Practical Lean Accounting - GBV

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Practical Lean Accounting A Proven System for Measuring and Managing the Lean Enterprise Second Edition Brian Maskell Bruce Baggaley Larry Grasso CRC Press Taylor & Francis Group Boca Raton London New York CRC Press is an imprint of the Taylor 6c Francis Croup, an informa business A PRODUCTIVITY PRESS BOOK

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Transcript of Practical Lean Accounting - GBV

and Managing the Lean Enterprise
Second Edition
CRC Press Taylor & Francis Group
Boca Raton London New York
CRC Press is an imprint of the Taylor 6c Francis Croup, an informa business
A PRODUCTIVITY PRESS BOOK
Contents
Preface to the First Edition xix Preface to the 2011 Edition—The Journey Continues xxiii Acknowledgments xxv Introduction xxvii
1 Why Is Lean Accounting Important? 1 How Standard Costing Can Drive Wrong Behavior 3 We Need to Show the Financial Impact of Lean Improvements 5 We Need a Better Way to Understand Product Costs 6 We Need New Kinds of Lean Performance Measurements 9 We Need to Eliminate Waste from Accounting Processes and Systems.... 10 We Need Better Ways of Making Decisions 11 We Need to Focus Our Business around Customer Value 12 Summary 12
2 Maturity Path to Lean Accounting 15 The Maturity Path 16
Maturity Path—Stage 1 17 Maturity Path—Stage 2 20
Is Lean Accounting a Series of Methods and Tools? 22 Maturity Path—Stage 3 23
Getting Started with Lean Accounting 25 Summary 26
3 Cell Performance Measurements 29 What's Wrong with Traditional Measurements? 29 What's Right with Lean Cell Measurements? 30 BMA Inc. Performance Measurement Starter Set 31 Day-by-the-Hour Report 31
VII
viii • Contents
The Primary Reason the Cell Team Neglects the Day-by-the- Hour Report 35 Why by the Hour? 35 Our Cells Only Make a Few Products Each Hour and the Cycle Times Vary Considerably 36 Alternative Measurements 37
First-Time-Through Report 38 How Do I Measure First Time Through? 39 How Is the Data Collected? 40 How Do I Report FTT? .- 40 What Is the Number One Reason for the FTT to Fail? 40 Alternative Measurements to FTT 41
WIP-to-SWIP Report 41 How Is the Report Calculated? 42 How Is the Data Gathered? 42 How Do I Report WIP-to-SWIP? 43 Alternative Measurements to WIP-to-SWIP 44
Operational Equipment Effectiveness 44 How Do I Measure OEE? 45 How Do We Gather the Data? 46 How Do We Report OEE? 47 Is OEE Used for Other Things? 47 Alternative Measurements to OEE 48
Other Support Measurements in the Cell 48 Cross-Training Chart 49 Five S 49 Safety 50 Absenteeism 50 Setup Times : 50
Presenting the Information 52 Making the Cell Performance Measurements Work 53 Nonproduction Cells and Departments 55
How Does This Relate to Accounting and Control? 57 Summary 57
4 Financial Benefits of Lean Manufacturing 61 The Problem 6l Creating the Box Score 63
Operational 63
Contents • ix
Financial Information in the Box Score 67 Using the Box Score in Planning 70 The ECI Current State 70 ECI Future State 72
Managing Capacity ; 77 What We Mean by Resource Capacity 78 Analyzing the Capacity Freed Up -. 79
Making Money from Lean Manufacturing 83 Alternative 1: Eliminate the Resources 83 Alternative 2: Grow the Business 84
Summary 88
5 Eliminating Wasteful Transactions 91 What Must Be in Place? 94 Cell Transactions 95 Labor Tracking 98 Material Costs 100 Inventory Tracking 101 Summary 102
6 Lean Financial Accounting 103 A New Perspective on Internal Accounting Control 103 Eliminating Waste from the Financial Accounting Processes 105
Accounts Payable Process 106 Accounts Receivable Process 108 The General Ledger and Month-End Closing Process 109
Using Lean Tools to Create Change I l l Value Stream Maps and Process Maps 112
Step One: Assign an Improvement Team 113 Step Two: Start with the Customer 113 Step Three: Identify the Tasks within the Process 113 Step Four: Gather the Data 113 Step Five: Analyze the Data 114
Kaizen—Lean Continuous Improvement 116 Step One: Establish the Team 117 Step Two: Develop Performance Measurements 117 Step Three: Develop Future State Process Maps 117 Step Four: Implement the Future State 119 Step Five: Repeat the Process 120
Summary 122
x • Contents
7 Managing by Value Stream 123 What Is a Value Stream? 123 Different Kinds of Value Streams 124 Why Do We Focus on Value Streams? 126 Why Should We Manage the Business through the Value Streams? 127
Focus 127 Accountability 128 Simplicity 129
Continuous Improvement 130 The Maturity Path to Lean Value Stream Organization 130 Problems and Issues 131
