Lean Accounting and Operational Excellence: A Survey of Practices at Lean Companies and Companies Engaged in Lean Transformation

Transcription

1 Lean Accounting and Operational Excellence: A Survey of Practices at Lean Companies and Companies Engaged in Lean Transformation Larry Grasso Tom Tyson Clifford Skousen Rosemary Fullerton 1 Note to potential attendees Throughout our presentation we will be asking those of you who attend our session to respond to a few questions about your facilities and companies. Your responses will be collected electronically and will be anonymous. A summary of the collective responses of our attendees to each question will be instantly displayed during the session. To avoid influencing your answers, some of our survey results have been deleted from this handout. A complete handout will be available for download shortly after the session is finished. We look forward to seeing you! 2 1

2 Goal of our study Explore the current state of the relationship between management accounting systems and performance measures and operating results at companies engaged at various stages of lean transformations. Phase I Obtain a broad perspective using an online survey. Phase II Obtain deeper insight using a multi-site field study. 3 Who we surveyed Contact list from the Shingo Prize Organization Individuals who had expressed an interest in receiving information from the organization. Reduced to those working at a manufacturing or service (mostly logistics and repair) facility. 4,537 subjects at 697 facilities. 4 2

3 Who Responded 510 Usable responses from people representing 368 different facilities at 195 different organizations % Lean, Quality or CI managers 20 25% Prod., Op., Mfg. or Plant mgrs % Other manager/director 5 10% Engineering, R&D 5 10% VP, President or CEO 11% unspecified or other, < 2% Finance/ Accounting 5 How would you rate your manufacturing operations? A. Tradi/onal B. C. Progressive D. E. Highly innova/ve 6 3

4 Cost & Measurement Systems We asked about the extent of use of eight cost and measurement systems. 1. Labor & overhead efficiency measures. 2. Overhead & volume efficiency measures. 3. Standard costing. 4. Activity-based costing. 5. Target costing. 6. Balanced Scorecard. 7. Value stream costing. 8. Throughput accounting. 7 Does your facility make considerable use or a great deal of use of: A. Labor & material efficiency measures? B. Overhead and volume efficiency measures? C. Standard costing? A. A, B & C. B. A & B, but not C. C. C, but not A & B. D. Just A. E. Just B. F. Just C. G. None of them. 8 4

5 Traditional accounting costing & measurement Cost / Performance Measurement System (not at all 1, little 2, some 3, considerable 4, great deal 5) N Mean Performance measures related to labor/material efficiency 362 Performance measures related to overhead volume/efficiency 360 Standard costing 360 Considerable Great Deal Traditional measurements like labor efficiency, purchase price variance and others drive mass-production thinking.... This is the opposite of what a Lean company is trying to achieve. these accounting and operational measurements will push back and stymie our efforts. Brian Maskell Printing Industries of America: The Magazine 2013, p If you use labor material and overhead efficiency measures, how do you deal with an8- lean signals? A. We use lean efficiency measures that don t conflict with lean behavior. B. We have to report tradi/onal measures to corporate, but they understand the conflicts and lean measures have priority C. We have to report tradi/onal measures to corporate, and we do get push back when they conflict. D. We s/ll find the tradi/onal measures valuable, and we don t see a conflict. 10 5

6 If you use standard cos8ng, how do you deal with the an8- lean signals? A. We only use standard cos/ng for financial repor/ng, not decision- making. B. We have to report standard costs to corporate, but they understand the conflicts and lean measures have priority. C. We have to report standard costs to corporate, and we do get push back when they conflict. D. We find standard costs useful for some decisions, and we don t see a conflict. 11 To what extent does your facility use value stream cos8ng? A. Not at all B. A livle C. Some D. Considerable E. A great deal 12 6

7 Is your facility organized by value streams? A. Yes B. No 13 Does your firm currently use value stream costing to account for lean production? A. Yes B. No 14 7

8 Value Stream Organization and Value Stream Costing Is your facility organized by value streams? 365 If yes, how many value streams does your facility have? One to four Five to Nine Ten to Fifteen Twenty or more No response N YES NO N YES NO Does your firm currently use value stream costing to account for lean production? Value Stream Organization and Value Stream Costing Does your firm currently use value stream costing to account for lean production? NR YES NO Total Please indicate the extent to which your facility uses value stream costing. (Choices 1-5) (1) Not at all (2) Little (3) Some (4) Considerable (5) Great deal Total number of responses Mean No response 16 8

