Metrics That Matter AM - Orfalea College of Business · 2017-07-18 · © BMA Inc. 2015. All Rights...
Transcript of Metrics That Matter AM - Orfalea College of Business · 2017-07-18 · © BMA Inc. 2015. All Rights...
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
Metrics That Matter One Day Lean
Management Workshop
Brian H Maskell President, BMA Inc.
AME SAN DIEGO METRICS THAT MATTER - AM
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Accounting for Flow
Value Stream Accounting
Value Stream Accounting Exercise
Managing for Value Growth
Simplifying the Accounting System
Agenda: This Morning
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Developing Performance Drivers
Linkage Chart Exercise
Using Performance Drivers
Making It Work
Wrap Up
Agenda: This Afternoon
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Accounting for Flow: Lean Accounting “Elevator Speech”
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Basic Lean Accounting
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Value Stream Accounting
Lean Reporting and Control
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Value Stream Accounting
§ Traditional cost accounting is harmful to lean enterprises.
• Motivates non-lean behavior and is complex & wasteful.
§ Value stream costing supports lean enterprises.
• Motivates lean thinking, is understandable, and simple.
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Standard Costs Conflicts with Lean
Overhead Costs • Assumes a direct relationship to labor costs • Distorts profitability
Poor Decision Making • Assumes the cost of the product is “correct” to understand
profitability of business decisions
Anti-Lean Behavior • Inventory & absorption • Over Production • Complex & confusing systems
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
Plant-wide income statement
Motors Systems Spare Parts
New Product Design
Support Costs
TOTAL DIVISION
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% -4.0% 13.7%
$925,314 $918,807 ($6,507)
$51,147
$152,024 9.9% Division ROS
Corporate Overhead
Division Profit
VALUE STREAMS
Opening Inventory Closing Inventory Inventory Change
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VALUE STREAM
Value Stream Labor
Value Stream Materials
Value Stream Machines
Outside Processing Facilities & Maintenance
All Other VS Costs
Actual cost of labor, machine, materials, support services, and facilities charged directly to the value stream. Little or no allocation.
Value Stream Accounting
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
Caspian Corporation Motors Value Stream - Current State
Monument 37% to Motors VS
2 shifts
Purchasing Sales &
Marketing
Shipping Assembly Anodizing Machining Parts
Fabrication
Customer Service
Customers Suppliers
Weekly
Monthly
22 days
1
3
10
Forecast
Purchase orders (220 / week)
Sales forecasts (monthly)
Quotes
Request for quotes (16/week)
Designs
Sales orders (288/week)
2176 units per month Takt time = 8.3 min
Other VS team members 2 Materials handling 2 Maintenance 2 Production engineering 3 Quality assurance 1 Accounting 4 Manager/Supervisors
Sales orders and drawings
Shipping documents
Forecast
Rush orders
2 shifts Outside process 2 shifts
11 6 0 6
Monument 30% to Motors VS
1 shift 2
3 minutes
22 days
15 days Components
1.5 days 4 days 1.5 days
2.5 days
Quantity: 8,880/month C/T – Operator 120 sec Batch = 30 C/O = 2,400 secs Scrap 2% Rework 0% Downtime 1% Insp 100%, 10 seconds/ea
Quantity: 8,704/month C/T – Operator 150 sec Batch = 10 C/O = 1,800 secs Scrap 4% Rework 2% Downtime 5% Insp 100%, 10 seconds/ea
Quantity: 1.525 Lead time: 24 hours
Quantity: 2176/month C/T – Operator 610 sec Batch = 2 C/O = 300 secs Scrap 0% Rework 9% Downtime 9% Insp 100%, 360 seconds/ea
Quantity: 2176/Month C/T – Operator 90 sec Batch = 1 C/O = 0 secs Scrap 0% Rework 9% Downtime 0%
1.5 days
5 minutes
4 days 1.5 days
10 minutes
1 day 32.5 days
3 minutes
2.5 days
21 minutes
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© BMA Inc. 2015 All Rights Reserved 100 Springdale Road #110, Cherry Hill NJ 08003 USA +1 609 239 1080 [email protected] www.maskell.com
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© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
Caspian Corporation Motors Value Stream - Current State
Monument 37% to Motors VS
2 shifts
Purchasing Sales &
Marketing
Shipping Assembly Anodizing Machining Parts
Fabrication
Customer Service
Customers Suppliers
Weekly
Monthly
22 days
1
3
10
Forecast
Purchase orders (220 / week)
Sales forecasts (monthly)
Quotes
Request for quotes (16/week)
Designs
Sales orders (288/week)
2176 units per month Takt time = 8.3 min
Other VS team members 2 Materials handling 2 Maintenance 2 Production engineering 3 Quality assurance 1 Accounting 4 Manager/Supervisors
Sales orders and drawings
Shipping documents
Forecast
Rush orders
2 shifts Outside process 2 shifts
11 6 0 6
Monument 30% to Motors VS
1 shift 2
3 minutes
22 days
15 days Components
1.5 days 4 days 1.5 days
2.5 days
Quantity: 8,880/month C/T – Operator 120 sec Batch = 30 C/O = 2,400 secs Scrap 2% Rework 0% Downtime 1% Insp 100%, 10 seconds/ea
Quantity: 8,704/month C/T – Operator 150 sec Batch = 10 C/O = 1,800 secs Scrap 4% Rework 2% Downtime 5% Insp 100%, 10 seconds/ea
Quantity: 1.525 Lead time: 24 hours
Quantity: 2176/month C/T – Operator 610 sec Batch = 2 C/O = 300 secs Scrap 0% Rework 9% Downtime 9% Insp 100%, 360 seconds/ea
Quantity: 2176/Month C/T – Operator 90 sec Batch = 1 C/O = 0 secs Scrap 0% Rework 9% Downtime 0%
1.5 days
5 minutes
4 days 1.5 days
10 minutes
1 day 32.5 days
3 minutes
2.5 days
21 minutes
Actual Cost of materials
purchased
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
Caspian Corporation Motors Value Stream - Current State
Monument 37% to Motors VS
2 shifts
Purchasing Sales &
Marketing
Shipping Assembly Anodizing Machining Parts
Fabrication
Customer Service
Customers Suppliers
Weekly
Monthly
22 days
1
3
10
Forecast
Purchase orders (220 / week)
Sales forecasts (monthly)
Quotes
Request for quotes (16/week)
Designs
Sales orders (288/week)
2176 units per month Takt time = 8.3 min
Other VS team members 2 Materials handling 2 Maintenance 2 Production engineering 3 Quality assurance 1 Accounting 4 Manager/Supervisors
Sales orders and drawings
Shipping documents
Forecast
Rush orders
2 shifts Outside process 2 shifts
11 6 0 6
Monument 30% to Motors VS
1 shift 2
3 minutes
22 days
15 days Components
1.5 days 4 days 1.5 days
2.5 days
Quantity: 8,880/month C/T – Operator 120 sec Batch = 30 C/O = 2,400 secs Scrap 2% Rework 0% Downtime 1% Insp 100%, 10 seconds/ea
Quantity: 8,704/month C/T – Operator 150 sec Batch = 10 C/O = 1,800 secs Scrap 4% Rework 2% Downtime 5% Insp 100%, 10 seconds/ea
Quantity: 1.525 Lead time: 24 hours
Quantity: 2176/month C/T – Operator 610 sec Batch = 2 C/O = 300 secs Scrap 0% Rework 9% Downtime 9% Insp 100%, 360 seconds/ea
Quantity: 2176/Month C/T – Operator 90 sec Batch = 1 C/O = 0 secs Scrap 0% Rework 9% Downtime 0%
1.5 days
5 minutes
4 days 1.5 days
10 minutes
1 day 32.5 days
3 minutes
2.5 days
21 minutes
Actual Cost of People
assigned to value stream
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© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
Caspian Corporation Motors Value Stream - Current State
Monument 37% to Motors VS
2 shifts
Purchasing Sales &
Marketing
