## Tuesday, July 2, 2013

### 5 S, continued

One of the tangible benefits of 5S is increased floor space.

My brother Phil is an accountant and he likes numbers.

Several years ago we had a conversation on floor space.  He offered 3 "valuations" on floor space with the following vignettes:

1.) Housing in his neighborhood (at the time of our conversation) was \$70 a square foot.  That number was obtained by regressing the selling price of the last 6 months of properties from the west end of his zip-code.  Did I mention that Phil likes numbers?  Some people automatically buy a larger house when the current one fills up with junk.

Assume zero transaction costs.  An additional 400 square feet of floor space will cost an additional \$28,000 (implicit in this argument is that it would be pointless to move into another house that was only a little bit bigger).  By this analysis, sub-optimal 5S will cost residents of Zipcode 48915 a minimum of \$28,000.

2.) Empty space fills up.  A short-cut in industrial accounting is to assign an semi-arbitrary estimate of  inventory cost per square foot.  That facilitates annual "book value" reports required by the SEC.  An estimate that I seen used is \$250 per square foot.  While that sounds high, I know a few people who have high end audio equipment and photographic doo-dads who leave that estimate in the dust.

Using method two, add another \$100,000 to the previous \$28,000.  The only way to avoid the \$100,000 hit is to not have "extra" space to fill up.

3.) Rent-a-space. A critical look at how most people manage their rent-a-space is that they will never use more than 5% of the junk that are paying good, cash money to ware-house.  The only exception appears to be people who use the space to store household items when they are between moving from a small place to a larger place.

Phil's bottom line is that you can have a yard sale and  pay people to take your junk and you will still come out way ahead.  Visuallize a \$100 bill taped to the top of each 12" tile and you cannot put that \$100 into your wallet until you have completely cleaned off that 12" tile.  That visual is not far from the truth.

The only caveat is that selling your wife's junk (without her permission) may result in a divorce and divorce is even more expensive than junk.