup on its way to scaling up.

With some exaggeration I state that startups fall into two categories: either the ones that have cash to burn, thanks to trusting investors, or the ones struggling to find cash.

Mine is somewhat in between. A dynamic boss is smartly finding ways to fund the projects while operations burn too carelessly – in my opinion – the scarce resources without much consideration for generating revenues.

The company engineers and manufactures-to-order high-tech and expensive widgets, core equipment for a booming emerging market. As so many times in such situations, the company struggles to deliver on time fully matured equipment. Customers aware of the problems but eager to get the equipment, compromise on the state of readiness. Hence a significant rate of returning equipment that failed in the field.

What surprised me was the fact that instead of swiftly repairing the returned units and learning from the failures, sending feedback to design, defective returned units are left gathering dust in the warehouse.

This is a shocking waste of opportunity to improve the design and have more robust products shipped, decrease the costs related to servicing and replacing, avoid penalties and improve customers’ satisfaction.

It is also a waste to freeze scarce cash in defective units instead of repairing and sending them out again. Recycling the defective units should be faster than replacing them by new ones and would avoid diverting awaited new units for replacing the faulty ones.

All of that would not be such a surprise if all the staff was young people in their first work experience. Fact is that most of the managers in operations claim having former Lean automotive experience and awareness of best practices. A wonder they can’t recognize the obvious muda.

The latter are probably to be counted among the ones claiming We are all Lean now. What’s next?


View Christian HOHMANN's profile on LinkedIn

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