9 If you do not currently use value stream cos8ng, Why not? A. We don t understand value stream cos/ng. B. Our auditors prefer standard cos/ng. C. We don t see the benefits of value stream cos/ng. D. It s too costly to implement new accoun/ng systems. E. We our sa/sfied with our current accoun/ng system. F. Our corporate headquarters won t allow the change. G. We aren t organized by value stream. 17 Reasons for not using VSC Why do you not use value stream costing (VSC)? (1) strongly disagree to (5) strongly agree. N Mean We don t understand VSC 287 Our auditors prefer standard costing 284 We don t see the benefits of VSC 283 It is too costly to implement new accounting systems 284 We are satisfied with our current costing system 283 Number that agree or strongly agree 18 9

10 Does your facility make considerable use or a great deal of use of: Ac8vity- based cos8ng (ABC)? Value stream cos8ng (VSC)? A. Only VSC. B. VSC & ABC. C. Only ABC. D. Neither one. 19 Value Stream Costing and Activity-Based Costing Cost/Performance Measurement System (not at all 1, little 2, some 3, considerable 4, great deal 5) N Mean Considerable Great Deal Balanced scorecard Target costing Activity-based costing 355 Value stream costing 359 Throughput accounting Organizing by value stream reduces the heterogeneity of resource use (within each value stream) that ABC is designed to address. ABC systems are complex and expensive to maintain. They don t focus on overall value stream performance. Facilities with extensive use of VSC will not use ABC

11 Value Stream Costing and Activity-Based Costing Use of ABC > Low Medium High High Medium Low Use of VSC ^ We compared mean values of our organization, culture, performance measurement, and action (manufacturing, top management support & accounting system change) as well as mean values for improvement, across levels of VSC & ABC. 21 Value Stream Costing and Activity-Based Costing Variable VSC ABC High Low High High Low High Low Low Organized by VS Lean culture Traditional culture Visual measurement Traditional acct methods Nonfinancial measures Financial measures Lean manufacturing Supplier development Top mgmt support Lean acct processes Overall improvement Cost reduction Profitability improvement

12 Why and how are companies using ABC in combina8on with VSC? A. Our corporate system is an ABC system. We create special reports to get VSC data. B. Our VSC data is limited. We need ABC data for many decisions. C. We use VSC data for con/nuous improvement in the facility, but corporate relies on ABC. D. We incorporate both ABC and VSC in our financial repor/ng system. E. We have a tradi/onal standard cost system. We get ABC and VSC data by special report. F. We have a VSC system. We use ABC models for specific decisions. G. Other. 23 Section 1: Manufacturing Operations We asked about the extent of use of 19 lean manufacturing practices, initiatives, and strategies. Two factors emerged: A ten-item composite variable related to lean manufacturing practices. A three-item composite variable related to supplier development

13 Items in Lean Manufacturing Composite Item (Response: not at all 1, little 2, some 3, considerable 4, great deal 5) N Mean Use of standardization Use of production cells An action plan to reduce setup times A Kanban system Use of one piece flow Reduction of lot sizes Use of line balancing and level schedules Reduction of buffer inventories Use of mistake proofing or pokayoke Use of 5S Operators responsible for maintenance of own machines Items in Supplier Development Composite (and items not loading on any factor) Item (Response: not at all 1, little 2, some 3, considerable 4, great deal 5) N Mean A strategy focused on reducing the number of suppliers Established long-term relationships with suppliers Frequent contact with suppliers A strategy to reduce the physical constraints in operations Regularly scheduled production maintenance Extended training of employees in various tasks Adoption of a Kaizen (continuous improvement) program Suppliers deliver on JIT basis

14 Section 1: Manufacturing Operations We also asked about the extent of use of: Lean manufacturing Just-in-time Total quality management Total productive maintenance Six sigma Lean Accounting 27 Section 1: Manufacturing Operations Item N YES NO Lean manufacturing Six sigma Total Productive Maintenance (TPM) Just-in-time (JIT) Total Quality Management (TQM) Lean Accounting

15 Section 1: Manufacturing Operations Item (Use responses: not at all or just started, 0. Minimal - 1 through Fully Adopted 5) N Mean Range Lean manufacturing use Lean manufacturing years Six sigma use Total Productive Maintenance (TPM) use Just-in-time (JIT) use Total Quality Management (TQM) use Lean Accounting use Lean Accounting years Section 2: Organizational Culture We asked about the degree to which each of 18 items reflected their facility s organizational culture. Two cultural factors emerged: A six-item composite related to lean culture. Centralized authority and highly bureaucratic management structure (traditional organizational culture). We also asked about the extent of top management support for change

