1. February 14, 2013
Lean Accounting
What is it?

2. Lean Accounting Contents Introduction Maturity Path Why Change
February 14, 2013
Contents
Introduction
Maturity Path
Why Change
Sticking Points
Eliminating waste
Wrap-up & Review
Test
Lean Accounting
What is it?

3. Lean Accounting Definition
February 14, 2013
Lean Accounting Definition
Wikipedia – “to support the lean enterprise as a business strategy; seeks to move from traditional accounting methods to a system that measures and motivates excellent business practices in the lean enterprise”

4. Lean Accounting Definition
February 14, 2013
Lean Accounting Definition
Brian Maskell – “lean accounting is the general term used for the changes required to a company’s accounting, control, measurement and management processes to support lean manufacturing and lean thinking”

5. February 14, 2013
Lean Accounting
Accounting principles, practices and reporting designed to support and enhance the lean enterprise Lean accounting supports manufacturing by value streams, customer demand, pull

6. February 14, 2013

7. What is Traditional Accounting?
February 14, 2013
What is Traditional Accounting?
Accounting principles, practices and reporting designed to support and enhance the traditional enterprise Traditional accounting supports mass production; producing for inventory, to sales forecasts, MRP

8. February 14, 2013

9. History Techniques of accounting for lean have been around for a while
February 14, 2013
History
Techniques of accounting for lean have been around for a while
Companies have developed their own methods to value and cost lean initiatives
The first summit on lean accounting was held in 2005
The foremost authorities on lean accounting are Brian Maskell and Bruce Baggaley

10. The Vision for Lean Accounting
February 14, 2013
The Vision for Lean Accounting
Provide accurate, timely & understandable information to motivate lean transformation
Use lean tools to eliminate waste from the accounting processes while maintaining thorough control
Fully comply with GAAP, external reporting regulations and internal reporting requirements
Support the lean culture by motivating investment in people, providing information that is relevant and actionable.
BMA Inc. 2006

11. Lean Accounting Aid decision making in lean environment
February 14, 2013
Aid decision making in lean environment
Accurate & understandable information
Relevant & actionable information
Lean Accounting
Lean the Accounting processes
Comply with GAAP and reporting requirements
Support lean culture

12. First Principle of Lean Thinking
February 14, 2013
First Principle of Lean Thinking
Is:
Customer Value

13. Improve Customer Value
February 14, 2013
Improve Customer Value
Map processes and understand value streams
Extensive training on lean principles
Kaizens
Implement various lean tools – kanban, flow, quick changes
Track operational improvements, visual systems
We put all the stuff needed to run a lean operation in the value stream – production folks, machines, re-organize layouts
Then What?

14. February 14, 2013
Then What?
We wait. Wait for the $ improvements to show up – profit, cash But in the short-term, the opposite happens

15. February 14, 2013
Then What?
We make a huge investment in lean and improving value for our customer. Lean is a new way of thinking. Why account for it using traditional accounting?

16. Lean Accounting is a new way of thinking.
February 14, 2013
Then What?
Lean Accounting.
Lean Accounting is a new way of thinking.

17. February 14, 2013

18. February 14, 2013
How?
Don’t rush out and change all accounting processes. Lean Accounting grows with lean initiatives Logical progression to follow

19. The Maturity Path Three Stages
February 14, 2013
The Maturity Path Three Stages
Lean Manufacturing
Lean Accounting
Pilot lean production cells
Getting started with lean accounting
Lean manufacturing is widespread
Managing by value stream
Lean accounting applied throughout organization and partners
Lean Enterprise
Suggested maturity path from Practical Lean Accounting
Authors Brian Maskell Bruce Baggaley

20. Examples of Lean Accounting in the Maturity Path
February 14, 2013
Examples of Lean Accounting in the Maturity Path

21. Maturity Path Stage 1 Lean Accounting Successful lean cells in place
February 14, 2013
Maturity Path Stage 1
Lean Manufacturing
Lean Accounting
Successful lean cells in place
Training and tools
Standardized work
Quality at source & self-inspection
Lean performance measures in cells
$ impact of lean calculated
Begin to eliminate variance reporting
Eliminate waste from accounting processes

22. Maturity Path Stage 2 Lean Accounting
February 14, 2013
Maturity Path Stage 2
Lean Manufacturing
Lean Accounting
Lean is widespread
Extensive visual systems
CI teams in place
Initial supplier certifications
Mfg managed by VS
Performance measures in VS and plant/corporate level
Costing by VS
VS info drives CI

23. Maturity Path Stage 3 Lean Accounting Target costing used
February 14, 2013
Maturity Path Stage 3
Lean Manufacturing
Lean Accounting
Fully organized by VS
Cooperation with customers, suppliers
CI a way of life
Lean thinking applied throughout organization
Target costing used
VSM extended outside to customers, suppliers
Most purchasing & inventory control eliminated

