The LEAN Accountants

Achieving World-Class Cost Optimization

In the years since the economic downturn, most companies have pursued quick and easy procurement cost reductions. However, many businesses continue to leave money on the table because transformational change is challenging and imposing. Most organizations know they can reduce costs further, but take shortcuts to implement quick fixes that have little long-term impact. Nevertheless, companies can develop a culture of continuous cost optimization by utilizing a focused organization to plan, execute, and sustain advanced cost-reduction practices.

 Even when companies establish a "center-led" strategic sourcing and procurement organization, limitations of effectiveness often arise. These are due to specific issues (like a lack of technical expertise) in the sourcing and procurement organization, limitations (often of negotiation or management expertise) of the business units responsible for contracting goods and services, or a lack of coordination between the two. By combining the knowledge of the sourcing and procurement organization and the insight from the business units, organizations can shift their focus from cost-cutting band-aids to long-term cost structure optimization.

The first step for a company is to establish a new organization focused on driving company-wide cost optimization. This organization must have a senior leader who reports directly to the C-suite, as well as "category teams" to leverage the knowledge and experience of those involved in the daily processes of good and service procurement. Each category team should include a manager, key spenders and support members, transactional members (buyers), and a finance representative to act as an independent "scorekeeper." The team could also include strategic sourcing or procurement staff or other key stakeholders.

The second step is for the new cost optimization organization and its category teams to plan and execute advanced cost optimization practices. The focus should be on rate (or price) reductions, which impact supplier relationships, and usage (or consumption) reductions, which impact internal stakeholders. Leading organizations address these areas with maximum effectiveness using multiple tools and practices, often in the areas of:

 

• Advanced Strategic Sourcing and Category Management Practices such as developing and implementing a formal sourcing strategy.
• Advanced Supplier Relationship Management (SRM) practices such as implementing cost improvement programs, supplier audits, contract restructurings, and contract compliance reviews. 
• Demand and Specification Management such as developing demand forecasts, identifying pooling opportunities, and evaluating and optimizing goods and service specifications.
• Benchmarking, Market Intelligence and Should-Cost Modeling such as leveraging relevant rate and usage benchmarks and developing should-cost modeling capabilities for key spend categories. 

The final and most critical component is ensuring the savings "stick." Just like how it took you four times of trying a low-carb diet and seeing your ten pound weight loss come grumbling back a month later to realize that it wasn't a "diet" you needed but a "lifestyle change," many cost reduction efforts by organizations never fully come to fruition due to a number of poor practices, controls, and other internal changes. Savings "leakages" are most common in vendor relationships, where inadequate vendor set-up, negligent maintenance of item masters, and too many change orders can erode cost savings. Savings also tend to run away during the procure-to-pay process, often due to insufficient control of purchase requisition and PO approvals and a lack of three-way matching for goods and services. The independent "scorekeeper" is vital to tracking cost savings and reducing the budget line items accordingly, thus preserving the integrity and effectiveness of the program. Many businesses struggle to capture savings and increase operating income. Best practice is to reduce relevant budget accounts with the negotiated savings, then track realization with the suppliers and business units.

By planning, executing, and sustaining advanced cost optimization practices (via a dedicated and focused organization), companies can develop a culture of continuous savings maximization. Organizations willing to invest in establishing world-class cost optimization capabilities, instead of quick fixes, will realize benefits ranging from cost-based competitive advantages to improved gross and operating margins. Plus, no one likes ripping off a band-aid.

This post was first seen at www.spendmatters.com. The post was written by Hani Alexander, Managing Director at Alvarez and Marsal. Mr. Alexander can be reached at www.alvarezandmarsal.com.

To learn more about this post or other matters related to LEAN, please contact the LEAN Accountants of McKonly and Asbury, LLP.

Determine the Root Cause: 5 Whys?

The 5 Whys is a technique used in the Analyze phase of LEAN environment. The 5 Whys is a great tool that doesn't involve a statistical hypothesis and in many cases can be completed without a data collection plan.

By repeatedly asking the question "Why" (five is a good rule of thumb), you can peel away the layers of symptoms which can lead to the root cause of a problem. Very often the reason for a problem will lead you to another question. Although this technique is called "5 Whys," you may find that you will need to ask the question fewer or more times than five before you find the issue related to a problem.

Benefits Of The 5 Whys

• Help identify the root cause of a problem.
• Determine the relationship between different root causes of a problem.
• One of the simplest tools; easy to complete without statistical analysis.

When Is 5 Whys Most Useful?

• When problems involve human factors or interactions.
• In day-to-day business life; can be used within or without a LEAN project.

How To Complete The 5 Whys
1. Write down the specific problem. Writing the issue helps you formalize the problem and describe it completely. It also helps a team focus on the same problem.
2. Ask Why the problem happens and write the answer down below the problem.
3. If the answer you just provided doesn't identify the root cause of the problem that you wrote down in step 1, ask Why again and write that answer down.
4. Loop back to step 3 until the team is in agreement that the problem's root cause is identified. Again, this may take fewer or more times than five Whys.

