The document discusses the importance and implementation of lean accounting, which aims to replace traditional accounting methods with systems that support lean strategies and eliminate waste. It outlines key principles of lean accounting, such as customer value, value streams, and simplified reporting, focusing on how to drive improvements in financial performance and decision-making. Additionally, it emphasizes the significance of understanding customer value and the need for effective financial forecasting over traditional budgeting.

1. LEAN AND THE
FINANCE/ACCOUNTING
FUNCTION
DAVID B. BLAIN (PRINCIPAL)

4. LEAN AND THE
FINANCE/ACCOUNTING
FUNCTION
DAVID B. BLAIN (PRINCIPAL)

5. WEBINAR AGENDA
• The need for LEAN Accounting Versus Traditional Accounting Methods
• LEAN Accounting and Finance Techniques
• Implementing LEAN Accounting
• Questions

6. THE NEED FOR LEAN
ACCOUNTING

7. • Purchase price variance
• Overhead absorption
• Production variances
• Standard product costs
• Just-in-time inventory
• Make-to-order
• Make-to-order and quick changeover
• Value stream profitability
THE NEED FOR LEAN ACCOUNTING
Traditional Measurement LEAN Behavior

8. THE NEED FOR LEAN ACCOUNTING, CONT.
• Traditional accounting often shows bad results when good LEAN change is
happening.
• Traditional accounting misleads us about the true impact of LEAN change.
• We must understand the LEAN Economics; eliminate waste, grow the
business.
• Understand the financial and operational benefits of LEAN and you can make
better choices.

9. THE NEED FOR LEAN ACCOUNTING, CONT.
• The purpose of LEAN Accounting is to create an accounting, control,
measurement, and decision-making system that supports and enhances the
Company’s LEAN strategy.
• LEAN Accounting is not an additional system.
• LEAN Accounting replaces the traditional accounting methods.
• LEAN Accounting is itself LEAN.

10. LEAN ACCOUNTING AND
FINANCE TECHNIQUES

11. LEAN ACCOUNTING AND FINANCE TECHNIQUES
LEAN Consist of 5 Key Principals
• Customer Value
• Value Streams
• Flow and Pull
• Empowered People
• Pursuit of Perfection
Work and organize around the flow of the Value Stream

12. 1. VALUE STREAMS
• Create a team focused on Value and Flow.
• Close to the customers and clear understanding of value.
• Flow from sales and delivery and cash.
• See the flow and see the waste.
• Eliminate waste and speed up flow.
• Clear accountability.

13. 1. VALUE STREAMS, CONT.
• Finance and Accounting are considered “Outside” of the
value stream.
• These people “support” the value stream.
• Build a team that understands its customers are the
internal value stream.
• Build reporting and modeling around the needs of the
value stream.

14. 2. SIMPLIFIED REPORTING
• Quick, understandable and timely value stream reporting.
• Financial reporting for better cost controls.
• Weekly value stream meetings to understand spending
and make improvements.
• Clear accountability for revenue, costs and profits.

15. 2. SIMPLIFIED REPORTING, CONT.
Value Stream Income Statement
Gross Revenues $XXX
Direct Cost
• Materials XXX
• Labor XXX
• Facilities XXX
• Machines XXX
Gross Profit $XXX

16. 2. SIMPLIFIED REPORTING, CONT.
Benefits of a Value Stream Income Statement
• Understood by everyone
• Separates value stream profit from financial accounting adjustments.
• Accurate cost information
• Real spending
• Checkbook of the value stream
• Relationship to continuous improvement
• Eliminate waste – reduce actual costs

17. 3. WEEKLY PROBLEM SOLVING
Weekly Problem Solving Drives Improvement
• Visual display of measures.
• Measures updated in the value stream.
• Weekly value stream meetings to analyze results.
• Root causes identified and solutions created.

18. 4. BOX SCORES
• See the true performance
• Operational, capacity usage, financial
• Keys that drive good financial outcomes
• Make better decisions
• See the true impact on the value stream
• Valid, up-to-date information
• Evaluate many scenarios and what-ifs
• Standardized work for decisions
• Understand Value Stream Performance and Make Good Decisions

19. • Improve Process Capabilities
• Improve Value Provided To The Market
• Relentlessly Eliminate Waste
• Create Opportunity to add demand
• Increase Revenue and Cash Flow
• Reduce Costs and Increase Cash Flow
4. BOX SCORES, CONT.

