Financial results - What lean should save

C

chockie

#1
Has anyone out here got a general view on what lean should save in figures ie 2 - 3points on EBIT or 10% saving on operating profit.

What i am looking for are some typical results expected form implementing lean within a typical organisation.

any help????

Chockie :bonk:
 
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Jen Kirley

Quality and Auditing Expert
Staff member
Admin
#2
Re: Financial results

Welcome to The Cove! :bigwave:

I have never seen a general view on what Lean would save in EBIT, typical results, etc. If a consultant presented such a promise to me without doing an analysis first, I'd show him or her the door. Even Nutrisystem says (in small print) "Results not typical" when showing its Super Studly pictures.

That said, Dr. Juran once estimated that 15%-20% of sales are being lost to costs of poor quality. That's sales, mind you, not EBIT.

Is this a class assignment?
 

Stijloor

Staff member
Super Moderator
#3
Re: Financial results

Has anyone out here got a general view on what lean should save in figures ie 2 - 3points on EBIT or 10% saving on operating profit.

What i am looking for are some typical results expected form implementing lean within a typical organisation.

any help????

Chockie :bonk:
Hi Chockie,

What work have you done already that you can share with us?
Fellow Covers would be happy to take a look at it...

Stijloor.
 
W

wmarhel

#4
Re: Financial results

Depending on your particular industry, products, processes and even how your business is structured financially; the effects of lean activities are highly variable. A prime example is a not uncommon improvement of labor (both direct and indirect) on a product that is only comprised of about 8-10% labor, with about 55-65 materials and the rest in overhead. Let's say we take 3 hours out of a process that would normally require four hours from one person; after all, you'll still need to pay that person for the three hours regardless of what they are doing. While the results are clearly evident to a bystander, they typically don't trickle down into the financial statements very well.

The real issue here is two-fold, GAAP (Generally Accepted Accounting Practices) and the fact that Lean isn't a cost reduction measure; it's oriented around growth. If you have any specific questions, ask away. But I would recommend two resources:

Brian Maskell's website who was written about Lean Accounting and the book Real Numbers: Management Accounting in a Lean Organization.

Regards,

Wayne
 
C

chockie

#5
Hi all

Thanks for the responses, Interesting feedback. I have actully been involved with lean for a few years and uderstand the savings that can be achieved through implementing the lean principles. The question came arround in a strategic meeting within a new company I am working for, they are looking at implementing a lean programme (but decided to go with six sigma first!!!). The Issue is that the senior people raised a question regarding overall financial results ie whats the expectation of implementing said programme.

After a lenghty discussion on the benifits of lean and where savings could be made by making the processe more effcient also mentioning that there is some detailed analsing to be completed. The same question came back.

Is there a slide in the forums that indicate the savings made on a basic level that i can show these guys its just not me waffling.

Chockie (ps sorry about the spelling and gramma, in a rush):thanx:
 
B

BMaskell

#6
Chockie:
It seems that the company you are working for have fallen into the common trap of thinking about lean in the terms of traditional management thinking. Of course, cost saving is important, but lean looks at the benefits - particularly the financial benefits of lean - very differently. Over the longer term lean is THE low cost method of running your business (until we find a better way). But it is common when starting lean improvement to see no financial improvement and in fact often the opposite. This can create a great deal of confusion and animosity. The lean guys (and guyettes) are running around declaring how they have saved $1000's (pounds, euros, whatever) and the controller or CFO is no only not seeing these savings but often finds profitability dropping.

When you do lean improvement you eliminate waste. This does not always result in saving costs. But it does always free-up capacity. Lean improvement turns waste into newly available capacity. While "how much do we save?" is a good questions, a better question is "How do we use this newly free'd up capacity to our financial advantage?"

Any kind of standard costing or any fully absorbed product cost calculation (activity-based, RCA, etc.) will be harmful and misleading to lean operations. They are harmful in many many ways, but in this context they are harmful because they will show savings in the product costs when you do typical lean improvements but these are entirely spurious and misleading.

How do you know when a standard product costs is misleading you and doing harm to your business? How do you know when a politician is lying?

Enough of this. I wrote an article on this stuff for the SLoan Management Review about 6 months ago. I can send you a copy if you are interested. There's stuff on our web-site (I am not allowed to give a link, but google BMA Inc. or Lean Accounting) and our books "Practical Lean Accounting" or "The Lean Business Management System" also address this stuff. The books are available on our web-site or Amazon.com and elsewhere.

All the best

Brian Maskell
 
W

wmarhel

#7
Brian makes some very excellent points Chockie. While Lean is targeted towards the removal of waste, the assets and capacity that are newly available should be utilized in some form or another. This should lead your management towards a strategy of growth, something that will not be seen in the current financials since your accounting statements don't consider possibilities. Having idle, and not producing parts, makes many accountant cringe in fear as they are not able to absorb their overhead costs.

A prime example of what can be accomplished is my present situation. Our sales for the current fiscal year to date are trailing last year's by a little over $1 million (USD), yet our profitability is almost twice that of last years with significant other benefits. We have taken lead times from 10-14 weeks down to 2-6 weeks, reduced the typical drivers: set-up times, manpower requirements, etc. But we are being very aggressive in going after new business in the marketplace. Not all of our profitability is due solely to our transformation activities, but it has significantly reduced those costs that had been taken for granted: overtime, lost capacity due to breakdowns, quality/warranty costs, etc.

If I were to put Six Sigma up against a TPS (Toyota Production System) model, and had to choose which one would be more effective over the long term, I would choose TPS. The reason I clearly define the TPS model, and not Lean, over Six Sigma; is that the current trend of Lean has become more of a short-term toolbox approach. This is largely driven by too many consultants/training providers with not enough knowledge or experience. Also, Six Sigma is a problem solving methodology whereas TPS is a way to "manage" the business.

Wayne
 
C

chockie

#8
Thanks again for the help you have summed up everything i have been telling them, may be ishould let them read the feedback in the forums.lol

Has anyone got a one page slide that highlights the benifits of lean, that does not got to deep?.

Chockie
 

Jen Kirley

Quality and Auditing Expert
Staff member
Admin
#9
Thanks again for the help you have summed up everything i have been telling them, may be ishould let them read the feedback in the forums.lol

Has anyone got a one page slide that highlights the benifits of lean, that does not got to deep?.

Chockie
It's more than one slide, but you can look at this MTECH Lean Manufacturing slide show and write down what you think would best suit your presentation needs.
 
A

Ashmot - 2010

#10
It's more than one slide, but you can look at this .......
When i tried to open using the link, it gave me error message.
Try this way.

Go to "Maryland Technology Extension Service" website, click on "Resources" in the left column.
Then under section <Presentations - Lean Manufacturing>; download "Lean Overview"

Hope it is helpful.:)
 
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