Lean Accounting Superfactory® Lean Enterprise Series 1 Outline 1. Introduction 2. What is Lean Accounting? 3. Why Lean Accounting? 4. Traditional vs. Lean Assumptions 5. Implementing Lean Accounting 6. Summary Definitions Applying lean concepts Lean to drive waste out of the Accounting accounting function itself Modifying the accounting Accounting process to properly for Lean deliver information which promotes lean behaviors Comparing Assumptions Traditional Assumptions Lean Assumptions Profit comes from full Profit comes from utilization of maximizing flow on resources pull from customers Direct labor is the Waste = resources most important impeding the flow conversion cost Control thru Control the business continuous attention thru detailed tracking to flow & waste All excess capacity is Excess capacity bad provides flexibility Comparing Measurements Traditional Measurements Lean Measurements Labor efficiency & Cycle time machine utilization Throughput Cost variance vs. standard First time quality Budget adherence Inventory turns Direct labor as % of Delivery to customer sales Value stream focus Lean Measurement Lean performance measurements drive and support lean performance Strategic Issues Strategic Value Stream Process Increase Cash Measures Measures Measures Flow Sales Growth Sales per Person Daily Production Increase Sales & Cash from On-time Delivery WIP to SWIP Market Share Operations First Time Through First Time Through Continuous Inventory Days Culture Average Cost per Operational Improvement On-time Delivery Unit Effectiveness Customer AR Days Satisfaction Outstanding Sales per Employee Lean Accounting Primary method of lean control Performance for meeting customer needs and Measurement driving continuous improvement Simple, direct & accurate way to create financial reports. Very few transactions Value Stream Transaction Costing Elimination Save time, money & confusion by radical elimination of Lean wasteful transactions Accounting Financial Lean Decision Impact of Lean Making Improvement Manage the business by value Understand the financial streams with accountability for impact of lean improvement growth, profitability, and Target & create a money-making continuous improvement Costing strategy Drive the business from the customer value – not the cost Lean Accounting Lean Accounting assumes profit is from maximizing flow on actual demand (pull signals) from customers, waste is any resource that impedes flow. Control is achieved through attention to flow and waste and excess capacity provides flexibility. An early step to lean is to create a value stream map to identify all the specific actions to bring a specific product through the three critical tasks: Problem Solving: concept, design and launch Information Management: order taking, scheduling and delivery Physical Transformation: moving from raw material to finished item The team then prepares a cost analysis for calculating the cost of the value stream, which replaces the standard costing system. With this transition, value stream profitability and contribution margin become the basis for business decisions.