5 Whys Examples
Problem Statement: Machine 12 uptime is 50%
1. Why does the machine only have 50% uptime?
   - The operator is cleaning oil from the floor 2 hours per shift.
2. Why is the operator cleaning oil from the floor 2 hours a shift?
   - Valve 623 is leaking.
3. Why is valve 623 leaking?
   - The valve was not rated for the correct pressure .
4. Why was the valve not rated for the correct pressure?
   - The machine was not tested prior to release to manufacturing

5. Why was the machine was not tested prior to release to manufacturing?
   - There wasn’t a standard that required equipment process checks.

In this case five Whys were required to find out that a non-value added standard for equipment process checks was not being followed. 

As you can see, the final Why leads the team to a statement (root cause) that the team can take action upon.

5 Whys And The Fishbone Diagram
The 5 Whys can be used individually or as a part of the fishbone (also known as the cause and effect or Ishikawa) diagram. The fishbone diagram helps you explore all potential or real causes that result in a single defect or failure. Once all inputs are established on the fishbone, you can use the 5 Whys technique to drill down to the root causes.

The 5 Why process is a very valuable tool in the LEAN toolbox. It is simple to use, easy to learn and will identify the root cause of a problem in a clear and concise manner. To learn more about the 5 Why process, Please contact the LEAN Accountants of McKonly and Asbury, LLP.

Harrisburg Regional Chamber To Sponsor LEAN Event January 25th

The Harrisburg Regional Chamber will be sponsoring a program called "Return on Investment (LEAN, 5S, LEAN 101a)" on Wednesday January 25th, 2012 from 11:30 am to 1:00 pm. The event will take place at the Appalachian Brewing Company located at 50 North Cameron Street in Harrisburg. Through this session participants will:

   

• Learn why LEAN techniques can be benefical to their business
• Be introduced to the concept of LEAN and 5S
• Learn about additional training opportunities available

The session will be led by representatives of MANTEC. MANTEC is one of seven industrial resource centers (IRC's) located in the Commonwealth of Pennsylvania with the goal of supporting and growing manufacturing in the Commonwealth of Pennsylvania.

To learn more about this program and details on how to sign up, click the following link http://www.leanaccountants.com/Mfr%20Roundtable%20Flyer%20Jan%202012.pdf.

To learn more about the concepts of LEAN, please contact the LEAN Accountants of McKonly and Asbury, LLP.

What is SMED and Why is it Important?

LEAN principles are all centered on process improvement which leads ultimately to improved efficiency which leads to higher profitability. The concept is simple but getting there is usually harder that one can imagine.

One of the vast building blocks of LEAN relates to quick changeover setup. The faster the changeover times, the less downtime of equipment. Remember DOWNTIME is the definition of the Eight Deadly Waste of a manufacturing environment.

The key to quick changeover setup is the term SMED. SMED stands for Single-Minute Exchange of Die. The SMED system is a theory and set of techniques that make it possible to perform equipment setup and changeover operations in fewer than 10 minutes – in other words, in the single-minute range. SMED principles can be used and applied in almost any operation or process. It was developed to improve die and machine tool setups.

SMED’s goal is to reduce the setup time to within minutes. Depending on the process, setup within minutes may be very difficult, but in most cases, if the SMED principles are followed, drastic reductions in setup time can be obtained.

 

The basic principles of SMED are:

• Identify internal versus external changeover tasks.
• Analyze each task’s real purpose and function.
• Focus on no/low cost solutions.
• Aim to eliminate changeover time.

So you ask, how do I go about this process? SMED is typically broken down into three stages. Each stage has specific tasks and objectives and all are inter-related and work together. Those stages are outlined below.

Stage 1 – Separate internal and external setup

Certain tasks can clearly be done before machines are stopped for changeover. These include lining up the right people, preparing parts and tools, making repairs, and bringing the parts and tools closer to the equipment. There are three practical techniques to doing this:

• Develop and implement changeover checklists.
• Perform function checks on parts and tools.
• Reduce transportation or tools, parts, and materials.

By separating these tasks and performing them as external setup can cut changeover time by as much as 30% to 50%.

Stage 2 – Convert internal setup to external setup

Stage 1 functions alone will not reduce internal setup time to within the single minute range. For that you must implement Stage 2. There are two primary steps to Stage 2:

• Look at the true functions and purposes of each operation in your current internal setup
• Find ways to convert these internal setups to external setup.