24. February 14, 2013
Where are You?
Regardless of where you are on the maturity path with Lean you may find a disconnect between what’s happening on the plant floor and what’s showing up in financial statements. Lean Accounting maybe the Answer

25. Traditional measurements:
February 14, 2013
Why Change?
Traditional measurements:
Motivate non-lean behaviour – building large batches, increasing inventory
Come too late, days or weeks after month-end close
Primarily financial
Take a lot of time gathering and analyzing data

26. Traditional accounting:
February 14, 2013
Why Change?
Traditional accounting:
Transactional based
Overhead applied based on labour
Standard costing can spread inefficiencies to all products
Freed up capacity is bad

27. February 14, 2013
None of these items support lean thinking No value is added Waste is abundant

28. February 14, 2013
Lean Accounting replaces measurements and financial results with those that support lean

29. Sticking Points Performance measures Capacity Internal control
February 14, 2013
Sticking Points
Performance measures
Capacity
Internal control
Inventory management
Financial reporting
Organization chart

30. Sticking Point - Performance Measures
February 14, 2013
Sticking Point - Performance Measures
Traditional accounting measures are typically financial
Standard costs
Variances
Absorption
Inventory turns

31. Performance Measurements
February 14, 2013
Performance Measurements
Lean performance measure Include operational as well as financial
Day by the hour
First-time-through
WIP to SWIP
Units per person
On-time shipment
Dock-to-dock days
Sales per person
First four are cell performance measures
day by the hour – hourly production compared to qty required – takt time
first time thru - % produced right first time – standardized work
WIP SWIP – amt of inventory compared to right amt of inventory – make to pull
OEE – machine ability to make to quality, right the first time and avail when reqd – takt time for bottleneck or constraint machine

32. Sticking Point - Capacity
February 14, 2013
Sticking Point - Capacity
Available hours
People
Machines

33. Capacity - traditionally
February 14, 2013
Capacity - traditionally
Idle time is bad. Often used to build inventory. Sometimes inventory that the customer doesn’t want. Fully utilize resources so they’re not a waste. Concern is with current financial presentation.

34. February 14, 2013
Capacity
Lean increases capacity by eliminating waste. The decision is what to do with it. The best time for deciding is when preparing the value stream map.

35. Lean looks at capacity differently.
February 14, 2013
Capacity - lean
Lean looks at capacity differently.
Resources can be redeployed.
Or to spend time on CI.
Or bring back outsourced work.
Move up timeline for new product launch
Or…..
Invest in the future

36. Business Decisions & Capacity
February 14, 2013
Business Decisions & Capacity
Is there capacity? No
Buy it $x
Create it $x
Yes $x

37. Business Decisions & Capacity
February 14, 2013
Business Decisions & Capacity
Why Not Company makes ‘things’

38. Business Decisions & Capacity
February 14, 2013
Business Decisions & Capacity
Cheap Company wants 100 ‘things’ $45.00 each Regular selling price is $87.50
Current free capacity is 180 hours each man and machine

39. Business Decisions & Capacity
February 14, 2013
Business Decisions & Capacity
Is there capacity?
Yes
Should we make it? $?
Time needed to make each thing:
1.5 hours each
100 things
150 hours needed
Have 180 hours free

40. Business Decisions & Capacity
February 14, 2013
Business Decisions & Capacity
Should we make it?

41. Sticking Point - Internal Control
February 14, 2013
Sticking Point - Internal Control
Relies on inspection of transactions to ensure controls are in place. Traditionally, need huge control systems to document, review, approve just about everything that happens. But maybe… Costs of control should be relative to risks being controlled.

42. Prevention and detection become key in a lean environment.
February 14, 2013
Internal Control
Prevention and detection become key in a lean environment.
Risk is lowered.

43. Practical Lean Accounting Authors Brian Maskell Bruce Baggaley
February 14, 2013
Practical Lean Accounting
Authors Brian Maskell Bruce Baggaley

44. Sticking Point - Inventory Control
February 14, 2013
Sticking Point - Inventory Control
Traditional accounting
Keeps detail tracking of inventories through perpetual systems
Work orders, purchase orders, BOM
Required for purchasing & MRP
Standard costing to value cost of sales
Annual inventory count

45. Inventory Control Lean accounting
February 14, 2013
Inventory Control
Lean accounting
With accurate BOM & scrap reporting – backflusing
Visually controlled – kanban, pull
Inventory levels lowered
Product moves quickly through VS
Materials expensed on purchase
Cycle counting to regularly update inventory $ & check on processes
Annual inventory not needed

46. Sticking Point - Financial Reporting
February 14, 2013
Sticking Point - Financial Reporting
Traditional accounting
prepares financial statements monthly
Spends hours/days analyzing variances from standard cost and from budget
Tracks data by department, cost centre
Prepares budgets by department, cost centre
Consumes a lot of resources
Often out of date when distributed

