An Introduction to Lean Accounting
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PowerPoint PresentationNick Katko BMA
Verifiable and valid
Lean is a Financial Growth Strategy
1. Eliminate Waste
2. Create Capacity
services
Commitment to Lean Strategy
Achieve Financial Success
•
Improvement
The Box Score Relevant and reliable information for quality decision making
What is a Box Score?
5-7 lean measurements to assess value stream operations.
Actual financial results for the period, based on operations
Measures resource usage in terms of value added and non-value added time.
Integrated Lean Performance Measurements
Measures drive Transformation
• Improve 15-20% every yearProductivity: • 100% Delivery: • Turns double every yearInventory: • Reduce defects 50% every yearQuality: • 5-10% improvement in gross marginCost: • Reduce from weeks to days, or days to hoursLead Time: • Sales grow at an increasing rateGrowth:
Value Stream Income Statement
Measure Value Stream Profitability
Using Actual, Direct Costs
Value Stream Cost Definitions
value stream in GL
allocate
Facility & warehouse
• Materials, labor, machine/equipment, other
• Primarily labor, but can have other costs
Operational Support
Sales $326,240 $748,894 $453,215 $1,528,349 Additional Revenue $0 $0 $12,422 $12,422
Material Costs $111,431 $232,774 $149,561 $87,909 $12,764 $594,439 Conversion Costs $57,628 $70,406 $81,579 $203,769 $37,645 $451,027
Outside Process Costs $32,433 $22,991 $22,661 $7,531 $85,616 Other Costs $16,040 $57,816 $29,459 $72,721 $176,036
Tooling Costs $4,843 $12,544 $6,588 $23,975
Value Stream Profit $103,865 $352,363 $175,789 ($364,399) ($57,940) $209,678 ROS 31.8% 47.1% 38.8% -23.7% -3.8% 13.7%
$925,314 $918,807 ($6,507)
1. Value Stream Format
5. Financial adjustments for financial reporting
4. All costs not controlled by
Value Stream teams
Value Stream Capacity
Productive
Nonproductive
Available
Available Capacity
Sell more
Lean Financial Management
Box Score: Standard Work for all financial and operational analysis
VALUE STREAM MAPPING WEEKLY PERFORMANCE REPORTING
USED IN KAIZEN & IMPROVEMENT EVENTS
USED IN ALL FINANCIAL MANAGEMENT & ANALYSIS
BOX SCORE FOR MAJOR LONG TERM PROJECTS
INTEGRATED INTO ANNUAL & MONTHLY PLANNING
Dynamic Relationships in Changing Contexts
Operating Performance
CapacityFinancial Performance
Productive Capacity 51% 43% Non-Productive Capacity 30% 19%
Available Capacity 19% 37% Productive Capacity 53% 53%
Non-Productive Capacity 32% 17% Available Capacity 15% 29%
C A
PA C
IT Y
Em pl
oy ee
M ac
hi ne
s
Sales per Person $7,472 $7,472 On-Time Shipment 92% 94% First Time Through 71% 78% Dock-to-Dock Days 33.0 18.5
Average Cost $419.46 $413.97 Accounts Receivable Days 54.0 50.0O
PE R
A TI
O N
A L
CURRENT STATE
FUTURE STATE
Conversion Costs $116,753 $116,753 Total Costs $228,184 $225,199
Value Stream Profit $104,385 $107,370 Return on Sales 31% 32% Inventory Value $209,336 $113,026
Cash Flow $123,117 $288,926
Elimination of waste changes non- productive capacity into available capacity
The cost of capacity remains the same
Scenario 1:Transfer Excess Capacity
Sales per Person $7,472 $7,472 On-Time Shipment 92% 94% First Time Through 71% 78% Dock-to-Dock Days 33.0 18.5
Average Cost $419.46 $413.97 Accounts Receivable Days 54.0 50.0
Productive Capacity 51% 43% Non-Productive Capacity 30% 19%
Available Capacity 19% 37% Productive Capacity 53% 53%
Non-Productive Capacity 32% 17% Available Capacity 15% 29%
Revenue $332,569 $332,569 Material Costs $111,431 $108,446
