Video: Make Financial Information Useful for Humans

Make Financial Information Useful For Humans, Not Just Accountants from Brian Maskell on Vimeo.

Posted in Lean Accounting, Lean Culture, Lean Management System, Lean Manufacturing, Management Accounting, Performance Measures, Value Streams | Leave a comment

Lean & Six Sigma: What’s The Difference??

WHY:           Lean primarily focuses on how we create value for the customer, rather than on the production or other processes. Waste is anything we do that the customer does not value. Six Sigma primarily focuses on the processes that create the customer value. Six Sigma has rigorous, usually statistical, methods to identify poor processes, and to create robust, repeatable, and perfect processes.

HOW:           Lean companies systematically work on increasing customer value and eliminating waste. There is waste everywhere in the company. Administrative, financial, & managerial processes are 100% waste. Sales and marketing contain huge amounts of waste. The factory process also has huge waste but also has a huge amount of value-add. Six Sigma seeks to eliminate variability in the processes. Six Sigma identifies poor processes and there are standard methods for identifying, analyzing, changing, measuring, and validating the improvements.

TOOLS:           Six Sigma has a clear set of tools that can be used very successfully by trained engineers to make much improved processes. Lean does not really have “tools”. Lean methods change according to the circumstances and the customers needs. But over the last 20 years a certain number of methods deriving from Toyota Motors have become popular and are largely standard within US and Western manufacturing. Lean tools do not make for a lean organization; there must be a passion for continuous improvement that increases customer value week in and week out.

WHO:            Owing to the complexity of the methods and statistics, Six Sigma projects are generally run by production engineers and other “professional” people. Six Sigma projects usually run over several months and create significant, measurable change.
Lean improvement is primarily done by the people working in the company’s processes, and the benefit comes from a large number of small improvements. The people are trained on-the-job by engineers or lean specialists. This leads to genuine continuous improvement driven by the workforce, rather than a series of projects driven by the managers and engineers.The “pursuit of perfection” becomes ingrained in the company’s culture.

THINKING:            Six Sigma can be applied in any kind of industrial organization. Six Sigma is not dependent on the company’s Lean ambitions. Six Sigma does not change any fundamental thinking within a company; it can be used frequently or occasionally.
Lean is not a series a tasks and methods; it is a radically different way of managing the company. Lean thinking is largely the opposite of 20th century management practice. A company can not achieve success by “applying some lean tools”. Companies are only successful will Lean if their leaders passionately embrace strategic business change.

COMING SOON: very personal piece on “Where Lean Accounting Came From–and Why

Posted in Economics of Lean, Healthcare, Industry, Lean Management System, Lean Manufacturing, Strategy | Leave a comment

Why Measuring Efficiency is Anti-Lean

The measurement of people’s efficiency has a long history in manufacturing industries. The design and production engineers calculate the time required to manufacture a product or batch of products. Each time the product is made, the “actual time” is measured and recorded. The efficiency of the production people (or the process) is calculated by dividing the standard time by the actual time.

If the actual time is faster than standard, the efficiency will be greater than 100%. When the actual time is longer than standard, the efficiency is less than 100%.

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The purpose of measuring efficiency is to monitor if the people and the process are running at the right speed so that the right number of units are made according to the production schedule, and the need’s of the customers. When the efficiency measurement is significantly less than 100% an investigation is made so that the shortfall can be caught up, and the reasons for the problem identified.

Traditional approaches to manufacturing finds these measurements very helpful. The measurements were designed to support the “scientific management” developed by Frederick Taylor (and others) in the 1920’s when modern industrial methods were first standardized. These clever and innovative engineers and entrepreneurs based their methods on a few key paradigms.

  • One was that the operations people in a manufacturing plant have “separation of duties”. The people should not make the whole product but each have specialized skills. The products pass through several work stations from fabrication to finished products.
  • A second paradigm is that the plant must maximize the use of the operators time. Operators are an expensive resource and we need to make sure that every minute is used productively.
  • A third is that making large batches of products optimizes the production time and productivity.

The outcome of these assumptions is that the factory makes products all the time, builds finished goods inventory, serves the customers effectively by having available product, and minimizing the product costs. The underlying philosophy of manufacturing management is that we need maximize the “economies of scale” and produce as many products as possible, and to harness the production operators 100% of the time.

None of this thinking works in a lean organization. “Overproduction” is one of the famous Seven Wastes articulated by Shigeo Shingo.

  1. Lean companies do not want their people working all the time making the products. The people need time to work on improvements in their work areas. These improvements are not the large “kaizen events”; they are “continuous improvements”. Hundreds of small improvements initiated by the people in the cells or other work areas. These many small improvements lead to huge benefit as the small improvements add up to significant change, and the people making the changes are the people with the most knowledge.
  2. If the company emphasizes production efficiency, then the people will work to create maximum efficiency. One way to achieve this is to shortcut the standardized work required to make the product, or other tasks the people are doing. This may lead to short-term “efficiency” but violating standard work compromises quality and consistency.
  3. Making larger batches increases the efficiency measurement of production but violates single-piece-flow which is fundamental to lean manufacturing.
  4. Another way to increase efficiency is to change the sequence of products being made so as to minimize such things as change-over or materials handling. In many cases the production sequence is important to providing the right products to the customers, and leads to shortages or delayed delivery of all the products the customer needs today.
  5. A more important issue is that process problems are overlooked and hidden when the people are driven by efficiency. Lean companies identify problems immediately by stopping the process and solving (or at least fixing) the problem so that it will not happen again. This is an important aspect of continuous improvement.

If Efficiency is Anti-Lean then What Do We Measure?

A common way to measure the production process in a lean organization is to use the Day-By-The-Hour chart.

Slide023

The production quantities for each hour are shown in the Schedule column. The quantities completed are shown in the Actual column and the problems are recorded in the right hand column. This visual board is posted in the work area and kept up-to-date each hour. The board controls the production quantities, initiates problem solving, and ensures that the right products are made at the right time and in the right sequence.

Different versions of the Day-By-The-Hour chart are used in office, warehouse, design, and other processes to create control of the work processes.

bmaskell@maskell.com

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