Shipping Assembly Anodizing Machining Parts
Fabrication
Customer Service
Customers Suppliers
Weekly
Monthly
22 days
1
3
10
Forecast
Purchase orders (220 / week)
Sales forecasts (monthly)
Quotes
Request for quotes (16/week)
Designs
Sales orders (288/week)
2176 units per month Takt time = 8.3 min
Other VS team members 2 Materials handling 2 Maintenance 2 Production engineering 3 Quality assurance 1 Accounting 4 Manager/Supervisors
Sales orders and drawings
Shipping documents
Forecast
Rush orders
2 shifts Outside process 2 shifts
11 6 0 6
Monument 30% to Motors VS
1 shift 2
3 minutes
22 days
15 days Components
1.5 days 4 days 1.5 days
2.5 days
Quantity: 8,880/month C/T – Operator 120 sec Batch = 30 C/O = 2,400 secs Scrap 2% Rework 0% Downtime 1% Insp 100%, 10 seconds/ea
Quantity: 8,704/month C/T – Operator 150 sec Batch = 10 C/O = 1,800 secs Scrap 4% Rework 2% Downtime 5% Insp 100%, 10 seconds/ea
Quantity: 1.525 Lead time: 24 hours
Quantity: 2176/month C/T – Operator 610 sec Batch = 2 C/O = 300 secs Scrap 0% Rework 9% Downtime 9% Insp 100%, 360 seconds/ea
Quantity: 2176/Month C/T – Operator 90 sec Batch = 1 C/O = 0 secs Scrap 0% Rework 9% Downtime 0%
1.5 days
5 minutes
4 days 1.5 days
10 minutes
1 day 32.5 days
3 minutes
2.5 days
21 minutes
Depreciation, repairs &
maintenance
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
Caspian Corporation Motors Value Stream - Current State
Monument 37% to Motors VS
2 shifts
Purchasing Sales &
Marketing
Shipping Assembly Anodizing Machining Parts
Fabrication
Customer Service
Customers Suppliers
Weekly
Monthly
22 days
1
3
10
Forecast
Purchase orders (220 / week)
Sales forecasts (monthly)
Quotes
Request for quotes (16/week)
Designs
Sales orders (288/week)
2176 units per month Takt time = 8.3 min
Other VS team members 2 Materials handling 2 Maintenance 2 Production engineering 3 Quality assurance 1 Accounting 4 Manager/Supervisors
Sales orders and drawings
Shipping documents
Forecast
Rush orders
2 shifts Outside process 2 shifts
11 6 0 6
Monument 30% to Motors VS
1 shift 2
3 minutes
22 days
15 days Components
1.5 days 4 days 1.5 days
2.5 days
Quantity: 8,880/month C/T – Operator 120 sec Batch = 30 C/O = 2,400 secs Scrap 2% Rework 0% Downtime 1% Insp 100%, 10 seconds/ea
Quantity: 8,704/month C/T – Operator 150 sec Batch = 10 C/O = 1,800 secs Scrap 4% Rework 2% Downtime 5% Insp 100%, 10 seconds/ea
Quantity: 1.525 Lead time: 24 hours
Quantity: 2176/month C/T – Operator 610 sec Batch = 2 C/O = 300 secs Scrap 0% Rework 9% Downtime 9% Insp 100%, 360 seconds/ea
Quantity: 2176/Month C/T – Operator 90 sec Batch = 1 C/O = 0 secs Scrap 0% Rework 9% Downtime 0%
1.5 days
5 minutes
4 days 1.5 days
10 minutes
1 day 32.5 days
3 minutes
2.5 days
21 minutes
Based on Square
Footage of Value stream
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© BMA Inc. 2015 All Rights Reserved 100 Springdale Road #110, Cherry Hill NJ 08003 USA +1 609 239 1080 [email protected] www.maskell.com
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© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
Caspian Corporation Motors Value Stream - Current State
Monument 37% to Motors VS
2 shifts
Purchasing Sales &
Marketing
Shipping Assembly Anodizing Machining Parts
Fabrication
Customer Service
Customers Suppliers
Weekly
Monthly
22 days
1
3
10
Forecast
Purchase orders (220 / week)
Sales forecasts (monthly)
Quotes
Request for quotes (16/week)
Designs
Sales orders (288/week)
2176 units per month Takt time = 8.3 min
Other VS team members 2 Materials handling 2 Maintenance 2 Production engineering 3 Quality assurance 1 Accounting 4 Manager/Supervisors
Sales orders and drawings
Shipping documents
Forecast
Rush orders
2 shifts Outside process 2 shifts
11 6 0 6
Monument 30% to Motors VS
1 shift 2
3 minutes
22 days
15 days Components
1.5 days 4 days 1.5 days
2.5 days
Quantity: 8,880/month C/T – Operator 120 sec Batch = 30 C/O = 2,400 secs Scrap 2% Rework 0% Downtime 1% Insp 100%, 10 seconds/ea
Quantity: 8,704/month C/T – Operator 150 sec Batch = 10 C/O = 1,800 secs Scrap 4% Rework 2% Downtime 5% Insp 100%, 10 seconds/ea
Quantity: 1.525 Lead time: 24 hours
Quantity: 2176/month C/T – Operator 610 sec Batch = 2 C/O = 300 secs Scrap 0% Rework 9% Downtime 9% Insp 100%, 360 seconds/ea
Quantity: 2176/Month C/T – Operator 90 sec Batch = 1 C/O = 0 secs Scrap 0% Rework 9% Downtime 0%
1.5 days
5 minutes
4 days 1.5 days
10 minutes
1 day 32.5 days
3 minutes
2.5 days
21 minutes
Outside Processing
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
Caspian Corporation Motors Value Stream - Current State
Monument 37% to Motors VS
2 shifts
Purchasing Sales &
Marketing
Shipping Assembly Anodizing Machining Parts
Fabrication
Customer Service
Customers Suppliers
Weekly
Monthly
22 days
1
3
10
Forecast
Purchase orders (220 / week)
Sales forecasts (monthly)
Quotes
Request for quotes (16/week)
Designs
Sales orders (288/week)
2176 units per month Takt time = 8.3 min
Other VS team members 2 Materials handling 2 Maintenance 2 Production engineering 3 Quality assurance 1 Accounting 4 Manager/Supervisors
Sales orders and drawings
Shipping documents
Forecast
Rush orders
2 shifts Outside process 2 shifts
11 6 0 6
Monument 30% to Motors VS
1 shift 2
3 minutes
22 days
15 days Components
1.5 days 4 days 1.5 days
2.5 days
Quantity: 8,880/month C/T – Operator 120 sec Batch = 30 C/O = 2,400 secs Scrap 2% Rework 0% Downtime 1% Insp 100%, 10 seconds/ea
Quantity: 8,704/month C/T – Operator 150 sec Batch = 10 C/O = 1,800 secs Scrap 4% Rework 2% Downtime 5% Insp 100%, 10 seconds/ea
Quantity: 1.525 Lead time: 24 hours
Quantity: 2176/month C/T – Operator 610 sec Batch = 2 C/O = 300 secs Scrap 0% Rework 9% Downtime 9% Insp 100%, 360 seconds/ea
Quantity: 2176/Month C/T – Operator 90 sec Batch = 1 C/O = 0 secs Scrap 0% Rework 9% Downtime 0%
1.5 days
5 minutes
4 days 1.5 days
10 minutes
1 day 32.5 days
3 minutes
2.5 days
21 minutes
Simple Allocation of monument costs to value stream
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Company Value Stream Profit and Loss Statement
Motors Systems Spare Parts
New Product Design
Support Costs
TOTAL DIVISION
Sales $326,240 $748,894 $453,215 $1,528,349Additional Revenue $0 $0 $12,422 $12,422
Material Costs $111,431 $232,774 $149,561 $87,909 $12,764 $594,439Conversion Costs $57,628 $70,406 $81,579 $203,769 $37,645 $451,027
Outside Process Costs $32,433 $22,991 $22,661 $7,531 $85,616Other 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) $209,678ROS 31.8% 47.1% 38.8% -23.7% -3.8% 13.7%
$925,314$918,807($6,507)
$51,147
$152,0249.9%Division ROS
Corporate Overhead
Division Profit
VALUE STREAMS
Opening InventoryClosing InventoryInventory Change
1. Actual costs for revenue generating
Value Streams
2. Operating profit of the value streams
5. Financial adjustments for financial reporting
4. All costs not controlled by
Value Stream teams
3. Non revenue generating
NPD Value Stream
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Value Stream Income Statements are Created Every Week for the Value Stream Managers
• Use to control the Value Stream spending
• Use to understand the financial outcomes of the value stream operation
• Use to identify trends in revenues and spending
• Use to reduce the average product costs
Better Financial Control because we do this 52 times a year, and because the people responsible have information that is timely and well understood.
