The Box Score: Visualizing Lean Accounting for Everyone
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9/1/20 THE BOX SCORE: VISUALIZING LEAN ACCOUNTING FOR EVERYONE Gary Kapanowski MPlus Contributing Editor for Journal of Cost Management 1 2 BIO Gary Kapanowski, Certified Lean Six Sigma Master Black Belt and Certified ASQ Bronze Lean professional, is cost accountant and Lean Six Sigma Master Black Belt Lecturer at Lawrence Technological University Professional Development Center. • Contributing editor for the Journal of Cost Accounting and publishes the annual lean edition, in its 7th year, published 20 articles on lean and accounting • Conducted over 190 lean workshops and event with over 1,000 hours of training to over 7,000 professionals and university students at over 45 universities • Annual conferences speaker for the Institute of Management Accountants, Association of Strategic Planners, Michigan Lean Consortium, Lean Accounting Summit, and NE Lean Conference • 2006 Financial Executive of the Year award from Robert Half International and Institute of Management Accountants (IMA) • BBA in accounting from the University of Michigan and an MBA in Finance and Marketing from Michigan State University 2 1 9/1/20 3 JOURNAL OF COST MANAGEMENT 3 4 Abstract Identifying lean improvements can be challenging for many teams. Some of the problems include but not limited to what metrics to use, how to present the information, and when to present the information. One of the tenets of lean accounting is the Lean Box Score, a three-dimensional view of the value stream. The Lean Box Score will provide clarity and transparency to produce organizational buy-in for sustained continuous improvement along with enhanced business decision making. 4 2 9/1/20 5 Agenda History of the Lean Box Score Three-dimensional construction of the value stream Lean Box Score examples 5 6 The View from the Beach 6 3 9/1/20 7 • History of the Lean Box Score 7 8 History of the Lean Box Score Brian Maskell & Bruce Baggaley • 2005 Lean Accounting Summit in Detroit, inaugural event • What’s Lean Accounting All About?, Association for Manufacturing Excellence’s Target Magazine first issue of 2006 8 4 9/1/20 9 History of the Lean Box Score Traditional Accounting Systems are anti-lean: • Large, complex, wasteful processes requiring huge amounts of non-value work • Measurements and reports that motivate large batch production and high inventory levels • Financial reports will often show that bad things are happening when very good lean change is being made • Very few people in the company understand the reports that are used to make decisions • End result: Making poor business decisions 9 10 History of the Lean Box Score Lean Accounting Principles, Practices, and Tools Five Principles: • Lean and simple business accounting • Accounting process that support lean transformation • Clear and timely communication of information • Planning from a lean perspective • Strengthen internal accounting control 10 5 9/1/20 11 History of the Lean Box Score Accounting process that support lean transformation Management Control & CI • Box Score - performance board updated weekly, etc. • Value stream performance • Pareto chart / root cause analysis • Current / future state maps • Mission Control for CI 11 12 History of the Lean Box Score Clear & timely communication of information • Visual Management • Foundation of lean management • Box score is the one-sheet summary of the value stream • Decision Making • Box score main report used 12 6 9/1/20 13 History of the Lean Box Score IMPROVED DECISION MAKING Supports lean growth • Increased demand strategy • Available capacity at no additional cost • Speeds the decision making process Simple • Empowers the value stream • Real numbers used Accurate • Real profitability analyzed 13 14 History of the Lean Box Score Acceptance of the Lean Box Score • Try and do • Leading indicators • Trends to indicate improvement • Soft dollars turn into growth & hard savings 14 7 9/1/20 15 History of the Lean Box Score Planning from a lean perspective • Impact of lean improvement • Operational • Financial • Capacity • The bridge from operational to financial is the capacity change • Financial impact is the decisions how to utilize the freed-up capacity 15 16 History of the Lean Box Score Investment in People: Two areas for lean transformation • Active senior leadership • Focus on people than lean tools • Box Score provide the measurements to verify training, involvement, and empowerment are working 16 8 9/1/20 17 History of the Lean Box Score Brian Maskell and Bruce Baggaley • Use visual management to display information • Trends and comparisons • Idea for visualization: • Thought of baseball and basketball 17 18 History of the Lean Box Score History of the use and naming of the “box score” can be traced to the early days of baseball. • Baseball increasing in popularity in the mid-1800’s • Only read about in paper, limited experience • Henry Chadwick connected fans through box score • Knowledge of cricket, baseball, and statistics along with his skills as a professional writer. • Chadwick's 1859 box score from the Brooklyn Excelsiors loss to the Brooklyn Stars. 