People in More than One Value Stream 132 Monuments 132 Small Value Streams 133 Competition between Value Streams 134 What about the People Who Are Not in the Value Stream Teams? 134
How Do We Identify the Value Streams? 135 Staple Yourself to an Order 135 Production Flow Matrix 135 Size of the Value Stream 138 Draw the Current State Value Stream Maps 138 Machines and Monuments 138 Identify the People in the Value Stream 139
Do We Need to Change Our Organization Chart? 140 Develop a Plan 143
' Summary..., 143
8 Value Stream Performance Measurements 145 What Is the Purpose of Value Stream Performance Measurements? 145 Value Stream Continuous Improvement Teams 146 Value Stream Measurements and Process Control 147 How Do Value Stream Measurements Differ from Traditional Metrics? 148
The Starter Set 149 Box Scores 150 Sales per Person 150
How Do I Measure Sales per Person? 150 What Should Be the Target? 151
Alternative Measurements : 151
Contents • xi
On-Time Shipment 152 How Do I Measure On-Time Shipment? 152 Alternative Measurements 153
Dock-to-Dock Time : 153 How Do I Measure Dock-to-Dock Time? 154 How Do I Gather the Data? 154 How Is Dock-to-Dock Reported? 156 Alternative Measurements 156
First Time Through .". 156 How Do I Measure First Time Through? 157 A Word of Warning 157 Alternative Measurement 158
Average Cost per Unit 158 How Do I Measure the Average Cost per Unit? 158 How Valid Is the Average Cost? 160 How Is the Average Cost Used? 160 Alternative Measurements l6l
Accounts Receivable Days Outstanding : 161 How Do I Measure AR Days Outstanding? 162
Supporting Measurements 162 Safety Cross 162 Cross-Training 162 Improvement Project Participation 163
Presenting the Information 163 Making the Value Stream Performance Measurements Work 165 Summary 170
Value Stream Costing 173 What Is Wrong with Traditional Standard Costing? 174 How Does Value Stream Costing Work? 176
For What Is Value Stream Costing Used? 178 Why Is Value Stream Costing Simple? 181 How Can We Implement Value Stream Costing? 181 How Do We Handle Costs outside the Value Stream? 183 How Do We Know the Cost of a Product? 184 Value Stream and Plant Profit and Loss Statements 186 Calculating the Cost of Inventory..... 187 Special Problems Involving Inventory 191 Getting Started with Simpler Methods 192
xii • Contents
Summary 193
10 Using the Box Score 195 Reporting Value Stream Performance 197 Showing the Effects of Lean Improvements 198 Showing the Effects of Strategies and Plans 200 Summary.. 201
11 Calculating Product Costs—Features and Characteristics 203 What Drives Cost in a Lean Value Stream? 205 How to Use Features and Characteristics 206
Step 1: Calculate the Average Product Family Cost for the Value Stream 207
How Average Cost Drives a Lean Approach to Inventory 207 Step 2: Analyze Available Capacity 210 Step 3: Identify the Primary Bottleneck and Pacemaker within the Value Stream 210 Step 4: Identify How Product Features and Characteristics Affect Use of the Bottleneck 213 Step 5: Calculate Conversion Costs Using Product Features and Characteristics' Effects 214 Step 6: Calculate the Material Costs 216 Step 7: Identify Other Significant Product Features Affecting Use of the Bottleneck Resource 216
Uses of Features and Characteristics Costing 216 Summary 217
12 Eliminating More Wasteful Transactions 219 Labor Tracking 221 Material Costs 228 Inventory Tracking 230 The Internal Control System 231 Summary 233
13 Sales, Operational, and Financial Planning (SOFP) 235 Purpose of Lean Sales, Operations, and Financial Planning 236 Lean Financial Planning 237 Lean Sales, Operations, and Financial Planning 238
SOFP Team 240 Value Stream Demand Planning 241
Planning Horizon 242
Contents • xiii
Who Is Responsible for Calculating the Forecast? 242 What If Sales Is Not a Part of the Value Stream? 244 What Happens If Marketing Product Groups Are Different from Value Stream Product Families? , 244 Forecasting Methods '. 245 Is the Forecast Accurate? 246
Value Stream Operations Planning 246 Short-Term and Long-Term Actions 249 Takt Time, Cycle Time, and Level Scheduling 249 Identifying Bottlenecks and Value Stream Cost Analysis 250 Manning Levels ' 251 New Product Introductions 251 Capacity Assumptions and Continuous Improvement 253 Sales Plans 253 Capital Acquisitions 254 Raw Material and Component Planning 255 Troublesome Components 256 Finished Goods Inventory and Backlog 256 SOFP Financial Reports and Budgets 258 Source of the Financial Information 258
SOFP Planning Meeting 26l Optimizing the Sales Plan : 262 Financial Plans and Budgets. 263
Executive SOFP Meeting 266 Who Should Attend the Executive SOFP Meeting? 267 Outcome of the Executive SOFP Meeting...: 268
