LEAN AND ACCOUNTING the role of the CEO and CFO

LEAN AND ACCOUNTING:
The Role of the CEO and CFO

Orest J. Fiume
Retired Vice President - Finance
The Wiremold Company
Copyright 2006 by Orest J. Fi

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LEAN
A Business Strategy
Not
A Manufacturing Tactic
Not
A Cost Reduction Program
Copyright 2006 by Orest J. Fi

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A Simple Example
Two Companies in Same Industry Using Same Equipment
Company A

Company B

Set Up Takes 1 Hour

Set Up Takes 1 Minute

• Who Has Lowest Cost?
• Who Can Provide Best Customer Service?
A Small Process Improvement Provides
Enormous Strategic Advantage
Copyright 2006 by Orest J. Fi

3


Time-Based Strategies
Lead-Time Reduction

Critical for driving improvement to your customers

Copyright 2006 by Orest J. Fi

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Time-Based Strategies
Lead-Time Reduction

The key is to reduce your processes to “core value”
Copyright 2006 by Orest J. Fi

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But What About

Non-Manufacturing Companies
All Companies have similar processes

Manufacturing
Develop new products
Take orders
Process orders
Purchase materials
Make products
Payroll
Ship product
Close the books
Accounts receivable
Accounts payable
Hire people

Copyright 2006 by Orest J. Fi

Service
Develop new services
Take orders
Process applications
Purchase supplies
Provide services
Payroll
Ship product ?
Close the books
Accounts receivable
Accounts payable
Hire people

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Why Doesn’t Everyone Do “Lean”?
• Easy to Agree With
• Hard To Do

Why Is It So Hard?

Copyright 2006 by Orest J. Fi

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Most Companies View “Lean” as
Some Manufacturing Thing
• Just an Element of Strategy
• Delegate it Down in the Organization - But
Don’t Remove the Barriers
–
–
–
–

Make the Month
Absorption Accounting
MRP and Other Computer Systems
Direct to Indirect Employee Measurements
Must Be Company Strategy To Be Successful

Copyright 2006 by Orest J. Fi

8


OBSTACLES TO CHANGE
• “But, those companies aren’t like ours, we
have different problems”
• “We’ll change, but let’s do so very slowly”
• “Our auditors won’t accept that”

Copyright 2006 by Orest J. Fi

9


What Does It Take To
Go to Lean Thinking?
It’s a Culture Change
That Requires Leadership…
Because In The End
It’s All About People
Copyright 2006 by Orest J. Fi

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CEO’s Role

Copyright 2006 by Orest J. Fi

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Learn Lean Thinking
• “Lean is a personal journey as well as an
institutional one”
– Jones, Aguirre and Calderone

• “If the CEO doesn’t know Lean and how to
do it, you’re not going to be successful at
implementing it in that company”
– Art Byrne
Copyright 2006 by Orest J. Fi

12


Out Front-Hands On-Don’t Delegate
• “Lean Thinking…is an entire business
model that must be run by the CEO”
– Jim Womack

• “If you can’t get the CEO to lead this, then
don’t start because you are wasting your
time.”
– Art Byrne
Copyright 2006 by Orest J. Fi

13


Lot’s of Leaps of Faith
• Every decision contains a leap of faith,
some more than others
– Get a sensei

• Every decision is a prediction of the future

Copyright 2006 by Orest J. Fi

14


Change Metrics
Why are Metrics Important?
• Metrics send a message to employees as to
what management thinks is important
• Employees want to appear to be doing what
management wants them to do
• METRICS SHAPE BEHAVIOR
Copyright 2006 by Orest J. Fi

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When Should Metrics be
Addressed?
AT THE BEGINNING OF THE LEAN

TRANSFORMATION

Copyright 2006 by Orest J. Fi

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Who are the Principal
Users of Metrics

The Workers

Copyright 2006 by Orest J. Fi

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How should we use metrics?
• “Leaders may be judged by he numbers they deliver,
but that’s not the way they should run the company”
– Rowan Gibson

• “The winners will be those companies that focus on
their processes, not their results”
– Art Byrne

We don’t want to be a “make-the-month” company
Copyright 2006 by Orest J. Fi

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Create an environment where it is OK to fail

Failure vs. Making Mistakes
“Every failure teaches a man something, if he will learn”
Charles Dickens

Copyright 2006 by Orest J. Fi

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Provide Air Cover for Early Adopters
• A small number will quickly understand it
and like it
• A small number will feel threatened and try
to kill it
• What is everyone else doing?

Waiting To See Who Wins
Copyright 2006 by Orest J. Fi

20


Eliminate Concrete Heads
But do it the right way…
everyone is watching

Copyright 2006 by Orest J. Fi

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Have a “no lay-off’ policy
“No one will lose their
employment as a result of
productivity gains”

Copyright 2006 by Orest J. Fi

22


Organize Around Value Streams
• Traditional organizational structure hides
problems
• Value streams look at the organization
horizontally, not vertically

Flatten the organization
Copyright 2006 by Orest J. Fi

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Plan to answer the question:
“What’s in it for me?”

Profit Sharing

Copyright 2006 by Orest J. Fi

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CEO’s Role - Summary
•
•
•
•
•
•
•
•
•
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Learn Lean Thinking
Out Front - Hands On - Don’t Delegate
Lots of Leaps of Faith
Change Metrics
Create an Environment Where it’s OK to Fail
Provide Air Cover for early adopters
Eliminate Concrete Heads
Have a “no-layoff” policy
Organize around Value Streams
Profit Sharing

Copyright 2006 by Orest J. Fi

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