Conversion Costs $116,753 $116,753 Total Costs $228,184 $225,199
Value Stream Profit $104,385 $107,370 Return on Sales 31% 32% Inventory Value $209,336 $113,026
Cash Flow $123,117 $288,926
$332,569 $108,446 $108,704 $217,151 $115,418
35% $51,557 $125,984
Scenario 2: Increase Sales
Sales per Person $7,472 $7,472 On-Time Shipment 92% 94% First Time Through 71% 78% Dock-to-Dock Days 33.0 18.5
Average Cost $419.46 $413.97 Accounts Receivable Days 54.0 50.0
Productive Capacity 51% 43% Non-Productive Capacity 30% 19%
Available Capacity 19% 37% Productive Capacity 53% 53%
Non-Productive Capacity 32% 17% Available Capacity 15% 29%
Revenue $332,569 $332,569 Material Costs $111,431 $108,446
Conversion Costs $116,753 $116,753 Total Costs $228,184 $225,199
Value Stream Profit $104,385 $107,370 Return on Sales 31% 32% Inventory Value $209,336 $113,026
Cash Flow $123,117 $288,926
$332,569 $108,446 $108,704 $217,151 $115,418
35% $51,557 $125,984
$427,938 $139,545 $115,557 $255,102 $172,836
40% $62,086 $156,921
Scenario 3: Bring Outsourced Production In-House
Sales per Person $7,472 $7,472 On-Time Shipment 92% 94% First Time Through 71% 78% Dock-to-Dock Days 33.0 18.5
Average Cost $419.46 $413.97 Accounts Receivable Days 54.0 50.0
Productive Capacity 51% 43% Non-Productive Capacity 30% 19%
Available Capacity 19% 37% Productive Capacity 53% 53%
Non-Productive Capacity 32% 17% Available Capacity 15% 29%
Revenue $332,569 $332,569 Material Costs $111,431 $108,446
Conversion Costs $116,753 $116,753 Total Costs $228,184 $225,199
Value Stream Profit $104,385 $107,370 Return on Sales 31% 32% Inventory Value $209,336 $113,026
Cash Flow $123,117 $288,926
$427,938 $139,545 $115,557 $255,102 $172,836
40% $62,086 $156,921
$332,569 $92,179 $116,755 $208,934 $123,635
37% $71,131 $184,263
Planning for a Transformation
Pilot: Develop Lean Financial Coaches Location: where Lean Thinking is established • One or two value streams or one location • 3-6 month time frame • Cross functional team: Initial set of lean financial coaches
Rapid Implementation by Kaizen • Develop the tools – Box Scores • Team practices using tools in business situations to develop coaching
skills • Develop Starter Kata plan
Starter Kata • Functional deployment with practice routines •Meet regularly to: • evaluate/reflect on deployment: obstacles, problems, issues •adjust if necessary
•Evaluate development of next set of coaches
Lean Financial Coach Role
Presenc e
• Competing assumptions & thinkingReveal
Daily Cell & Weekly Value Stream Practice Routines
Financial impact of not reaching
goals
Testing operational solutions & measuring
Decision Making
or Analysis
A-3
Economic Value
Customer Value
Verifiable and valid
www.maskell.com [email protected] LinkedIn
Slide Number 2
Lean Strategy: Financial Benefits are not direct nor immediate
Management Accounting for the Lean Organization
The Box Score
Integrated Lean Performance Measurements
Value Stream Cost Definitions
Lean Financial Management
Box Score: Standard Work for all financial and operational analysis
Dynamic Relationships in Changing Contexts
Box Score shows the Impact of Kaizen
Scenario 1:Transfer Excess Capacity
Scenario 2: Increase Sales
Planning for a Transformation
Lean Financial Coach Role
Improvement Event Practice Routines
Wrap Up
Verifiable and valid
Lean is a Financial Growth Strategy
1. Eliminate Waste
2. Create Capacity
services
Commitment to Lean Strategy
Achieve Financial Success
•
Improvement
The Box Score Relevant and reliable information for quality decision making
What is a Box Score?
