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Lean Thinking and Lean Accounting
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What is Lean ?
2.
Lean Thinking and Lean Principles
3.
Lean Enterprise and Value Stream
4.
Accounting for Lean - Value Stream Costing - Value Stream Profit and Loss - Value Stream Box Score
5.
Lean Accounting
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What is Lean ? • Lean is thin, not fleshy or fat • ภLean = 10 ! ภ! • ภ2 ....... Lean management = ภภ#3 * ภ0 (ภ• Fast MBA Lean = ภ! * !! /
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Lean in Business ŕ¸
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ภภภ!ภ" " # $ % ภ" " #
4
History Timeline for Lean Manufacturing
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The Roots of Lean
Sakichi Toyoda
Kiichiro Toyoda
Taiichi Ohno
Eiji Toyoda
Henry Ford
Automatic Loom Assembly Line
Toyota Sedan Model AA 1936 6
Toyota Production System (TPS) Toyota Motor Corporation's production system is a way of "making things" that is sometimes referred to as a "lean manufacturing system" or a "Just-in-Time (JIT) system,"
TPS ‘s Concepts : Jidoka = Visualization of problems in order to get high Quality Just in time = Productivity Improvement Making only "what is needed, when it is needed, and in the amount needed!"
7
Jidoka Automation with a human touch = Autonomation
Type G Toyoda Automatic Loom Origin of Jidoka
Concept of Jidoka 8
Production Control Kanban System
(supermarket method)
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Illustration of TPS Producing and delivering order vehicles in a timely manner. http://www.toyota.co.jp/en/vision/production_system/illustration.html :
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Production Environment Traditional • • • • • • • •
Produce for Stock Mass Production Batch and Queue Automation Inspection Reject and Rework Create FG and WIP Leader / Supervisory
Lean • • • • • • • •
Produce for Customer Pull and Flow Just in Time Autonomation TQM Kaizen Less or Zero Inventory Empowerment 11
ภvs. ภภŕ¸
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Lead-Time
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Lead-Time
Cycle Efficiency = Value-added time Total lead time 12
ภ(Muda) ! "# ภ$
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. / MUDA %&' " Muda 7 . / 1. ภ(Defect) 2. ภภภ$ : (Over Production) 3. ภC C ภภ$ : (Unnessary Inventory) 4. ภภ. ภ$ : (Unnessary Processing) 5. ภ! ภ$ : (Unnecssary Motion) 6. ภ$ : (Unnecessary Transportation) 7. ภ(Waiting)
8. Human 14
Lean Thinking “Womack & Jones” 5
1
2 4
3 15
Value Perspective
(ภภ) ' 0/ ' / ! ภ5 6 !! $ 6ภ7 05
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1. ภ$ ! " ST / TUV# S ภC Specify Value from the Viewpoint of the Customers 2. .!Vภภ. S ST . " Value Streamlining 3. S ST/ .ภ! . Improve Quality and System Flow 4. ภ" . ภ"_ Pull System 5. ภS #!C : . TV System Perfection
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A Lean Enterprise: • Uses the value stream as the primary method for serving the customer, improving the processes, growing the business, and increasing profitability. • Focuses on Flow and Pull • Empowers The People at Every Level in the Organization • Pursues Perfection
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A Lean Enterprise: • Focuses on Customer Value • Eliminates Waste • Uses Partnerships • Manages by Value Stream
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What adds Value to the Customer • The products
• Requires a profound understanding of what
• The service
creates value for the • Continuous improvement • Developing relationships • Innovation
customer. • Requires a relentless focus on changing our processes to create move value.
• Flexibility • Intangibles like reputation of fashion
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Two Major Aspects of Lean Accounting : • The lean business management system supporting lean thinking throughout the organization • Applying lean to the company’s accounting processes
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Two Aspects of Lean Accounting Accounting to Lean. Supporting the Lean Transformation.
Applying Lean Thinking and Methods to the Companyâ&#x20AC;&#x2122;s Accounting Processes.
Reporting and decision-making to support
Cost Accounting, labor reporting,
lean manufacturing and other lean
production reporting & work orders.
processes.
Purchasing and accounts payable.
Financial reporting that is immediately understandable and useable to everyone.
Inventory tacking and valuation. General ledger simplification.
Single lean accounting system for management accounting and external
Month-end close, etc.
reporting. Accounting processes focused on customer value, value streams, pull, empowerment, and continuous improvement. 22 Source : www.maskell.com
Lean Manufacturing Maturity Path Pilot lean production cells
Lean manufacturing widespread
Lean throughout company and partners
Getting started with Lean accounting
Managing by value streams
The lean enterprise
Lean Accounting Maturity Path Source : www.maskell.com
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Progressing with Lean TRADITIONAL
STARTING LEAN
LEAN PROGRESS
LEAN COMPANY
Traditional Manufacturing
Starting Lean Manufacturing
Lean Manufacturing
Lean Manufacturing
Traditional Accounting
Traditional Accounting
Lean Accounting
Lean Accounting
Traditional Financial Reporting
Traditional Financial Reporting
Lean Financial Reporting
Lean Financial Reporting
Lean Supplemental Statement
Traditional Financial Reporting
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What is a Value Stream? â&#x20AC;&#x153;All the processes required to create value for the customer; organized as a team accountable for increasing value & profitability through continuous improvement.â&#x20AC;?