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Sources of actual value stream costs
Cost Category Basis for Charging Source of Data
Materials Voucher on receipt of Materials Purchase journal
Direct Labor When paid Payroll system
Support Labor When paid Payroll system
Outside Processing Supplier PO/invoice Purchases journal
Machines Depreciation expense General Journal
Facilities Square feet occupied Standard Journal Entry
Other Costs Voucher on receipt Credit card payment
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Monument costs
• Support Function Monuments – Make the costs direct with very little
allocation – Assign full people – names & faces – not
“equivalent heads”. – If in the short term you must allocate
people, include them in the value stream cost only if you plan to include a real name & face in the future.
• Process Monuments – If the value stream shares a monument with
another value stream – allocate it. – Use simple allocation. Do a study; don’t
track it on-going. – Later we will “right-size” the equipment
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Calculating the Hurdle Rate
Required ROS 15.0%Corporate Overhead 3.3%
Support Costs 4.0%New Product Design 23.7%
Value Stream Hurdle Rate 46.0%
HURDLE RATE CALCULATIONTHE VALUE STREAMS MUST MAKE A MINIMUM OF 46%
Motors Systems Spare Parts
New Product Design
Support Costs
TOTAL DIVISION
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% -4.0% 13.7%
$925,314 $918,807 ($6,507)
$51,147
$152,024 9.9% Division ROS
Corporate Overhead
Division Profit
VALUE STREAMS
Opening Inventory Closing Inventory Inventory Change
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Real Example “Plain English” Financial Statements
Clear, Simple Understandable Actionable
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Another Example of a Value Stream Income Statement
Orchestral
Revenue
Operating Expenses
Mfg V
alue S
tream
s
OrchestralWeek-01
(04/20/14-04/26/14)
Week-02 (04/27/14-05/03/14)
Week-03 (05/04/14-05/10/14)
Week-04 (05/11/14-05/17/14)
Week-05 (05/18/14-05/24/14)
Week-06 (05/25/14-05/31/14)
Week-07 (06/01/14-06/07/14)
Week-08 (06/08/14-06/14/14)
Week-09 (06/15/14-06/21/14)
Week-10 (06/22/14-06/28/14)
Week-11 (06/29/14-07/05/14)
Week-12 (07/06/14-07/12/14)
Week-13 (07/13/14-07/19/14)
Rolling 13 Week
AverageRevenue
Branded 128,477 147,614 194,749 154,627 179,483 123,957 136,520 162,473 212,616 186,546 96,429 210,281 131,857 158,895 OEM/PL 87,923 29,370 17,599 55,693 60,452 65,159 23,102 10,820 54,170 70,658 50,776 42,159 28,171 45,850 Gross Sales 216,400 176,984 212,348 210,320 239,935 189,116 159,622 173,294 266,787 257,204 147,205 252,440 160,028 204,745
Adjustments - Invoice Discounts (1,755) (640) (632) (588) (650) (384) (923) (1,609) (2,272) (615) (785) (1,210) (1,757) (1,063) Adjustments - Price Adjustments (185) (1,465) - - (738) - - - - (791) - (2,739) (660) (506) Adjustments - Endorsee Discounts (1,356) (1,497) (1,117) (647) (1,242) (1,961) (883) (2,163) (655) (2,733) (1,447) (683) (1,300) (1,360) Adjustments - Rebates (1,092) (1,254) (1,655) (1,314) (1,525) (1,054) (1,160) (1,381) (1,807) (1,586) (820) (1,787) (1,121) (1,351) Total Adjustments (4,388) (4,857) (3,405) (2,549) (4,156) (3,399) (2,967) (5,153) (4,734) (5,725) (3,051) (6,420) (4,838) (4,280)
Net Revenue 212,012$ 172,127$ 208,943$ 207,771$ 235,779$ 185,717$ 156,655$ 168,140$ 262,052$ 251,479$ 144,154$ 246,021$ 155,190$ 200,465$
Operating ExpensesMaterial 75,341 27,836 55,866 23,666 10,016 17,552 31,559 33,791 37,794 30,022 17,034 31,856 13,722 31,235 Freight and Landing Costs 414 1,792 942 327 429 1,471 194 2,304 510 137 1,755 2,315 1,512 1,085 Printing - 9,364 - - - 7,949 - - - - 12,364 - - 2,283 Outside services 2,691 1,313 2,008 1,870 786 268 1,954 933 1,426 1,957 1,204 2,800 2,416 1,664 Labor-Reg 28,032 35,873 34,847 39,032 36,192 75,196 (8,550) 39,182 36,724 38,702 35,017 29,154 33,248 34,819 Labor OT 1,703 2,214 1,936 2,140 2,334 3,138 (642) 1,446 1,517 1,429 651 701 1,468 1,541 Hol/Sick/PTO 8,759 2,530 3,631 935 3,491 5,456 6,945 2,501 3,137 3,422 4,456 11,592 2,936 4,599 Supplies 456 342 977 982 254 645 719 697 326 498 886 1,205 991 691 Facilities 21,768 22,967 22,967 22,967 22,967 20,486 20,486 20,486 20,486 20,486 22,520 22,520 22,520 21,817 Repairs and Maintence 1,244 5,622 - - 612 - - 889 1,025 2,558 - - 886 987 Direct Promotionals 2,298 2,756 3,078 1,988 2,243 2,945 3,117 990 1,255 3,211 4,566 2,641 1,005 2,469
Subtotal Operating Expenses 142,706$ 112,611$ 126,253$ 93,907$ 79,323$ 135,106$ 55,782$ 103,218$ 104,200$ 102,422$ 100,453$ 104,783$ 80,703$ 103,190$
Operating Margin w/Material 69,306$ 59,517$ 82,690$ 113,863$ 156,456$ 50,611$ 100,873$ 64,922$ 157,852$ 149,058$ 43,701$ 141,238$ 74,486$ 97,275$ 32.7% 34.6% 39.6% 54.8% 66.4% 27.3% 64.4% 38.6% 60.2% 59.3% 30.3% 57.4% 48.0% 48.5%
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Lean Thinking: Make it simple by eliminating the causes of complexity
What must be in place for value stream costing to be effective?
