Table Of ContentLean Methods & Implementation / Metrics & Finance K
A
T
K
O
L E A N
t h e
The Lean CFO T
h
Architect of the Lean Management System e
L
This book is not about debits, credits, or accounting theory. Instead, it e
describes how a chief financial officer (CFO) becomes a Lean CFO by a C F O
leading a company in developing and deploying a Lean management n
system. The finance team, business executives, and Lean leaders will C
all benefit from its forward-thinking improvement approach.
F
O
Explaining why the CFO role is so critical for companies adopting
a Lean business strategy, The Lean CFO: Architect of the Lean A
r
Management System illustrates the process of building and integrat- c
ing a Lean management system into the overall Lean business h
i
strategy. It describes why CFOs should move their companies away t
e
from performance measures based on traditional manufacturing c
t
practices and into a Lean performance measurement system. In
o
addition, it explains how to integrate a Lean management system
f
with a Lean business strategy to drive financial success. t
h
e A R C H I T E C T O F
• Describes the logic behind why a Lean management system
L
must replace a traditional management accounting system e
a
• Discusses how flow can drive the financial success of Lean
n
T H E L E A N M A N A G E M E N T
• Demonstrates the need for constructing a value stream capacity
M
measurement system
a
• Explains how to break your company away from using standard n
a
costing to run your business
g S Y S T E M
e
The book explains why you must move your company into value m
stream accounting, which reports your internal financial information e
n
by the real profit centers of your business, your value streams. It t
describes the strategic aspects of making money from a Lean S
y
business strategy and also details how to modify your enterprise
s
resource planning system to support Lean rather than hinder it. t
e N i c h o l a s S . K a t k o
m
K20946
L E A N
t h e
C F O
ARCHITECT OF
THE LEAN MANAGEMENT
SYSTEM
L E A N
t h e
C F O
ARCHITECT OF
THE LEAN MANAGEMENT
SYSTEM
N i c h o l a s S . K a t k o
Boca Raton London New York
CRC Press is an imprint of the
Taylor & Francis Group, an informa business
A PRODUCTIV ITY PRESS BOOK
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© 2014 by Taylor & Francis Group, LLC
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Contents
Preface ....................................................................................................ix
Acknowledgments .................................................................................xi
The Author ..........................................................................................xiii
Chapter 1 The Architect ......................................................................1
Introduction .................................................................................1
Designing the Lean Management System ................................3
Constructing the Lean Management System ..........................4
Moving into Lean Business Decision Making ........................5
Tearing Down the Old House ....................................................6
Chapter 2 The Economics of Lean .....................................................9
Introduction .................................................................................9
Lean Is the Strategy .....................................................................9
Lean Every Day ..........................................................................10
The Economics of Lean .............................................................11
The Lean CFO—Key to Success with Lean ............................12
Five Lean Principles ..................................................................13
Wrap-Up .....................................................................................19
Chapter 3 $how Me the Value Stream Flow .....................................21
Introduction ...............................................................................21
What Is Flow? .............................................................................22
Flow Equals Real Productivity ................................................26
Eliminate Waste and Improve Flow .......................................26
Demand and Cycle Times Impact Flow .................................29
Lean Performance Measurements ..........................................29
Wrap-Up .....................................................................................33
Chapter 4 $how Me the Office Flow .................................................35
Introduction ...............................................................................35
Office Flow: The Current State.................................................35
© 2010 Taylor & Francis Group, LLC v
vi • Contents
Office Waste Is More Complex ................................................36
Cycle Times ...........................................................................36
Demand ..................................................................................37
Departmental Work Flow Characteristics ........................37
Wastes of Overburdening and Waiting .............................39
Waste of Interruptions .........................................................39
The Future State: Lean Office Flow .........................................39
Step 1: Design the Processes ...................................................40
Step 2: Plan the Work ...............................................................42
Prioritizing Demand ...........................................................42
Single Piece Flow .................................................................43
Step 3: Controlling the Work ..................................................43
Level Scheduling to 80% of Capacity ................................44
Control Interruptions .........................................................44
Andon ....................................................................................44
Visual Workplace ..................................................................45
Wrap-Up: Office Flow and the Lean CFO ............................46
Chapter 5 Measure Lean Performance, Not Profits ........................49
Introduction ...............................................................................49
Traditional Measurements .......................................................49
Lean Measurements ..................................................................50
Changing the Measures ............................................................51
Link Measures to Lean Strategy ..............................................55
Using Lean Performance Measurements ...............................58
Wrap-Up .....................................................................................63