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Why Do We Focus on the Value Stream? • Where the value is created. • Identify value and waste. • Focus on creating value for the customer.
• Identify flow and obstacles to flow. • “See” the issues and • Create value, growth, & profit.
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Typical Value Stream Structure
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Value Stream Management 1
DefiningYour Your Defining Valuestreams streams Value
2
Controlling Controlling TheValue ValueStream Stream The
3
Improvingvalue value Improving Stream Stream
6
Planning Planning TheValue ValueStream Stream The
5
Managingthe the Managing ValueStream StreamTeam Team Value
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Criteria for Value Streams • Family of products with similar production flow. • Include all the people & processes that support the value stream production process. • The value stream team a reasonable size • Minimize monuments • Extend value stream as close to the customer as possible and close to the suppliers.
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Steps in Value Stream Definition • Identify product families with similar production flow. • Staple yourself to a customer order. • Identify and minimize “monuments”. • For design or configure-to-order products include the design/configuration in the production flow.
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Steps in Value Stream Definition • Create a production flow matrix - Product families on the Y-axis - Machines or work centers on the X-axis
• Make sure the value streams you select include significant business. • Move forward and backward through the value streams - Value added services - Purchasing and Sales & Marketing - Administrative tasks
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Product Families
Stamping
112 x x x
212 x x x
x x
356 x
356e
401 x
402 x
596 x x
x
x x
x x
x
x
Inspection
x x
x x
x x
x x x
x x x
x x x
Source : www.maskell.com
x
x
x
Pack & ship Invoice
x
Final Assembly B
Final assembly A
Subassembly B
Subassembly A
Outside processing
Heat treat
Deburr
Machining
Scheduling
212a Order entry
Example of a Production Flow Matrix Production Steps
x x x
x x x
x x
x
x x x
x
x x x
x x x x
x x x x
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Example of a Value Stream Definition Analysis
Final Assembly B
Pack & ship
Invoice
x
x
x
x
356
x
x
x
x
x
x
x
x
401
x
x
x
x
x
x
x
x
Final assembly A
x
Subassembly B
Inspection
x
Subassembly A
Outside processing
x
Heat treat
Stamping
x
Deburr
Scheduling
112
Machining
Order entry Product Families
Production Steps
212A
x
x
x
x
x
x
x
356E
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
212
x
402
x
x
x
x
x
x
x
x
596
x
x
x
x
x
x
x
x
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Format for Aligning People with Value Streams Value stream 1
Value stream 2
Value stream 3
Manager Operators Supervisors Materials handlers Production control Inventory control Maintenance Production engineers Design engineers Configuration Qulaity assurance Purchasing Cost accounting Tool crib Customer service Order entry Information systems Marketing Sales Transportation FG warehouse Source : www.maskell.com
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Value Stream Costing Production Labor
Production Materials
Production Machines
VALUE STREAM Operational Support
Facilities & Maintenance
All Other VS Costs
Actual labor, machine, materials, support service, and facilities directly within the value stream. Little or no allocation of costs outside the value stream. Source : www.maskell.com
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! ภ$ #`C Lean Cost & Lean Accounting 1. Cash Basis ภภAccrual Basis 2. Cell (Value Stream) ภdirect cost ภ- Direct Production Cost - Direct Support Cost - Direct Administrative Cost 3. ภภ4. ! standard cost Actual Costs 5. Plain English Value Stream Income Statement 6. ! Target Cost 7. ภ" # ภ$ ภ"
Value Streams Costs for ECI
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Three Levels of Performance Measurements To enable the cell teams to monitor and control their daily production activities.
Cell CellLevel Level Measurements Measurements
Value ValueStream StreamLevel Level Measurements Measurements
To guide the continuous improvement team in their â&#x20AC;&#x153;pursuit of Perfectionâ&#x20AC;? activities.
Plant Plantor orCorporate Corporate Level LevelMeasurements Measurements
To enable senior managers to monitor the achievement of strategic goals & initiate strategy changes.