• Reporting should be by value stream - not by department
• Ideally everybody assigned to a single value stream with little or no overlap
• Few (or no) shared services departments. Try to eliminate monuments
• Production processes reasonably under control and low variability.
• Thorough tracking of “out-of-control” situations and of exceptions like scrap, rework, etc.
• Inventory must be reasonably under control, relatively low, and consistent
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Value Stream Accounting
§ All costs are considered direct and are posted to the value stream profit center on the General Ledger. Very few cost/profit centers
§ All value stream costs are included Productive, Non-productive, available capacity Direct, support, administrative
§ No overhead costs are allocated; direct costs only. If they are in the value stream they are direct; if not they are excluded.
§ Average Cost used as a primary value stream performance measurement.
Lean Thinking: Direct Costs. No Allocations. No Overhead Costs
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Value Stream Accounting
• Almost all costs are assigned directly to the value streams. The value stream manager has P&L responsibility for his/her value stream.
• Costs not associated with the value streams are small and assigned to a business support cost center. They are budgeted and controlled.
• Plant or division P&L consolidates the value streams and the business support costs.
Lean Thinking: The Value Stream Manager Has Full Control and Responsibility.
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What Are The Advantages of Value Stream Accounting?
Simple and a Lot Less Work
Everybody Can Understand the Reports and Use Them
Better Decisions Lead to Higher Revenues and Lower Costs
Creates Teamwork, Ownership, and Accountability in the Value Stream
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Managing for Value Growth
Lean Decision Making
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The Box Score Summarizes the Performance of the Value Stream
Financial Results
Capacity Usage
• The Box Score shows a Three Dimensional view of the value stream
• Provides an understanding of the operational, financial, and capacity impact of actions and decisions
• Leads to better understanding and better decisions
Operational Measurements
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What is a Box Score?
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What is a Box Score?
Shows the Weekly Operational Performance Measurements. These are also shown on the Value Stream Weekly Improvement Board
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What is a Box Score?
Shows the Weekly Financial Results for the Value Stream. Are our costs under control? Are our costs reducing?
Are our revenues & profits what they should be? This is also shown on the Value Stream Income Statement.
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What is a Box Score?
Are we making good use of our resources? How much of our time is spent “productively”?
How much is spent “non-productively”? How much available capacity do we have in the value stream
Value
Stream
Ca
pacity
Produc3ve Time %
Non-‐Produc3ve Time %
Available Time %
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© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
What is a Box Score?
We must measure the right things. A few key measurements, linked to
strategy and exposing waste.
Timely financial information that is readily understood by everyone. Control costs and reduce costs.
Increase revenue & profits.
Increase productive time. Reduce non-productive time.
Use available capacity to serve the customers and grow the business.
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What is a Box Score?
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How to Use the Box Score
• In this training, we will show several ways that the Box Score is used for planning, reporting, decision-making, for kaizens, continuous improvement projects, and longer term projects.
The Box Score is standard work for showing the performance of value streams.
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
We are going to look at several different ways the Box Score is used.
BOX SCORE WHEN YOU ARE
VALUE STREAM MAPPING
BOX SCORE FOR WEEKLY PERFORMANCE
REPORTING
BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
BOX SCORE FOR DECISION-MAKING
BOX SCORE FOR MAJOR LONG TERM PROJECTS
BOX SCORE FOR MONTHLY PLANNING
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21
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BOX SCORE FOR WEEKLY PERFORMANCE REPORTING
The weekly Box Scores shows the performance of the value stream over time. It shows the impact of
changes and improvements.
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BOX SCORE FOR WEEKLY PERFORMANCE REPORTING
• The Box Score is used to provide value stream performance information to others in the company.
• The Box Score is also used for the weekly “Box Score Meeting”
• Box Scores are like A3’s. If there is something important to say, you need to put it on one sheet of paper.
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BOX SCORE FOR WEEKLY PERFORMANCE REPORTING
All Value Streams have a weekly Box Score to report the value stream performance.
If appropriate, these Box Scores can also be
rolled up to Service Lines.
The Box Score is posted on the value stream improvement board and distributed to other
interested parties.
The analysis charts are optional, but often provide good insight & understanding.
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
We are going to look at several different ways the Box Score is used.
BOX SCORE WHEN YOU ARE
VALUE STREAM MAPPING
BOX SCORE FOR WEEKLY PERFORMANCE
REPORTING
BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
BOX SCORE FOR DECISION-MAKING
BOX SCORE FOR MAJOR LONG TERM PROJECTS
BOX SCORE FOR MONTHLY PLANNING
AME SAN DIEGO METRICS THAT MATTER - AM
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BOX SCORE WHEN YOU ARE VALUE STREAM MAPPING
Current State Value Stream Map
Future State Value Stream Map
• Current State map shows the value stream as it is now.
• Future State map shows what the value will look like after 6 months of improvement kaizens.
• How do we know the impact of these improvements?
• How do we know the improvements we have chosen are the best ones?
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BOX SCORE WHEN YOU ARE VALUE STREAM MAPPING
The Box Score Shows the Current State Performance
of the Value Stream
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BOX SCORE WHEN YOU ARE VALUE STREAM MAPPING
The Box Score Shows the Changes from the
Planned Kaizens & CI Work, and the Future State
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BOX SCORE WHEN YOU ARE VALUE STREAM MAPPING
Example: Show the Impact of
In-Sourcing Some Currently Outsourced Products.
Some Possible Options
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© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
BOX SCORE WHEN YOU ARE VALUE STREAM MAPPING
Example: Show the Impact of
In-Sourcing Some Currently Outsourced Products.
Some Possible Options
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BOX SCORE WHEN YOU ARE VALUE STREAM MAPPING
All Current and Future State Mapping must include a Box Score to show the impact of the changes.
Often the kaizens and CI projects are changed
because they do not give a big enough benefit on the Box Score.
The mapping team must work out what must be done to gain maximum benefit from the changes; benefit to
the customer and benefit to the company.
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© BMA Inc. 2015 All Rights Reserved 100 Springdale Road #110, Cherry Hill NJ 08003 USA +1 609 239 1080 [email protected] www.maskell.com
26
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
We are going to look at several different ways the Box Score is used.
BOX SCORE WHEN YOU ARE
VALUE STREAM MAPPING
BOX SCORE FOR WEEKLY PERFORMANCE
REPORTING
BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
BOX SCORE FOR DECISION-MAKING
BOX SCORE FOR MAJOR LONG TERM PROJECTS
BOX SCORE FOR MONTHLY PLANNING
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
BOX SCORE FOR DECISION-MAKING
• Box Scores are used for all significant, routine decision-making.
• It is important, when making decisions, to take accounting of the broad view of value stream performance that is included in the Box Score.
• Never look at a product cost on it’s own. • We will look at three examples:
– Taking new business – Introduce a new product or service – Capital purchases
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27
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
BOX SCORE FOR DECISION-MAKING
Example: Taking on New Business.
• Your value stream currently earns an average price of $22.53 per item. The average cost is $17.92 per unit, giving you an average profit of $4.61 per unit.
• A large company in your industry has approached you to distribute your products in a large new market and wants to pay no more than $15 per unit. Negative margin?
• They forecast sales of around 14,000 per month. About a 20% increase in demand
• Should you take on this business?
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BOX SCORE FOR DECISION-MAKING
We make the decision by looking at the impact on the Value Stream as a whole;
not looking at the individual item.
By working some overtime,
we have enough
capacity. No more people
needed.