16 Lean Culture & Traditional Culture Item (1) strongly disagree to (5) strongly agree. N Mean Team members encourage each other to gain additional training Support areas participate in Kaizen events Our whole facility is trained in lean principles Every area of our facility works on cont. improvement Management is focused on eliminating waste everywhere Lean thinking has permeated all of our operations Management structure is highly bureaucratic Authority is more centralized than decentralized Culture items not loading on either variable Item (1) strongly disagree to (5) strongly agree. N Mean The majority of our production workers are cross trained Production workers participate in quality-related decisions Management is committed to quality-related training All employees are involved in problem solving Training resources are readily available Employees are recognized for superior quality performance Management style is more participative than autocratic Responsibility for action items is posted on shop floor Team members feel peer pressure to perform Line managers are empowered to make decisions

17 Section 3: Performance Measures We asked about the importance of 13 different types of performance measures. Two factors emerged: Non-financial performance at cell, value stream and facility levels, and cost of quality (Non-financial performance) Overall financial results, market share and cash flow. (Financial performance) 33 Nonfinancial and Financial Performance Measures Item (Choices: Not at all, Somewhat, Important, Very Important, Critical) N Mean Non-financial measures related to cell performance Non-financial measures related to VS performance Non-financial measures related to facility performance Cost of quality Overall financial results Market share Cash flow

18 Performance Measures not loading on a variable Item (Choices: Not at all, Somewhat, Important, Very Important, Critical) N Mean Productivity On-time deliveries First-pass yields Cycle time improvements Customer satisfaction Inventory turns Section 4: MAS Characteristics We asked about the degree to which each of 26 items related to their management accounting systems. Three MAS factors emerged: A ten-item visual measures composite related to gathering and displaying information on the shop floor. A six-item lean accounting processes composite related to system simplification. A six-item traditional accounting composite related to inventory tracking, product cost computation & variances

19 Visual Measures Composite Variable Item (1) strongly disagree to (5) strongly agree. N Mean Many performance measures are collected on the shop floor Standard operating procedures are visible on shop floor Performance metrics are aligned with operational goals Visual boards are used to share information Information on quality performance is reviewed often Training skills matrix is visible on the shop floor Charts showing defect rates are posted on the shop floor We have created a visual mode of organization Information on productivity is updated frequently on the shop floor Quality data is displayed at work stations Lean Accounting Process Composite Item (1) strongly disagree to (5) strongly agree. N Mean Our accounting system was simplified in the past three years Our accounting closing process has been streamlined We use standard operating procedures for accounting processes Our management accounting system supports our strategic initiatives We have eliminated many reports that monitor routine transactions Most routine bookkeeping activities are now automated

20 Traditional Accounting Composite Item (1) strongly disagree to (5) strongly agree. N Mean Tracking inventories is an important accounting function Assigning accurate OH costs to products is critical Assigning labor costs to inventory is critical Variances are used to compare actual results to budget Product costs are initially recorded on the balance sheet WIP inventory is updated continually MAS Items not loading on a variable Item (1) strongly disagree to (5) strongly agree. N Mean Floor markings are used to indicate flow of materials Most routine bookkeeping practices are now outsourced Product costs are classified as direct or indirect Product costs are traced directly to the cell or value stream

21 Improvement as a result of Lean We asked about improvements realized on 8 dimensions as a result of lean initiatives: Dimension (Choices: Not at all, Little, Some, Considerable, Great deal) N Mean Inventory-related resources have been freed up Capacity is managed more effectively Cycle/production time is improved Quality is improved Overall communication is improved The need to monitor transactions is reduced Costs are reduced Profitability is improved Which factor do you think had the strongest associa8on with overall improvement from lean ini8a8ves? A. Lean manufacturing B. Supplier development C. Top management support for change D. Lean culture E. Tradi/onal culture F. Importance of non- financial measures G. Importance of financial measures H. Visual measurement system I. Lean accoun/ng processes J. Tradi/onal accoun/ng methods 42 21

22 Which factor do you think had a nega8ve associa8on with overall improvement from lean ini8a8ves? A. Lean manufacturing B. Supplier development C. Top management support for change D. Lean culture E. Tradi/onal culture F. Importance of non- financial measures G. Importance of financial measures H. Visual measurement system I. Lean accoun/ng processes J. Tradi/onal accoun/ng methods 43 Results: Improvements from lean initiatives Variable Overall Profit Cost Lean manufacturing Supplier development Top management support Lean culture Traditional culture Imp. of nonfinancial measures Imp. of financial measures Visual measurement systems Lean accounting processes Traditional accounting methods Use of value stream costing Value stream organization * Full model only. ** Restricted models only

23 Some Conclusions 45 Want to learn more? Do you have more you d like to share with us? To ask more questions about the study, or for a copy of the preliminary report, or to provide us with further reflections or comments, or to invite us to come see your facility, contact: Larry Grasso GrassoLa@ccsu.edu