18 9 9/1/20 19 History of the Lean Box Score The tabulation of individual box scores led to modern statistical measures of batting averages and earned run averages. • Sabermetrics started as a quantitative approach • Identify undervalued players • Detailed evaluation beyond traditional statistics • Visualized in book and film Moneyball • Advanced use of computer programming and data collection • Changed the way baseball is played and viewed by team managers and fans 19 20 • Three-dimensional construction of the value stream 20 10 9/1/20 21 Three-Dimensional Construction Box Score is a three dimensional view of the value stream – Operational – Capacity – Financial GOAL: accountability & responsibility 21 22 Three-Dimensional Construction CURRENT STATE FUTURE STATE ANALYSIS SALES PER PERSON $ 7,500 ON-TIME SHIPMENT 92% FIRST TIME THROUGH 70% FINANCIAL DOCK-TO-DOCK DAYS 30.00 IMPACT OF LEAN: LEAN BOX AVERAGE COST $ 420.50 OPERATIONAL SCORE ACCOUNT RECEIVABLE DAYS 50.00 PRODUCTIVE CAPACITY 51% SHORT TERM: not EXAMPLE NON-PRODUCTIVE CAPACITY 30% seen in cost EMPLOYEE AVAILABLE CAPACITY 19% reduction but in PRODUCTIVE CAPACITY 55% CAPACITY NON-PRODUCTIVE CAPACITY 30% productive or MACHINE MATERIALS AVAILABLE CAPACITY 15% available capacity REVENUE $ 350,000 MATERIAL COSTS $ 115,000 LONG TERM: Lean CONVERSION COSTS $ 110,000 TOTAL COSTS $ 225,000 $ - seen in overall Transformation VALUE STREAM PROFITS $ 125,000 $ - cost reduction shown in cash FINANCIAL RETURN ON SALES 36% flow INVENTORY VALUE $ 205,000 CASH FLOW $ 120,000 22 11 9/1/20 23 Three-Dimensional Construction Box Score – Improve understanding of business and better decisions – Box score is the STANDARD WORK for lean accounting – Box score changes thinking into LEAN THINKING GOAL: accountability & responsibility 23 24 Three-Dimensional Construction Box Score – Typically 4 measurements per section – May need to MANUALLY collect information – Flexibility – open to change at anytime – Quantify waste in the value stream – LEAN TRANSFORMATION: seen in cash flows GOAL: accountability & responsibility 24 12 9/1/20 25 Three-Dimensional Construction FINANCIAL IMPACT OF LEAN: QUANTIFIABLE RESULTS – Short term: not seen in cost reduction but in capacity then revenue growth – Long term: seen in overall cost reduction – Cadence: Daily / weekly / monthly / quarterly / yearly Get box score quickly to accelerate lean transformation GOAL: accountability & responsibility 25 26 Three-Dimensional Construction Weekly operational Weekly capacity Weekly financial results performance measurements measurements Also shown on the value stream weekly improvement board Using resources productively Cost under control, reducing (gemba) Want short cycles – quick for root Time spend “productively” and Revenue and profits meeting cause analysis performed within “non-productively” expectations the week Available capacity to add to Also shown on value stream revenue - growth income statement 26 13 9/1/20 27 Three-Dimensional Construction What is the Does the financial decision make Use future 3 questions impact of the sense state if it has the box score decision? operationally? higher requires an return on answer using sales than lean principles current state What is the impact of the decision on capacity? 27 28 Three-Dimensional Construction Capacity: Growth driver for lean improvements: • Eliminating waste creates capacity • Waste is defined as non-productive capacity • Capacity is not listed in the financial statements 28 14 9/1/20 29 Three-Dimensional Construction • Time spent producing to customer demand Productive Capacity • Producing more than what the customer demands is waste and not productive capacity • Time spent on non-value added activities Nonproductive • Typical 8 wastes capacity • Goal to reduce to zero • Capacity not currently being used Available • Time left over for more work • Opportunity for revenue growth 29 30 Three-Dimensional Construction Options when improving capacity Sell more Redeploy resources to Eliminate resources • Increase profits other value streams • Not firing people but creating a • Reduce cost on one value stream strategic plan of eliminating to allow other value stream to resources in a rational manner meet demand • Do not replace people from turnover • Associating head count reduction with lean is anti-lean culture (TOXIC) 30 15 9/1/20 31 • Lean Box Score Examples 31 32 Lean Box Score – Example #1 CURRENT STATE FUTURE STATE ANALYSIS SALES