As we progress further into our lean journey, we are noticing a slight problem. How do we measure lean? Initially we would have said, What do you mean? We should continue to use our standard measurements. Otherwise, how can we get relative comparisons to what we are doing now. How do we know if these principles are improving our operations?
But as we continue to use our standard cost accounting measurements, we start to notice a contradiction. Lean manufacturing is based on flow, flow of the entire manufacturing process from receiving the order to shipping the order. Cost accounting is based on local
What is the point of the measurements? To give managers relative data in order to make decisions that will ultimately lead to an increased bottom line. Isn’t that ultimately the goal?
optima. Lean tells us our goal should be single piece flow, cost accounting tells us we need to run higher batches in order to amortize setup time over more parts. Lean tells us to not over produce. Cost accounting tells us we need so many parts per hour. Does anyone notice a slight conflict? Not to mention the mountains of data that we need to collect to incorporate these measurements. What is the answer, to abandon all we have been taught, to kill the sacred cow?
Our feeling is yes, cost accounting no longer offers valid measurements. What is the point of the measurements? To give managers relative data in order to make decisions that will ultimately lead to an increased bottom line. Isn’t that ultimately the goal? Do shareholders care how many parts per hour are produced? Do they care what the direct labor to overhead ratios are? Not really. They want their expectations of EPS and ROI met, whether it is a publicly traded company or solely owned. We need our measurements to reflect real bottom line results, not just to manipulate the numbers according to our mood or the ends of our accounting periods. So what are the valid measurements? How do we give ourselves and our managers the ability to make good decisions that will ultimately result in increased profits? Good question. As we continue on our lean journey, we are starting to explore the concepts of throughput accounting. Creating measurements based on a holistic approach, and not local optima. As we continue forward, we are not only focusing on lean principles, we are also focusing on lean measurements.