Variations on a Theme 268 Making It Happen 269 Summary ...271
14 Lean Financial Accounting II 273 Further Advances in Lean Accounting 275
Financial Accounting Processes 275 Accounts Payable 275 Accounts Receivable 276 General Ledger and Month-End Closing 277
Move toward a Cash Basis of Accounting for Expenses 281 How Often Do We Close? 284 Internal Control 284
xiv • Contents
The Role of the Accountant 288 Summary 290
15 The Lean Enterprise 291 What Is a Lean Enterprise? '. 291
Lean Methods 292 Lean Culture 293 Lean Partnerships 295
What Lean Methods Support the Wider Lean Enterprise? 297 Transaction Elimination 297 The Wider Value Streams 298 Target Costing 299
Why Are Lean Enterprises So Hard on Themselves? 300 Summary 300
16 Target Costing 301 How Does Target Costing Work? 302 Where Is Target Costing Used? 303
Introducing New Value Streams 303 Introducing New Products 303 Current Products in Current Value Streams 305
What Are the Steps We Take? 305 Step 1: Who Is the Customer? 306 Step 2: Match Customer Needs to Product Features 306 Step 3: Evaluate Customer Satisfaction 308
After Step 3 308 Target Costing at ECI, Inc.: Steps 1 through 3 309
Step 1: Who Is the Customer? 310 Step 2: Match Customer Needs to Product and Process Features 310 Step 3: Evaluate Customer Satisfaction ; 313
Understanding Customer Value 315 Step 4: Specifying Customers' Needs 315 Step 5: Determining Customer Value 316 Step 6: Evaluating Cost and Value 316
Example of Target Costing at ECI: Steps 4 through 6 317 Step 4: Specifying Customer Needs 317 Step 5: Determining Customer Value 319 Step 6: Evaluating Cost and Value 321
Calculating the Target Costs 322 Step 7: Calculate Overall Target Cost 323
Contents • xv
Step 8: Analyze Existing Cost by Process 323 Step 9: Calculate Target Costs for Major Components 324
Example of Target Costing at ECI: Steps 7 through 9 324 Step 7: Calculate Overall Target Cost 324 Step 8: Analyze Existing Cost by Process 325 Step 9: Target Costs for Major Components 328
Driving to Customer Value 328 Step 10: Develop Value versus Cost Strategy 328 Step 11: Identify Product Improvement Targets 330 Step 12: Identify Process Improvement Targets 330
Example of Target Costing at ECI: Steps 10 through 12 331 Step 10: Develop Value versus Cost Strategy 332 Step 11: Identify Product Improvement Targets 333 Step 12: Identify Process Improvement Targets 333
Summary 336
17 Expanding Value Streams outside Our Four Walls 339 The Lean Value Stream Revisited 339
Value 339 Value Stream 340 Flow and Pull 340 Perfection 341 Empowerment 341
A Vision of the Expanded Value Stream 341 Examining Value and Cost within Our Own Company 345 Example of Effective Value Stream Expansion 348 Summary 352
18 The Lean Accounting Diagnostic 353 The Maturity Path Revisited .353
Overview of the Diagnostic Tool 354 Working with the Diagnostic Tool 358 Summary 359
19 Performance Measurement Linkage Chart 1 361 The Performance Measurement Framework 361
Key Questions about Measurement and Control 362 What to Measure? 362 How Often to Measure? 364 How to Control? 365
xvi • Contents
The Shift in Focus 365 The Linkage Analysis Framework 366
Creating the Performance Measurement Starter Set 367 Lean Principles 367 The Linkage Chart Developed 368 The Resulting Measurement Set 370
Steps for Developing Performance Measures in Your Company 370 Articulating Strategy 370 Linking to Value Stream 372 Production Cell or Process Measures 373 Implementation Considerations 374
Summary 375
20 Transaction Elimination Maturity Path Table 377 How to Use the Maturity Path Table 378
Step 1: Describing the Lean Manufacturing Maturity Path 378 Step 2: Assessing Lean Manufacturing Progress 382 Step 3: What Transactions and Systems Can Be Eliminated? 382 Step 4: Develop an Action Plan 383
Transaction Elimination Process Maps 384 Summary 384
21 Value Stream Cost Analysis 387 What Is Value Stream Cost Analysis? 389 Performing the VSCA Calculations 389 Step 1: Define the Value Stream 391
Collect Basic Value Stream Data 391 Do They Have Data Boxes? 391 Are the Data Boxes Complete? 391
Create an Analytical Framework for Your Calculations 392 Step 2: Analyze Capacity 395
Current State 395 Gathering the Data 395 Posting the Data to Our Analytical Framework 399
Uses of Employee Capacity 399 Uses of Machine Capacity 403
Future State 406 Step 3: Simulate Uses of Capacity 409 Summary 413
Contents • xvii
22 Value Stream Mapping!..... 415 Value Stream Maps and Lean Accounting 416 More Value Stream Steps on the Value Stream Map 417 Data Box Information 417 Summary 421 Reference 421
Index 423