47. Financial Reporting Lean accounting
February 14, 2013
Financial Reporting
Lean accounting
Combines operational, resource and financial information
Tracks data by value stream
Tracks data hourly, weekly, monthly and cumulative
Provides information for immediate decision making (not delayed)
Includes VS Future State data

48. February 14, 2013
Financial Reporting
Lean accounting uses a Box Score for reporting results
Used by everyone in the value stream
Common language, simple measures
Weekly reporting
Value streams combine on one Box Score to report company results

49. Performance measurements
February 14, 2013
Financial Reporting
Performance measurements
Income statement
capacity
Box Score

50. February 14, 2013
Financial Reporting
Box Score

51. February 14, 2013
Financial Reporting
Box Score

52. Sticking Point – Org Structure
February 14, 2013
Sticking Point – Org Structure
Lean companies:
manage by value streams
CI by value stream
Cost by value stream (box score)
Do we reorganize organizational structure by value stream?

53. February 14, 2013
Org Structure
The question - do we reorganize by value stream or remain organized by function? The answer – whatever works best to fulfill your lean objectives Value Stream – Matrix - Functional

54. Role of Accountant in the lean organization
February 14, 2013
Org Structure
Role of Accountant in the lean organization
Changed from traditional role
Must be involved in the lean operations at the value stream level
Evaluate key controls & determine if operating as planned
Part of the CI team
Prepare VS Box Score
Analyze alternatives for capacity decisions

55. Lean Accounting Aid decision making in lean environment
February 14, 2013
Aid decision making in lean environment
Accurate & understandable information
Relevant & actionable information
Lean Accounting
Lean the Accounting processes
Comply with GAAP and reporting requirements
Support lean culture

56. Lean the Accounting and Finance Processes
February 14, 2013
Lean the Accounting and Finance Processes

57. Leaning Accounting Processes
February 14, 2013
Leaning Accounting Processes
All areas of the business can be leaned including Accounting and Financial departments
Frees up time for Accountants to be partners in lean improvements
Ensures control on plant floor from the design phase

58. February 14, 2013
Eliminating Waste
As manufacturing processes move to lean, batch sizes get smaller.
Maintaining the same transactional recording and reporting such as work orders, purchase orders, customer invoices may be overwhelming.
(as lean progresses, transactions are maintained by VS and are fewer.)

59. Eliminating Waste Questions to ask:
February 14, 2013
Eliminating Waste
Questions to ask:
Is that report or sign off necessary?
Is there an easier way?
What exactly are we trying to control?
What are the risks of errors if we stop?
Can we automate more?

60. Accounts Payable Accounts Receivable Month-end Close Reporting
February 14, 2013
Eliminating Waste
Accounts Payable Accounts Receivable Month-end Close Reporting

61. Detailed and time-consuming
February 14, 2013
Eliminating Waste - AP
Two major AP tasks:
Ensuring invoicing is correct
Paying vendors
Detailed and time-consuming

62. Eliminating Waste - AP Blanket purchase orders
February 14, 2013
Eliminating Waste - AP
Blanket purchase orders
Voucher from receiving documents
Purchase/credit cards for small purchases
Voucher on backflushing
Pay from monthly statements
Pay via EFT

63. Detailed and time-consuming
February 14, 2013
Eliminating Waste - AR
Two major AR tasks:
Issuing invoices
Recording payments
Detailed and time-consuming

64. Eliminating Waste - AR Blanket purchase orders
February 14, 2013
Eliminating Waste - AR
Blanket purchase orders
Invoice from shipping documents
Send invoice with shipment
Pay by shipment
Pay via EFT/wire transfers/credit card
Automatic posting of payments from payment data

65. Eliminating Waste – Month-end
February 14, 2013
Eliminating Waste – Month-end
Two major month-end tasks:
Review accounts
Prepare journal entries
Detailed and time-consuming

66. Eliminating Waste – Month-end
February 14, 2013
Eliminating Waste – Month-end
Simply the chart of accounts
Delete, de-activate unused accounts, cost centres, departments
Automatic data loads – payroll, bank
Change timing of charges to avoid accruals
Move to quarterly close

67. Eliminating Waste – Reporting
February 14, 2013
Eliminating Waste – Reporting
Two major reporting tasks:
Prepare financial statements
Distribute financial reports
Detailed and time-consuming

68. Eliminating Waste – Reporting
February 14, 2013
Eliminating Waste – Reporting
Avoid Excel
Automatic report writing solutions
Summary reports with drill-down options
Avoid ing
Use cloud or intranet solutions to house reports

69. Eliminating Waste – Other
February 14, 2013
Eliminating Waste – Other
Automate approval process
Automate exception reporting & notifications
Automate consolidations

70. February 14, 2013
Wrap-up & Review

71. February 14, 2013
Test – Fun Activity