Extra 14,000 units
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BOX SCORE FOR DECISION-MAKING
Let’s do some “what-ifs”. What if the price was $12 per unit
instead of $15, and Sales Double to 28,000 per month.
We need to hire 12 more
operators & 2 planners.
Purchase 6
new machines.
There is no overtime and material costs have reduced
by 5%
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BOX SCORE FOR DECISION-MAKING
The additional volume enables us to purchase some automated machines that will greatly improve our yields.
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BOX SCORE FOR DECISION-MAKING
Introducing a New Product or Service
Short of Capacity
Excellent Financial Results
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BOX SCORE FOR DECISION-MAKING
Example: Introducing a New Product or Service
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BOX SCORE FOR DECISION-MAKING
Example: Portfolio of Potential
Products
Not Enough Capacity A Range of Risks
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BOX SCORE FOR DECISION-MAKING
Example: Portfolio of Potential
Products
Remove one new product Add more people and machines
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BOX SCORE FOR DECISION-MAKING
Example: Purchasing Capital
Equipment • Lean companies do not choose capital equipment and
then “justify it”. They use 3P. – 3P: “Production Preparation Process”
• The emphasis is on deeply understanding the problem we are trying to resolve, rather than the technology that is available.
• Once the problem is clearly understood then the team studies the available solutions. – They are required to analyze 7 solutions – One solution must be highly manual – Another highly automated – One uses similar technology to that currently used
• Results are shown on the Box Score.
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BOX SCORE FOR DECISION-MAKING
Purchasing Capital Equipment
Manual Process
Assisted AL1200A
Semi-‐Auto Seimens 07
Current Technology CT-‐120
High Technology
CT485
Flow & Place Automation Benis 12
Full Automation
CX420
Productivity 6.34 7.05 7.05 7.01 7.94 8.88 7.41Quality 22% 20% 8% 8% 15% 8% 3%Length of Stay -‐ Minutes 92 92 75 63 69 50 42Patient Satisfaction Low Low High Low Med High MedAverage Cost $322.78 $324.00 $342.37 $338.57 $287.26 $276.52 $406.66
Productive Time 55% 52% 58% 64% 55% 56% 48%Non Productive Time 28% 40% 22% 18% 37% 27% 43%Available Capacity 17% 8% 20% 18% 8% 17% 9%
REVENUE $4,874,119 $4,874,119 $4,874,119 $5,394,915 $5,394,915 $6,035,895 $6,035,895People Costs $1,649,358 $1,483,416 $1,483,416 $1,649,358 $1,457,762 $1,457,762 $1,746,050Machine Costs $12,993 $58,933 $125,633 $140,553 $208,645 $487,335 $1,000,255Supplies & Drugs $326,844 $399,055 $487,944 $540,080 $602,466 $599,877 $1,186,344Other Costs $143,551 $120,544 $125,768 $189,466 $182,433 $340,000 $340,000Facilities $812,577 $894,566 $901,344 $900,111 $450,011 $239,655 $322,567TOTAL COST $2,945,323 $2,956,514 $3,124,105 $3,419,568 $2,901,317 $3,124,629 $4,595,216PROFIT $1,928,796 $1,917,605 $1,750,014 $1,975,347 $2,493,598 $2,911,266 $1,440,679RETURN 40% 39% 36% 37% 46% 48% 24%
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BOX SCORE FOR DECISION-MAKING
Purchasing Capital Equipment
• The final step of 3P is to test each solution against a series of about 25 lean characteristics to see if the equipment fits well to a lean organization. – Is it quick change-over – Can it be maintained by the operator – Can it be operated by a single person – Is it right-sized for the value stream. Don’t buy a monument. – Does it contain “mistake proofing” features – poka yoke – Can the operator set up the next job while the current job is
running – Doe s it have technology that can be readily understood without
being an expert – –
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BOX SCORE FOR DECISION-MAKING
When making a decision or proposing a course of action, you are must provide:
1. A3 showing the thought process behind the
issue.
2. Box Score showing the impact of each of the solutions on the A3.
3. Value stream map showing how these
changes will impact the flow through the value stream.
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33
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
We are going to look at several different ways the Box Score is used.
BOX SCORE WHEN YOU ARE
VALUE STREAM MAPPING
BOX SCORE FOR WEEKLY PERFORMANCE
REPORTING
BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
BOX SCORE FOR DECISION-MAKING
BOX SCORE FOR MAJOR LONG TERM PROJECTS
BOX SCORE FOR MONTHLY PLANNING
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
• Kaizen events and Continuous Improvement Projects are controlled and reported using A3’s and Box Scores.
• The A3’s serve as the process for ensuring the PDCA method of improvement, and they also serve as the method for the sponsors and others to review the project and guide the team leader.
• The Box Score is the report that shows the impact of the kaizen or CI event on the critical measurements of the value stream and the business.
• Kaizen events and CI project report-outs are done by reviewing the 9 steps of the A3 and the performance information on the Box Score.
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BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
When you develop the A3, develop the Box Score showing the
expected level of improvement.
Productivity (Hrs Worked/Census) 4.89 3.92Quality (Defects per Patient Day) 3.20 2.92Average Length of Stay (Days) 5.70 4.20Patient Satisfaction (0-‐5) 2.7 3.5Average Cost per Patient Day $192.69 $167.74Employee Engagement 33% 37%
Productive Time % 41.9% 52.4%Non-‐Productive Time % 21.7% 27.1%Available Time % 36.5% 20.6%
Value Stream
Pe
rformance
Measuremen
ts
Value
Stream
Capacity
Value Stream
Financials
MONTHLY NUMBERS CURRENT STATE PRIOR TO KAIZEN EVENT
REVENUE $332,630 $332,630Reimbursable Supplies & Drugs $56,177 $56,177Salaries & Wages $170,610 $136,488Employee Benefits $53,675 $42,940Supplies $39,862 $39,862Drugs $58,543 $58,543Professional Service $0 $0Contracted Services $0 $0Equipment $6,290 $6,290Facilities $17,482 $17,482TOTAL COST $346,462 $301,605PROFIT -‐$13,832 $31,025Return on Revenue -‐4.16% 9.33%
20% Hurdle Rate -‐4% 9%
Value Stream
Financials
KAIZEN OUTCOME
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BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
When you do the Report Out, show the performance changes you
have designed into the process.
