Just the other week, I had the privilege of visiting with three or four companies that were doing lean process improvement. In every visit, each company invited me into their “war room” where they took great pride in showing me their process and value-stream maps and the other trappings of their continuous improvement efforts.
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What struck me, was that despite the general excellence and detail of their value-stream maps, populated as they were with copious amounts of technical process data, there was something vital missing: the process waste or muda expressed in real dollar terms.
For example, a company would typically identify its setup or changeover times on its value-stream map. Usually, this would be expressed in units of time—the hours and minutes incurred per setup. The company would then undertake setup reduction efforts designed to reduce the setup time and achieve faster flows, smaller lot sizes, and more flexible production.
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Comments
"Activity" costing
I worry a bit when I see advice to use "activities" as the basis for costs. This sounds much like "activity-based costing" -- a practice that is anathema to Lean. I can't tell from this article if Mr. Anderson is advocating the use of ABC, but even if he is not I would suggest that he choose a different word than "activity" for the fundamental costing unit.
John Gunkler
Quantifying Waste
It's obvious Mr. Anderson like many lean and 6 sigma "gurus" has never read Juran for if he did he would know that the people responsible for identifying the "muda" and engaging in the kaizen events speak in the language of things, time, feet, pieces, defects, not dollars. Dollars are the language of managemenet not the "gemba". Having them try to figure out what things really cost would only slow the process down.
It is up to the cost accountants to determine the cost of something. Let the bean counters count the beans and the doers make "things" happen.
Financial Activity Analysis
This article states that use of a financial activity analysis "answers the oft-asked question: How much are we saving if we make changes?" I don't see how use of this technique answers that question for management. The financial reports used by management won't show the savings generated by Lean improvement efforts unless material, labor expenses or supporting expenses are reduced or eliminated.
The article highlights two process illustrations, a setup reduction activity and a material receiving activity. Using the financial activity analysis to quantify savings on a setup reduction effort would typically demonstrate cost savings for reduced setup time and reduced setup scrap. However, unless the company can realize a true headcount reduction as an outcome of the setup reduction effort, only the savings from the scrap reduction will show up on the bottom line. In the material receiving example, the entire activity is non-value added but necessary. In this example, getting a receipt done accurately in a short time with minimal expense should be the goal. Again, no real savings will show up on the management's financial reports unless material, labor expense or supporting expenses are reduced or eliminated (i.e. headcount reduction, reduced receiving or receiving inspection scrap, reduced consumable materials used during the receiving process).
The financial activity analysis itself is a waste. It may help prioritize kaizen events but it's not something a customer would be willing to pay for and doesn't really answer the "How much are we saving" question asked by management. It justifies theoretical savings rather than savings that will show up on the bottom line.
Interestingly enough, the management question "How much are we saving" is short-sighted and runs counter to the following tenets - base your management decisions on a long-term philosophy, even at the expense of short-term financial goals (The Toyota Way - pg 37, Principle #1); the right processes will produce the right results (The Toyots Way - ppg 37-39, Principles #2-8); if a company is constantly improving its processes, the results in ROI will come (Real Numbers - pg 40).
- Kreg Worrest
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