1. Implementing Lean Accounting Making it happen © BMA Inc. 2008. All rights reserved.

2. Implementing Lean Accounting 1.The maturity path 2.Role of executives 3.Implementation steps © BMA Inc. 2008. All rights reserved.

3. 1.The maturity path Making a Start with Lean Transformation Progressing with Lean Becoming a Mature Lean Organization As your lean transformation progresses there is need and opportunity to make more changes to the management systems. © BMA Inc. 2008. All rights reserved.

4. Progressing with Lean Becoming a Mature Lean Organization Making a start with lean Making a Start with Lean Transformation Successful lean cells Extensive training in lean principles Kanban pull & 5S SMED & quick change- over Standard work Quality at source & self-inspection Active executive leadership Values & behaviors Empowerment & mentoring No lay-off policy Voice of the customer Value-based pricing PDCA problem solving Process mapping Break-through improvement Cell measurement boards Financial benefits of lean improvement Eliminate variance reports Automate some transactional processes Lean in accounting processes © BMA Inc. 2008. All rights reserved.

5. Becoming a Mature Lean Organization Making a Start with Lean Transformation Progressing with lean Value stream management Cellular manufacturing with std. work & single-piece-flow Extensive use of visual systems Improvement teams trained & established Significant change & improvement Serious inventory reduction Initial supplier certification & kanban pull Value stream organization Cross-functional value stream teams Supplier partnerships Simple profit sharing Value based sales & marketing Sales teams Team-based sales remuneration SOFP Level scheduling Value stream mapping Lean office Value stream improvement Empowered improvement projects Integrated performance measures Value stream performance boards Value stream costing Decision-making using VS costing Eliminate standard costing Radical elimination of transactions Simplify inventory valuation Replace financial statements with “plain English” reports Widespread use of Box Scores Progressing with Lean © BMA Inc. 2008. All rights reserved.

6. Progressing with Lean Making a Start with Lean Transformation Becoming a mature lean organization Extensive partnership & cooperation with customers, suppliers, & partners Value streams extend outside our four walls Continuous improvement is a way of life Widespread empowerment Lean through-out the enterprise Customer partnerships Strategy deployment Extended value stream mapping outside company Lean product development Target costing Eliminate inventory tracking Becoming a Mature Lean Organization © BMA Inc. 2008. All rights reserved.

7. 2. Role of the executive team

8. © BMA Inc. 2008. All rights reserved. Role of the executive team Change the company’s fundamental metrics –Lean focused metrics, focused on process not outcomes, stretch goals Insist on “plain English” financial reports –Insist that financial reports can be immediately understood by non-financial people Never ask the traditional questions about variances, efficiency, absorption, or margins. Require box score style information for decision-making Insist on simplified accounting & measurement systems and timely information Integrate Sarbanes Oxley into administrative process improvement Don’t be satisfied with “streamlining” processes that should be largely eliminated.

9. © BMA Inc. 2008. All rights reserved. Role of the executive team Include lean accounting in the company’s hoshin strategy deployment Include lean accounting in the company’s broader lean strategy Assign people full time to the implementation of lean accounting systems and make sure they have the needed resources Educate the entire management team in lean accounting and why their behaviors must change. Lean change starts at the top of the company. Lean is about leadership.

10. © BMA Inc. 2008. All rights reserved. Role of the executive team Organize around value streams Insist on visual management everywhere –All performance reporting visually –All routine meetings around the visual boards –All managers at the “gemba” –Executive team frequently taking “gemba walks” Talk lean everyday in every meeting –Show that lean is not lean manufacturing but lean enterprise –Not a program but a strategy –Insist that every aspect of the company pursue lean Use target costing –Understand customer value and drive lean improvement Visual management enables understanding and improvement.

11. © BMA Inc. 2008. All rights reserved. Role of the executive team Focus on the process, not the outcomes Focus on building customer value, not the outcomes –Earnings, stock price, EVA, etc. focus on value to the owners not value to the customer Bring auditors, stockholders, analysts, the board, banks, unions, suppliers into the process as soon as possible. Require a PDCA problem-solving approach throughout Allow people to fail –Create a non-blame culture Recognize that – in the end – lean is all about people Provide “air-cover” for early adopters The first principle of lean thinking is that we focus on value for the customer.

12. © BMA Inc. 2008. All rights reserved. 3.Implementation steps © BMA Inc. 2008. All rights reserved.

13. Implementation steps Maturity path Lean accounting can be implemented rapidly when lean manufacturing (and other lean processes) are in place and mature. In the early stages of lean, the early stages of lean accounting can be implemented. As lean becomes more mature within the organization, more lean accounting can be implemented. Develop a maturity path plan for implementing lean accounting. Define “What Must Be in Place” to enable each aspect of lean accounting to be used.

14. © BMA Inc. 2008. All rights reserved. Implementation steps Establish pilot locations Identify the locations within the company that are best able to implement lean accounting. Apply the resources to make these the model for future implementation. Use these locations as the “proving ground” for the new methods. Always implement using cross-functional teams. Create an implementation methodology for the pilots. Use training followed by a series of kaizen events to implement lean accounting.

15. © BMA Inc. 2008. All rights reserved. Implementation steps Train the Trainer Assign some people to become the leaders and trainers of lean accounting. –Teach the training –Facilitate the kaizens –Ensure sustaining The consultants will work closely with these people to bring them quickly to the point where they can take over the implementation without any outside help. This should be possible after the second pilot is in place.

16. © BMA Inc. 2008. All rights reserved. Implementation steps Develop standardized work Standardized work is required for all aspects of lean; and lean accounting is no exception. Train everyone on the standardized work. Do not forget to include standard work for sales, decision-making, pricing, target costing, and so forth. Put a process in place for the people in the process to improve the standardized work. Use visual documentation and color-code the risk & sox places, together with how they are mitigated & tested.

17. © BMA Inc. 2008. All rights reserved. Implementation steps Run Parallel – but not for long Run parallel reporting for a while to ensure that the new reports and information is valid and accurate. Be ready to quickly turn off the old system when you are satisfied the new system is working right. Parallel processes are double-waste. Plus this enables people to not adopt the new processes when they have the old ones also. Do it for as long as you need to be assured the new processes are OK. Throw away the training wheels !!

18. © BMA Inc. 2008. All rights reserved. Implementing the lean business management system 1.The maturity path 2.Role of executives 3.Implementation steps

19. © BMA Inc. 2008. All rights reserved. Implementation advice: from companies who have made it happen