KAIZEN OUTCOME
3.672.504.203.5
$167.5537%
52.4%27.1%20.6%
$332,630$56,027$136,488$42,940$39,520$58,543
$0$0
$6,290$17,482$301,263$31,3679.43%9%
REPORT OUT RESULTS
Productivity (Hrs Worked/Census) 4.89 3.92Quality (Defects per Patient Day) 3.20 2.92Average Length of Stay (Days) 5.70 4.20Patient Satisfaction (0-‐5) 2.7 3.5Average Cost per Patient Day $192.69 $167.74Employee Engagement 33% 37%
Productive Time % 41.9% 52.4%Non-‐Productive Time % 21.7% 27.1%Available Time % 36.5% 20.6%
Value Stream
Pe
rformance
Measuremen
ts
Value
Stream
Capacity
Value Stream
Financials
MONTHLY NUMBERS CURRENT STATE PRIOR TO KAIZEN EVENT
REVENUE $332,630 $332,630Reimbursable Supplies & Drugs $56,177 $56,177Salaries & Wages $170,610 $136,488Employee Benefits $53,675 $42,940Supplies $39,862 $39,862Drugs $58,543 $58,543Professional Service $0 $0Contracted Services $0 $0Equipment $6,290 $6,290Facilities $17,482 $17,482TOTAL COST $346,462 $301,605PROFIT -‐$13,832 $31,025Return on Revenue -‐4.16% 9.33%
20% Hurdle Rate -‐4% 9%
Value Stream
Financials
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© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
When you Report Out on the 30 day, 60 day, and 90 day, use the
same Box Score to show the results
KAIZEN OUTCOME
3.672.504.203.5
$167.5537%
52.4%27.1%20.6%
$332,630$56,027$136,488$42,940$39,520$58,543
$0$0
$6,290$17,482$301,263$31,3679.43%9%
REPORT OUT RESULTS
4.003.004.202.9
$171.0837%
52.4%27.1%20.6%
$332,630$52,177$140,488$42,940$41,862$58,543
$0$0
$6,290$17,482$307,605$25,0257.52%8% 0% 0%
SIX MONTHS LATER
ONE MONTH LATER
THREE MONTHS LATER
Productivity (Hrs Worked/Census) 4.89 3.92Quality (Defects per Patient Day) 3.20 2.92Average Length of Stay (Days) 5.70 4.20Patient Satisfaction (0-‐5) 2.7 3.5Average Cost per Patient Day $192.69 $167.74Employee Engagement 33% 37%
Productive Time % 41.9% 52.4%Non-‐Productive Time % 21.7% 27.1%Available Time % 36.5% 20.6%
Value Stream
Pe
rformance
Measuremen
ts
Value
Stream
Capacity
Value Stream
Financials
MONTHLY NUMBERS CURRENT STATE PRIOR TO KAIZEN EVENT
REVENUE $332,630 $332,630Reimbursable Supplies & Drugs $56,177 $56,177Salaries & Wages $170,610 $136,488Employee Benefits $53,675 $42,940Supplies $39,862 $39,862Drugs $58,543 $58,543Professional Service $0 $0Contracted Services $0 $0Equipment $6,290 $6,290Facilities $17,482 $17,482TOTAL COST $346,462 $301,605PROFIT -‐$13,832 $31,025Return on Revenue -‐4.16% 9.33%
20% Hurdle Rate -‐4% 9%
Value Stream
Financials
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
The primary documents used to plan, control, and report-out a kaizen event or continuous improvement
project, are the A3 and the Box Score.
Report-outs may also show the process maps and (if the team wishes) a storyboard showing the
“before and after” of the kaizen work.
The Target Sheet can also be used to address measurements that are not contained on the Box
Score, but they are not part of the report-out.
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36
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
We are going to look at several different ways the Box Score is used.
BOX SCORE WHEN YOU ARE
VALUE STREAM MAPPING
BOX SCORE FOR WEEKLY PERFORMANCE
REPORTING
BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
BOX SCORE FOR DECISION-MAKING
BOX SCORE FOR MAJOR LONG TERM PROJECTS
BOX SCORE FOR MONTHLY PLANNING
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
BOX SCORE FOR MAJOR
LONG TERM PROJECTS
• A “Lifetime Box Score” is used to show the impact of a one or more strategic or development projects. The lifetime is the total lifetime of the project and it’s outcomes.
• Often the Lifetime Box Score shows multiple projects that are completed over a longer time period.
• A Box Score is also used to decide which projects should be completed and when; and to develop a balanced “portfolio” of projects to maximize the company’s long term results.
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BOX SCORE FOR MAJOR
LONG TERM PROJECTS
The time frame for this Box Score is 5 years – the anticipated lifetime of the
projects. The projects balance risk and reward, and balance and maximize the
outcome the company’s resources.
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
We are going to look at several different ways the Box Score is used.
BOX SCORE WHEN YOU ARE
VALUE STREAM MAPPING
BOX SCORE FOR WEEKLY PERFORMANCE
REPORTING
BOX SCORE FOR KAIZEN EVENTS AND CI PROJECTS
BOX SCORE FOR DECISION-MAKING
BOX SCORE FOR MAJOR LONG TERM PROJECTS
BOX SCORE FOR MONTHLY PLANNING
AME SAN DIEGO METRICS THAT MATTER - AM
© BMA Inc. 2015 All Rights Reserved 100 Springdale Road #110, Cherry Hill NJ 08003 USA +1 609 239 1080 [email protected] www.maskell.com
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© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
The Box Score is an Important Document
• The Box Score is standard work for reporting the performance of the value streams.
• Whenever performance information is needed, or decisions to be made, or insight required for kaizen events, value stream mapping, or long-term projects or planning ….. You will need to use a Box Score.
• Box Scores are required, one-page documents for lean control, measurement, reporting, decision-making, planning, and improvement.
© BMA Inc. 2015. All Rights Reserved. +1 609 239 1080 [email protected]
The Box Score is an Important Document
• How would you use the Box Score for reporting and decision-making?
• How would this be more helpful to you than the information you currently have available?
• What would be your concerns?
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Transaction Simplification
Eliminate Transactions and
Provide Better Controls
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Transaction elimination warm-up exercise STEP ONE On your flip charts, list the reasons why you use
these processes in your company: a. Work orders b. Purchase orders & supplier invoices c. Perpetual Inventory tracking.
In most companies there are important reasons why these
documents and their related transaction are used.
Make a list of these reasons.
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Why do we use a work order? 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
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Why do we use purchase orders and supplier invoices?
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
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Why do we need to track perpetual inventory records?
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
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Why do we use a work order? 1. Authorize production 2. Track WIP inventory 3. Report labor used 4. To know the status of an order 5. Give instructions for making a product 6. Give a list of component and materials 7. Report completed production 8. Update raw material & component
inventory levels 9. Update finished goods inventory levels 10. Schedule production & sequence 11. Identify the completed product 12. Calculate product cost 13. Report scrap 14. Report labor efficiency 15. Variance reports
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Why do we use purchase orders and supplier invoices?
1. Authorize the supplier to ship raw materials
& components to us
2. Legal contract between the two companies
3. Authorize receiving of the goods
4. Track material costs and PPV
5. Authorize to pay supplier
6. Give information of where and when to deliver the goods
7. Description of payment terms and discounts
8. The “3-way match” ensure the correct quantity & price
9. Product specification: technical, pack quantities, etc
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Why do we need to track perpetual inventory records? 1. Accurate quantities 2. Inventory valuation 3. Inventory planning & control 4. Report measurements like
RONA and stock turns 5. Production planning & scheduling 6. Identify obsolete and overstocks 7. To fill customer orders and give accurate
available-to-promise dates. 8. Show where the material is stored 9. Allocate materials to production work orders sales orders 10. Pick material for sales or production 11. To report usage of each item for safety
stock & planning
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Transaction elimination warm-up exercise STEP TWO For each item on your list, explain how a truly lean
organization would address that issue without using transactions.
As the processes come under control using lean methods and visual management, the need for transactional control diminishes.
What would this look like in your company’s processes?
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(Customer order or kanban) (Visual control & pull system)
(Value stream costing)
(Short lead times)
(Visual work instructions and standardized work)
(Point-of-use & visual work instructions)
(Don’t need it for make-to-order or supermarket)
(Don’t need it if low inventory and pull from suppliers)
(Don’t need it. FG is low, under control, & pull) (Level scheduling, SOFP, pull system) Visual. Standard containers, kanban) (Don’t need it. Value stream costing)
(Cell performance measurements) (Don’t use it. Dangerous measurement)
(Don’t do it. VS costing does not require them)
Why do we use a work order? 1. Authorize production 2. Track WIP inventory 3. Report labor used 4. To know the status of an order 5. Give instructions for making a product 6. Give a list of component and materials 7. Report completed production 8. Update raw material & component
inventory levels 9. Update finished goods inventory levels 10. Schedule production & sequence 11. Identify the completed product 12. Calculate product cost 13. Report scrap 14. Report labor efficiency 15. Variance reports
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(Supplier kanban from shop floor)
(Blanket PO or contract)
(Kanban)
(Use actual cost from contract) (Use actual cost from contract)
(Kanban)
(Contract PO)
(Voucher on receipt)
(Contract PO)
Why do we use purchase orders and supplier invoices?