5-7 lean measurements to assess value stream operations.
Actual financial results for the period, based on operations
Measures resource usage in terms of value added and non-value added time.
Integrated Lean Performance Measurements
Measures drive Transformation
• Improve 15-20% every yearProductivity: • 100% Delivery: • Turns double every yearInventory: • Reduce defects 50% every yearQuality: • 5-10% improvement in gross marginCost: • Reduce from weeks to days, or days to hoursLead Time: • Sales grow at an increasing rateGrowth:
Value Stream Income Statement
Measure Value Stream Profitability
Using Actual, Direct Costs
Value Stream Cost Definitions
value stream in GL
allocate
Facility & warehouse
• Materials, labor, machine/equipment, other
• Primarily labor, but can have other costs
Operational Support
Sales $326,240 $748,894 $453,215 $1,528,349 Additional Revenue $0 $0 $12,422 $12,422
Material Costs $111,431 $232,774 $149,561 $87,909 $12,764 $594,439 Conversion Costs $57,628 $70,406 $81,579 $203,769 $37,645 $451,027
Outside Process Costs $32,433 $22,991 $22,661 $7,531 $85,616 Other Costs $16,040 $57,816 $29,459 $72,721 $176,036
Tooling Costs $4,843 $12,544 $6,588 $23,975
Value Stream Profit $103,865 $352,363 $175,789 ($364,399) ($57,940) $209,678 ROS 31.8% 47.1% 38.8% -23.7% -3.8% 13.7%
$925,314 $918,807 ($6,507)
1. Value Stream Format
5. Financial adjustments for financial reporting
4. All costs not controlled by
Value Stream teams
Value Stream Capacity
Productive
Nonproductive
Available
Available Capacity
Sell more
Lean Financial Management
Box Score: Standard Work for all financial and operational analysis
VALUE STREAM MAPPING WEEKLY PERFORMANCE REPORTING
USED IN KAIZEN & IMPROVEMENT EVENTS
USED IN ALL FINANCIAL MANAGEMENT & ANALYSIS
BOX SCORE FOR MAJOR LONG TERM PROJECTS
INTEGRATED INTO ANNUAL & MONTHLY PLANNING
Dynamic Relationships in Changing Contexts
Operating Performance
CapacityFinancial Performance
Productive Capacity 51% 43% Non-Productive Capacity 30% 19%
Available Capacity 19% 37% Productive Capacity 53% 53%
Non-Productive Capacity 32% 17% Available Capacity 15% 29%
C A
PA C
IT Y
Em pl
oy ee
M ac
hi ne
s
Sales per Person $7,472 $7,472 On-Time Shipment 92% 94% First Time Through 71% 78% Dock-to-Dock Days 33.0 18.5
Average Cost $419.46 $413.97 Accounts Receivable Days 54.0 50.0O
PE R
A TI
O N
A L
CURRENT STATE
FUTURE STATE
Conversion Costs $116,753 $116,753 Total Costs $228,184 $225,199
Value Stream Profit $104,385 $107,370 Return on Sales 31% 32% Inventory Value $209,336 $113,026
Cash Flow $123,117 $288,926
Elimination of waste changes non- productive capacity into available capacity
The cost of capacity remains the same
Scenario 1:Transfer Excess Capacity
Sales per Person $7,472 $7,472 On-Time Shipment 92% 94% First Time Through 71% 78% Dock-to-Dock Days 33.0 18.5
Average Cost $419.46 $413.97 Accounts Receivable Days 54.0 50.0
Productive Capacity 51% 43% Non-Productive Capacity 30% 19%
Available Capacity 19% 37% Productive Capacity 53% 53%
Non-Productive Capacity 32% 17% Available Capacity 15% 29%
Revenue $332,569 $332,569 Material Costs $111,431 $108,446
Conversion Costs $116,753 $116,753 Total Costs $228,184 $225,199