20. Operational/Capacity Measures
• Units per person
• On time shipments
• Average Cost
• AP/AR Days
• Productive Time
• Non Productive Time
• Available Capacity
Financial Measures
• Revenue
• Material Costs
• Inventory
• Value Stream Profit
• Value Stream Return on Sales
4. BOX SCORES, CONT.

21. 5. VALUE BASED PRICING
• Price and cost are not related.
• Price is determined by the value created for the customer.
• We need a deep understanding of what creates value for
our customers.
• Differentiate customers, products, and markets based on
value.

22. 5. VALUE BASE PRICING, CONT.
Primary Drivers of Value for Customers
• Direct financial benefit to the customer.
• Customers’ of customer have direct financial benefit that results
in additional services for customer.
• Risk reduction.
• Ease of doing business.
• Intangible issues.

23. 5. VALUE BASE PRICING, CONT.
Voice of the Customer
• To understand the customers’ value proposition. We must
listen!
• Voice of the Customer is a systematic way to learn what the
customer values, why they value these things, and how much
they value them.
• From this we can calculate the value we create for the customer,
set a value-based price, and decide the target cost.

24. 6. TARGET COSTING
Most Companies: Price = Cost + Margin
LEAN: Cost = Price – Profit Needed
Target cost is defined as the allowable cost that can be incurred on
a product and still earn the required profit

25. 6. TARGET COSTING, CONT.
• Creates deep understanding of the value and costs.
• Design products to meet the value needs of the customer.
• Design products to meet the profit needs of the business.
• Drive value stream spending to match target costs.
Cost Are Driven By Value.
Get The Right Costs.

26. 6. TARGET COSTING, CONT.
Achieving Target Costs
• Most costs are determined during design.
• Planned material costs are tracked and reported against the target material cost throughout
the design process.
• Tooling and other start up costs are tracked and reported throughout the design process.
• Concurrent engineering ensures that the new products are designed for flow through the
value stream.
• Additional costs of production and distribution are assessed using the box score.
• After product launch the value stream team tracks the actual costs through value stream
accounting.

27. 7. BUDGETING VS. PLANNING
• Budgeting process is complicated and time consuming .
• Budgets are usually out of date before they are implemented.
• Budgeting is classic “Top Down” management.
• LEAN companies create financial forecasts each month coming
from the planning process.
• Sales, Operations and Financial Planning (SOFP)

28. 7. BUDGETING VS. PLANNING, CONT.
SOFP Eliminates Annual Budgeting
• Financial forecast is updated monthly with 15-24 month
projections.
• Authorized by Executive Leaders
• Financial forecasts are relevant, accurate and timely.
• Better control and accountability.

29. 7. BUDGETING VS. PLANNING, CONT.
SOFP Has Continuous Improvement Built Into the Process
• Sales and Capacity forecasts are reviewed for accuracy and bias,
and projects done to improve.
• Financial results are reviewed for achievement using a financial
report and a box score.

30. IMPLEMENTING LEAN
ACCOUNTING

31. IMPLEMENTING LEAN ACCOUNTING
Identify Roles and Responsibilities of Senior Leadership
• Include LEAN Accounting in strategy deployment.
• Assign people full-time to LEAN Accounting implement teams.
• Approve, sanction and support implement plans.

32. IMPLEMENTING LEAN ACCOUNTING, CONT.
Establish a Formal Implementation Process
• Establish a pilot location
• Assess and learn
• Full deployment
The Key to Successful Implementation
LEARN BY PRACTICING

33. IMPLEMENTING LEAN ACCOUNTING, CONT.
Benefits of a LEAN Accounting System
Profit Assumption
• Increase revenue by providing superior value to customers.
• Manage cost by managing flow and waste.
Measures
• Frequent reporting of process measurements – Flow, Quality, Productivity, Delivery
and Cost

34. IMPLEMENTING LEAN ACCOUNTING, CONT.
Benefits of a LEAN Accounting System
Behaviors
• Make-to-order
• Short lead times
• Visual Controls
• Continuous improvement/elimination of waste
Results
• Superior Customer Value - Quality, Delivery, Lead Time

35. David B. Blain
• dblain@macpas.com
• 717-761-7910
• www.leanaccountants.com
CONTACT