1. Authorize the supplier to ship raw materials
& components to us
2. Legal contract between the two companies
3. Authorize receiving of the goods
4. Track material costs and PPV
5. Authorize to pay supplier
6. Give information of where and when to deliver the goods
7. Description of payment terms and discounts
8. The “3-way match” ensure the correct quantity & price
9. Product specification: technical, pack quantities, etc
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(Visual point-of-use or water spider) (Available from receiving transactions
and/or bom’s)
(Pull system & kanban) (Value stream costing)
(SOFP, pull system & kanban) (Value stream costing and
performance measurements)) (SOFP, pull system & kanban)
(Low inventory & pull ensures there are none) (Visual management)
(Visual point-of-use) (Don’t do it. Value stream costing)
Why do we need to track perpetual inventory records?
1. Accurate quantities 2. Inventory valuation 3. Inventory planning & control 4. Report measurements like
RONA and stock turns 5. Production planning & scheduling 6. Identify obsolete and overstocks 7. To fill customer orders and give accurate
available-to-promise dates. 8. Show where the material is stored 9. Allocate materials to production work orders
sales orders 10. Pick material for sales or production 11. To report usage of each item for safety
stock & planning
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We hate transactions!!
Transactions are to the Lean Accounting what Inventory is to Lean Manufacturing.
• Transactions are waste – inspection.
• Transactions are used to bring financial control to an out-of-control process.
• We must maintain control and remove transactions.
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Lean Plants are Well Controlled
Traditional • Events are tracked after the fact • High/fluctuating inventory and
process times • Frequent expediting • High rework and scrap • Poor factory organization • Longer lead times
Lean • Controls are built into the work • Kanban and visual signals—
reduce obsolescence risk • Low and level inventory—
capped by kanban • Day-by-hour charts—
immediate identification and correction of problems
• Standard work—minimizes scrap and rework
• Short lead times—low and level inventory
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Internal accounting controls • Traditional controls rely on review and inspection of
transactions and results against a standard, followed by correction of errors that resulted from the deviations (think: “auditing”)
• Lean controls work to prevent errors in the first place by building control into the structure of the work itself (think: “prevention”)
• Good lean controls reduce the materiality and frequency of errors
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Why are traditional controls weak?
• They happen too long after the fact to be helpful to the process
• They fix the effects of the problem but not the root cause of the problem
• They generally have long feedback loops that are disconnected from root causes
• They are time consuming & costly
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Why are lean controls strong?
• They are designed for prevention • They are designed to perfect the system,
not just to catch & correct errors that occur because the system has defects
• Reduce both the risk and significance of potential errors and misstatements
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How the transaction elimination process works
Use a “maturity path” approach 1. Develop your own transaction elimination matrix 2. Deploy lean controls 3. Eliminate traditional controls with effective lean controls 4. Get internal & external auditors involved early in the
process 5. Monitor the effectiveness of the new controls continuously
Step 1: Let’s look at BMA’s Starter Set
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n Six sigma n Customer is involved
with supplier quality n All suppliers are lean n All suppliers are
certified
n Moving to six sigma n All certified suppliers address
quality issues n Value stream manages the
inventory n Material is delivered directly
to point of use n Certified suppliers are lean
too
n Core suppliers are all certified
n Certified suppliers delivering 99.5% direct to point of use
n Most, if not all, other suppliers are certified
n Frequent deliveries using kanbans
n Measuring suppliers as responsible for quality
n Identified core suppliers n Decreased the number of
suppliers n Developed a supplier
certification program n Have some certified suppliers n No longer inspect receipts
from certified suppliers
n Many suppliers but few are certified
n No measurement system n Frequent supplier delivery
problems n Receiving inspects most
incoming material n Inspection shows erratic
supplier quality
Supplier Quality
n Visual systems n Continuous
improvement n Line balancing based on
customer takt time.
n Paperless n Standard work across value
stream including non production areas
n Lean team monitors performance
n Visual work instructions n Standard work for all cells n Workers are cross trained
n Standard work is used n Started 5S n Lines are balanced n Started eliminating sub-
assemblies
n Using Work instructions and routings that are used for standard costing
Standard Work
n 1 piece flow or equivalent.
n Customer pull from us n Delivery directly to
customer’s cell n Kanban from customers
to suppliers
n 1 piece flow or equivalent n Kanban pulled from customer n Kanban throughout n Level production n Supplier kanban
n Pull system in all areas of organization
n Pull system with all suppliers n No more batch jobs
n Introducing kanban in cells n Kanban with some suppliers n Pull system used in pilot cells n Pull bottlenecks minimized
n MRP n Push System n No or very little kanban pull
Kanban & Pull
n 50 turns n Supplier making milk
runs and monitoring inventory levels
n 30 turns n Kanban pull from customer n All inventory at point of use
n 20 turns n Kanban is used to pull from
all internal areas n Visual systems n No supermarkets n Consistent level of inventory
at point of use.
n 5 turns n Using kanbans n Using supermarkets and
FIFO lanes
n 3 turns n High raw, WIP and finished
goods inventories n While inventories are high it’s
not the right stuff.
Inventory Levels
n 1 day n Supplier is linked to
customer takt time n 100% customer service
level.
n 3 days n Cells continue to shorten
cycle time n All production is linked to
customer takt time.
n 1 week n All production is linked for a
balanced flow n Pull system in place n Producing to customer takt
time.
n 4 weeks n Value streams have been
mapped n Start creating flow in pilot
cells n Bottlenecks are reduced
n 12 weeks n Just beginning to understand
lean concepts n Batches are smaller
Cycle Time Lean enterprise
Lean value stream management Lean production Lean Pilots in place Making a start with lean Category
Step 1: Create your matrix. Figure out “What must be in place ?”
BMA’s “starter
set”
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n Suppliers and customers are included in the value streams.
n All functions are in the value stream.
n Organized and managed by value stream.
n Support functions within value stream.
n Measures by value stream.
n Value streams clearly identified with some allocations and some direct costing.
n Cross functional training n Addressing compensation
structure for alignment. n Matrix management
n Identified the value streams. n Started educating on value
streams. n Formed some value streams. n Moving towards value
stream. Buyer planner in cell.
n Organized by department n Use department continuous
improvement teams and only limited results.
Organization and control
n Information flows from customer to us to supplier.
n Improvements by continuous improvement teams.
n Bill of material and routings are maintained by value stream, continuous improvement team.
n Paperless.
n Cell personnel participate in concurrent engineering and process reviews
n Cell takes appropriate actions to update the requirements
n Bills of material and routings are simple and accurate
n Engineering responsible to keep BOM and routings accurate
n Have multiple level bills of material
n Routings and bill of materials are inaccurate
Engineering data
n Customer tied in to supplier.
n Manage the customer order.
n Visual systems used throughout value stream.
n Pull system triggered by customer orders (kanban)
n Line of sight n Measure boards are by value
stream. n Kanban pull signals
n Measures are vital and visible.
n Measure boards in cells. n Measures posted real time n Display is simple to
understand
n No visual systems. It is basically, paper, paper and more paper.
n MRP work orders, and Ad hoc reports are used.