Value Stream Profit $104,385 $107,370 Return on Sales 31% 32% Inventory Value $209,336 $113,026
Cash Flow $123,117 $288,926
$332,569 $108,446 $108,704 $217,151 $115,418
35% $51,557 $125,984
Scenario 2: Increase Sales
Sales per Person $7,472 $7,472 On-Time Shipment 92% 94% First Time Through 71% 78% Dock-to-Dock Days 33.0 18.5
Average Cost $419.46 $413.97 Accounts Receivable Days 54.0 50.0
Productive Capacity 51% 43% Non-Productive Capacity 30% 19%
Available Capacity 19% 37% Productive Capacity 53% 53%
Non-Productive Capacity 32% 17% Available Capacity 15% 29%
Revenue $332,569 $332,569 Material Costs $111,431 $108,446
Conversion Costs $116,753 $116,753 Total Costs $228,184 $225,199
Value Stream Profit $104,385 $107,370 Return on Sales 31% 32% Inventory Value $209,336 $113,026
Cash Flow $123,117 $288,926
$332,569 $108,446 $108,704 $217,151 $115,418
35% $51,557 $125,984
$427,938 $139,545 $115,557 $255,102 $172,836
40% $62,086 $156,921
Scenario 3: Bring Outsourced Production In-House
Sales per Person $7,472 $7,472 On-Time Shipment 92% 94% First Time Through 71% 78% Dock-to-Dock Days 33.0 18.5
Average Cost $419.46 $413.97 Accounts Receivable Days 54.0 50.0
Productive Capacity 51% 43% Non-Productive Capacity 30% 19%
Available Capacity 19% 37% Productive Capacity 53% 53%
Non-Productive Capacity 32% 17% Available Capacity 15% 29%
Revenue $332,569 $332,569 Material Costs $111,431 $108,446
Conversion Costs $116,753 $116,753 Total Costs $228,184 $225,199
Value Stream Profit $104,385 $107,370 Return on Sales 31% 32% Inventory Value $209,336 $113,026
Cash Flow $123,117 $288,926
$427,938 $139,545 $115,557 $255,102 $172,836
40% $62,086 $156,921
$332,569 $92,179 $116,755 $208,934 $123,635
37% $71,131 $184,263
Planning for a Transformation
Pilot: Develop Lean Financial Coaches Location: where Lean Thinking is established • One or two value streams or one location • 3-6 month time frame • Cross functional team: Initial set of lean financial coaches
Rapid Implementation by Kaizen • Develop the tools – Box Scores • Team practices using tools in business situations to develop coaching
skills • Develop Starter Kata plan
Starter Kata • Functional deployment with practice routines •Meet regularly to: • evaluate/reflect on deployment: obstacles, problems, issues •adjust if necessary
•Evaluate development of next set of coaches
Lean Financial Coach Role
Presenc e
• Competing assumptions & thinkingReveal
Daily Cell & Weekly Value Stream Practice Routines
Financial impact of not reaching
goals
Testing operational solutions & measuring
Decision Making
or Analysis
A-3
Economic Value
Customer Value
Verifiable and valid
www.maskell.com [email protected] LinkedIn
Slide Number 2
Lean Strategy: Financial Benefits are not direct nor immediate
Management Accounting for the Lean Organization
The Box Score
Integrated Lean Performance Measurements
Value Stream Cost Definitions
Lean Financial Management
Box Score: Standard Work for all financial and operational analysis
Dynamic Relationships in Changing Contexts
Box Score shows the Impact of Kaizen
Scenario 1:Transfer Excess Capacity
Scenario 2: Increase Sales
Planning for a Transformation
Lean Financial Coach Role
Improvement Event Practice Routines
Wrap Up