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“Starter Set” of Performance Measurements for Lean Mfg. STRATEGIC ISSUES
STRATEGIC MEASURES
VALUE STREAM MEASURES
Increase Cash Flow
Sales Growth
Sales per Person
Increase sales & market share
Cash from Operations
On-Time Delivery
Continuous improvement culture
Inventory Days
Provide Customer value
On-Time Delivery Customer satisfaction Sales per Employee
Dock-to-Dock Time First Time Through Average Cost per Unit
CELL/PROCESS MEASURES Day-by-the-Hour Production WIP-to-SWIP First Time Through Operational Equipment Effectiveness
AR Days Outstanding
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Performance Measurement Linkage Chart: Order Fulfillment Value Stream
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Value Stream Box Score and Value Stream Profit and Loss
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Box Score used for Decision-Making
OPERATIONAL
Caspian Company PA Motors Current
Current State
Make Product
Buy in China
Buy Locally
Units per Person
29.31
26.05
32.56
32.56
On-Time Shipment
97.2%
98.0%
95.7%
96.0%
First Time Thru
54%
63%
52%
60%
Dock-to-Dock Days
8.90
8.5
16.28
10.21
$111.74
$113.10
$113.90
$112.66
8.0
8.0
8.8
8.0
Productive
31%
35%
31%
31%
Non-Productive
56%
62%
56%
41%
Available Capacity
13%
3%
13%
28%
$1,611,456
$1,821,456
$1,821,456
$1,821,456
Material Costs
$490,296
$586,296
$575,296
$672,296
Conversion Costs
$497,933
$527,036
$545,933
$502,254
Inventory
$221,163
$234,433
$448,961
$316,484
Value Stream Profit
$623,226
$708,124
$700,226
$646,905
Value Stream ROS
38.67%
38.88%
38.44%
35.52%
Hurdle Rate
-7.33%
-7.12%
-7.56%
-10.48%
Average Cost
CAPACITY
AP days - AR days
FINANCIAL
Revenue
46.00%
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Decision-Making Example Using Value Stream Profitability & Return Current State
Sales Additional Revenue
Make Product
Buy in China
Buy Locally
Price=$75
Price=$182
$1,611,456 $0
$1,821,456
$1,821,456
$1,821,456
Material Costs Employee Costs Machine Costs Outside Process Costs Warranty Costs Tooling Costs Facilities Costs Other Costs Additional transport
$490,296 $217,866 $35,696 $142,705 $5,518 $21,309 $56,100 $18,740
$586,296 $239,652 $39,266 $142,705 $7,449 $22,375 $56,100 $19,489
$575,296 $217,866 $35,696 $142,705 $5,518 $21,309 $56,100 $18,740 $48,000
$672,296 $217,866 $35,696 $142,705 $5,518 $21,309 $56,100 $18,740 $4,321
Value Stream Profit ROS
$623,226
$708,124
$700,226
$646,905
38.67% 46.00%
38.88%
38.44%
35.52%
$221,163
$234,433
$448,961
$316,484
Hurdle Rate
Cash Flow Inventory
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We are responding to an RFQ from a customer to provide 1000 units per month for the next 12 months at a price of $209.49 per unit. We must decide if we should make them, buy, or outsource them in China.
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Lean Manufacturing ASSUMPTIONS • • • •
MEASUREMENTS
Profit from maximizing flow on pull from customers. Waste is resources impeding the flow Control thru continuous attention to flow & waste Excess capacity provides flexibility
• • • • •
Cycle time Throughput First time quality Inventory Turns Delivery to customer
•
Value stream focus
MOTIVATION • • • •
IMPORTANT
Eliminate barriers to flow Focus on value streams rather than departments Continuous improvement and teamwork Eliminate waste, inventory, and over-production
• • • • •
Value to the customer Value streams Flow of value-creating tasks & pull from the customers Inventory Turns Delivery to customer
•
Value stream focus
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Traditional Cost Accounting MEASUREMENTS
ASSUMPTIONS • • • •
Direct labor is the most important conversion cost Control the business thru detailed tracking Profit comes from full utilization of resources All excess capacity is bad
• • • •
MOTIVATION • • • • •
Labor efficiency & machine utilization Cost variances vs standard Budget adherence Direct labor as % of sales
IMPORTANT
Make more product Utilize resources to the max Optimize dept. efficiencies Track direct labor in detail Allocate other costs
• •
Full utilization of resources Average part cost
•
Overhead absorption
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Time Spent on Activities and the Departmentâ&#x20AC;&#x2122;s Capacity
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Accounts Payable Future States
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Process Map for Future States
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Box Score for Current and Future States
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References â&#x20AC;˘ 0ภ' ภ0!ภ0! Lean Accounting Summit , Orlando, USA ,2007. â&#x20AC;˘ www.maskell.com â&#x20AC;˘ www.lean.org/ â&#x20AC;˘ www.toyota.co.jp/en/vision/production_system/ â&#x20AC;˘ www.strategosinc.com/principles.htm â&#x20AC;˘ www.opdc.go.th/oldweb/Mission/File_download/ 22_12_47/Viput.pdf â&#x20AC;˘ www.med.cmu.ac.th/hospital/ha/HA/filedownload/ 29HA/LeanManagement.ppt Source : www.maskell.com
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