Visual systems
n Cell measures and value stream measures are integrated with strategic goals
n Continuous process of using measures to refine and improve.
n Value stream measurements n Cell measurements that are
linked to the value stream measures.
n Running to takt day-by-hour report
n Add more lean performance measures that are tracked by cell
n Have a uniform measurement system for all cells.
n Start using lean performance measures, e.g., scrap, day by hour, 1st time through and other lean performance measures.
n Using detailed labor reports for efficiency
n Using machine utilization measures
n Measures are primarily accounting
Performance measures
n Six sigma quality n Moving to six sigma n Quality is part of the process n Mistake proofing processes
(“Poke yoke”)
n Single piece flow n Proactive on quality issues n Operators inspect n Time to stop and fix
n Formed cells n Using pull system n Smaller batches n Cross trained and certified
the operators n There is better quality and
less rework.
n Large batches n Scrap rework issues n Only 75% on time delivery to
next operation
Cell Quality Lean enterprise
Lean value stream management Lean production Lean Pilots in place Making a start with lean Category
BMA’s “starter
set”
Step 1: Create your matrix. Figure out “What must be in place ?”
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n Eliminate accounts payable function because of limited amount of checks to cut.
n Eliminate receiving with suppliers delivering to point of use.
n Initial blanket PO for each Part no. with annual review of pricing.
n Purchasing group engineering group and accounting group are all part of the value stream.
n Pay by backflush
n Backflush inventory and pay by backflush
n Eliminate receiving function. n No PO’s since full pull system n Increase P card usage to
inventory items (low value) n Supplier managed
inventories n Initial blanket PO with no
updates. Suppliers will be triggered electronically due to Kanban.
n Backflushing based on shipments.
n Eliminate some PO’s with pull system.
n Auto pay; no more invoicing and/or 3 way match.
n Eliminate some PO releases by having kanban system.
n No longer receive invoices n Web based purchasing n More ERS as suppliers are
certified n More P cards n Beginning a pull system with
supplier and have fewer monthly releases.
n Expanding Web based purchasing
n Have blanket PO’s with release schedule.
n Implementing ERS to eliminate invoices and 3 way match
n Implementing P Cards for low dollar non-inventory purchases
n Implementing EDI purchasing n Set up long term agreements
Eliminate Requisitions, Purchase Orders, Receiving, & AP
n Complete pull system from customer through supplier.
n Everything is period cost.
n Inventory tracking has been largely removed from computer
n Inventories are minimized n Eliminate cycle counting n No stockroom transactions n Stock is delivered to point of
use
n Full pull system n Scrap-exceptions. n Supplier managed
inventories n Low value multiple use stock
to be expensed when purchased.
n Eliminate receiving stock withdrawal tickets and associated moves by scanning parts in at receiving (supplier will barcode)
n Developing plans for Kanban process
n Backflushing some material n Still running MRP n Still cycle counting for
inventory problems
Eliminate production tracking & Inventory
n Non exempt salary workforce
n Exception based reporting minimized to labor law requirements
n For pay purposes, either salaried workforce or exception based reporting for hours.
n For cost purpose, all labor (direct and indirect) is charged to the cell.
n Some backflushing of labor n Detailed labor records are
starting to go away.
n Since labor is small % of total product costs, there is some backflushing and/or elimination of labor reporting.
n Many units will still use detailed labor reporting
Eliminate Labor reporting
Lean enterprise Lean value stream
management Lean production Lean Pilots in place Making a start with lean Category
Step 1: Create your matrix Identify transactions to eliminate
BMA’s “starter
set”
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Step 2. Deploy lean controls
• Work with lean leadership to understand: – Performance measurement for improving flow, quality,
productivity & schedule attainment – Visual management practices such as pull systems & kanban – The supplier certification process to eliminate individual
purchase orders & introduce kanban with suppliers – Cell measurements to monitor & control daily production
activities
Use this information to look for Opportunities to get rid of transactions.
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Control Map – Current State
Process 1
Supplier Customer
Process 2 Process 3 Shipping
MRP Scheduling
Demand Forecasts Purchase Forecasts
Order
RM WIP FG
Purchase Order
Suppliers Raw Materials & Components Scheduling Process 1,2,3 Work in Process,
Finished Goods Ship to Customer
Purchase Order based on forecast
Perpetual Records
MRP based on forecast, adjust
actual
Work Order Control
Daily orders. Ship direct to
customer
TOTAL INVENTORY MORE THAN 30 DAYS
• Compare Receiving/ PO/invoice
• PO approval • Competitive bid
Track actual Cycle count, adjust
perpetual records
Regularly review parts usage against balances on hand
Track actual labor, machine hours and
material used. Compare with standard costs
Track actual quantities, cycle
count, adjust perpetual records
Compare invoice/ shipper/order
Accounts receivable aging and follow up
PRO
CES
S C
ON
TRO
LM
ETH
OD
Perpetual Record
Track actual Quantities
Track actual Quantities
Track actual Quantities Track actual
Quantities
Track labor and
materials Track labor
and materials
Track labor and
materials
• PO to invalid supplier/ amount
• Invoice wrong amount, parts
• Quantities wrong • Material cost wrong
• Customer changes order
• Wrong parts ordered • Obsolete inventory
• Undetected waste • Underutilized resources
• Resource amounts/costs wrong
• Quantities wrong • Material, labor
cost wrong
• Wrong product • Wrong customer
CO
NTR
OL
RIS
K
Cy WIP
Cy Cy Cy
Budget/Actual Variance Analysis
Adjust Inventory to Actual Spending
Compare Receiving/ PO/Invoice
Competitive Bid PO Approval
Standard Cost
Variance
Standard Cost
Variance
Standard Cost
Variance
Compare invoice / shipper/
order
Accts Rec aging and Follow up
Key: = Control Procedure
Review usage vs on hand
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Control Map—Future State
Suppliers Raw Materials & Components Scheduling Process 1,2,3 Work in Process,
Finished Goods Ship to Customer
Pull System Visual pull System Visual pull system
based on customer orders
Visual Pull System
Daily orders. Ship direct to
customer
Process 1
Supplier Customer
Kanban
Process 2 Process 3 Shipping
SOFP Demand Forecasts Purchase Forecasts
TOTAL INVENTORY LESS THAN 30 DAYS
Certified supplier, Master PO, Pay on
completion, Supplier managed
inventory
Visual inventory control, standard inventory, WIP/
SWIP
Visual inventory control, WIP/SWIP, SOFP
Day by hour board, kaizen newspaper,
FTT quality, standard work GEMBA walks
Make to order, Accounts
receivable aging and follow up
PRO
CES
S C
ON
TRO
LM
ETH
OD
Order
Key: = Control Procedure
• PO to invalid supplier/ amount
• Invoice wrong amount, parts
• Quantities wrong • Material cost wrong
• Undetected waste • Underutilized resources
• Resource amounts/costs wrong
• Quantities wrong • Material, labor
cost wrong
• Wrong product • Wrong customer
CO
NTR
OL
RIS
K • Customer changes
order • Wrong parts ordered • Obsolete inventory
Visual pull system based on
customer orders
Master PO
Pay Supplier
Supplier managed inventory
Certified supplier
Visual control; WIP/ SWIP
Visual control; WIP/ SWIP
Visual inventory control, standard inventory, WIP/
SWIP
DBH board, kaizen newspaper, FTT, standard work, GEMBA walks, standard inventory
Make to order
Accts Rec aging and Follow up
Value Stream measures linked
to goals and improvements
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Transaction Elimination Summary
Lean controls eliminate the need for traditional transaction controls
Lean controls improve the internal accounting control system
Transaction elimination should progress in step with lean operations controls
Eliminate transactions. But maintain control
Lean controls simplify Sarbanes Oxley requirements
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Wrap Up Discussion
Making This Happen in
Your Company
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