Chapter 6 It’s about Spending, Not Costs ........................................65
Introduction ...............................................................................65
Traditional Cost Management .................................................65
Value Stream Accounting........................................................66
Value Stream Costing ...............................................................67
Material Spending ................................................................67
Labor Spending .....................................................................69
Machine Spending ................................................................71
Quality Spending ..................................................................73
Maintenance Spending ........................................................73
© 2010 Taylor & Francis Group, LLC
Contents • vii
Material Management Spending ........................................74
Receiving Inspection Spending ..........................................75
Value Stream Income Statement .............................................76
Wrap-Up .....................................................................................79
Chapter 7 The Value of Measuring Capacity ...................................81
Capacity in Traditional Manufacturing .................................81
Capacity in Lean Manufacturing ............................................82
Integrity of Value Stream Map Data .......................................83
Operational Value of Capacity ...............................................86
Financial Value of Capacity ....................................................90
Wrap-Up .....................................................................................91
Chapter 8 Decisions, Decisions, Decisions ......................................93
The Current State: Standard Costing and Decision
Making ........................................................................................93
The Future State: The Value Stream Box Score and
Decision Making .......................................................................94
Using Product Cost to Set Price ..............................................94
Profitability of New Business ..................................................99
Determining the Profitability of Customers, Markets,
and Business Segments ..........................................................100
Outsourcing .............................................................................103
Capital Purchases ....................................................................106
Hiring People ...........................................................................107
Impact of Continuous Improvement ....................................110
Wrap-Up ...................................................................................113
Chapter 9 Standard Costing Debunked .........................................115
Introduction .............................................................................115
A Brief History of Standard Costing ....................................115
Charting the Course to No Standard Costs ........................116
Simplifying Material Cost ......................................................117
Simplifying Labor and Overhead Costs ...............................119
Eliminating Standard Costing..............................................122
Wrap-Up ..................................................................................124
© 2010 Taylor & Francis Group, LLC
viii • Contents
Chapter 10 Tame the ERP Beast .......................................................125
Introduction .............................................................................125
ERP and the CFO ....................................................................125
Lean Operations and ERP .....................................................128
The Lean CFO and Work Orders ..........................................130
The Lean CFO and Inventory Quantity ...............................131
The Lean CFO and Work-in-Process Valuation..................132
Wrap-Up ...................................................................................133
Chapter 11 By the People, for the People .........................................135
System Thinking vs. Project Thinking .................................135
All Eyes and Ears Are on You ................................................136
Keep It Simple ..........................................................................136
Stick to the Plan .......................................................................137
Believe .......................................................................................138
© 2010 Taylor & Francis Group, LLC
Preface
I began my CFO career working for an established manufacturing company
that had been around for many years. Manufacturing practices and finan-
cial analysis related to operations were pretty standard and established.
Soon our company made the commitment to become Lean. We hired
people with Lean experience. Talk about continuous improvement, flow,
and eliminating waste all seemed foreign to me, something that “the Lean
people” would work on. But pretty soon these “Lean people” were coming
to me and asking for different kinds of financial work, such as perfor-
mance measures and financial analysis not using standard costs. Boy, was
I out of my comfort zone!
Over time, with the help and support of the “Lean people,” I figured out
how Lean could make us a lot of money. Then I was all in on Lean. Every
improvement I had to make and every new type of analysis I had to do
suddenly all made sense. I began thinking of myself as one of the “Lean
people”: the Lean CFO.
And in my work with our customers in BMA, Inc., I’ve consistently talked
about the unique role the CFO has in leading a company down its Lean
journey by becoming a Lean CFO. The more I talked about the role and
responsibilities of the Lean CFO, the more I developed a coherent message.
Then my colleague, Brian Maskell, suggested that I write a book. That
got me out of my comfort zone, just like Lean did many years ago. Talking
about it is one thing, but having to sit down and write about it is another.
To write this book, I’ve had to adjust my thinking and break down my
internal paradigms of not being able to write a book. It was no different for
me than figuring out how Lean makes money.
Even though the book is titled The Lean CFO, it is really intended for
financial people, business executives, and Lean leaders. It doesn’t matter if
your company is just getting started with Lean or has been Lean for years.
There is something in it for everybody.
This book is not about debits, credits, or accounting theory. It’s about
how a CFO becomes a Lean CFO by leading a company in developing and
deploying a Lean Management System.
I hope that you enjoy the book and find it useful.
© 2010 Taylor & Francis Group, LLC ix