The key to successful implementation of Stage 2 is to look at the function as if you are new to it. Three practical techniques help shift internal setup tasks to external setup. Those techniques are:

• Prepare operating conditions in advance
• Standardize functions
• Use intermediary jigs

Stage 3 – Streamline internal and external elements

In this third and final stage, all of the remaining internal and external setup operations are improved. This can be done by looking closely at each operations function and purpose one more time. More specifically, Stage 3 improvements can be divided into external and internal setup improvements. Four basic approaches to accomplishing this are through:

External Setup

• Maintain a visual organized workplace

Internal Setup

• Implement parallel operations
• Eliminate the need for adjustments
• Use functional clamps
• Mechanize functions

SMED provides many benefits for companies and those working within the company. More specifically, the advantages of SMED along with quicker and more efficient setup times are improved flexibility, quicker delivery, better quality and higher productivity. Through these benefits you will also see simpler setups and safer changeovers, less inventory and more standardized processes.

For more information on SMED or other LEAN initiatives contact the LEAN Accountants of McKonly and Asbury, LLP.

Creating the Lean Warehouse: Evolution Not Revolution

The following post was first seen on the Manufacturing and Techonology Ejournal (business@mrftech.com). The post was written by Robert Martichenko, CEO of LeanCor Supply Chain Group. Mr. Martichenko can be reached at www.leancor.com.

Creating a lean warehouse (or distribution center) is not something you accomplish overnight. It takes vision, planning, strategy, tools and tactics. Relative to people, you need to develop team members into problem solvers and then provide a leadership infrastructure to support their efforts. Identifying and solving problems may seem basic; however experience would suggest it can prove elusive in application. The results achieved through your lean efforts can be quantum in nature. Improved customer fill rates, decreased inventory levels, decreased inventory carrying costs, improved inventory accuracy, increased asset and team member utilization are all benefits of lean warehousing.

When Toyota Motor Manufacturing developed and shared its lean manufacturing strategy (known as the Toyota Production System), many realized it had implication as an overall business system and not just a manufacturing system. The principles of lean are now being applied universally, including inside the warehouse. Some of these principles include team member training and development, standardization, visibility, quality at the source, continuous improvement, waste elimination, visual management, and problem solving thorough the Plan, Do, Check, Act Cycle.

Starting with team member training and development, we understand that it is people who can identify problems and create sustainable solutions. One of the lean tools that we can give our warehousing people is value stream mapping. This allows us to map out current processes on the floor and identify waste and see where we can take non-value added activities out of the value stream. The value stream is simply defined as the flow of activities that add value to the customer. The premise is that we should only be doing those things that add value. All other activities are considered waste and should be eliminated.

The concept of standardization is also a key lean principle for the warehouse. Creating standardization of processes is to create tasks are easily repeatable with planned zero waste. The creation of standard work allows your team to understand processes from the point of view of inputs, procedures, timing and outputs. However, creating standard work is not about turning people into robots ! It is about creating a baseline from which we can improve. Many warehouse operations are a series of manual processes. The unfortunate aspect to this is that people will do the same process in different ways.

LEAN - It Is For More Than Just the Shop Floor

When we hear of LEAN we think of process improvements on the shop floor. We  think of better ways to move inventory through push versus pull supply chain management. We also think of eliminating excess movement of people, machines and inventory to more quickly meet customer demand and to produce product for a customer at their pace.

So, can LEAN and its concepts be used outside of the manufacturing environment? Absolutely!!!!

The concept of LEAN focuses on continuous improvement. We all strive for continuous improvement on a daily basis. Whether it is in your professional, civic or personal life, we all inherently strive to be better on a daily basis. So, how can LEAN and its concepts be used outside of the shop floor. Here is a success story.

McKonly and Asbury, LLP (M&A), as you know, is a Certified Public Accounting (CPA) firm. Most CPA firms do not usually produce a physical product that is sold on the selves of stores near you. No, what a CPA firm sells is its intellectual property being the people who make up the firm. Whether the professional is a tax or audit/accounting expert, each professional has certain expertise they bring to the firm and its clients.

While M&A is not a tool and die shop, the firm does have some of the same issues that a manufacturing facility has. The firm too must schedule jobs to be completed using the resources at hand. The ultimate goal is no different then a manufacturing shop - meet the customer demand. A classic example of this is the April 15th tax deadline. Most customers demand that their tax return be completed by this deadline. We work to ensure that this happens.

As the firm looked at its internal processes to meet customer demand and to determine ways to improve that turn around time, the firm decided to use the techniques of LEAN. The partners group of the firm commissioned a team of professionals from different disciplines and segments of the firm to review all work flow processes of the firm in order to identify waste and eliminate those wastes in order to improve the firm's own cycle time. Personnel from tax, audit and administration were brought together to lead the initiative of LEAN throughout the organization.

The same processes for LEAN implementation that are used by manufacturers worldwide, the firm incorporated internally. Tone at the top was of utmost importance so the partners group Championed the process. They appointed one individual to take the role as the Kai zen and to lead the LEAN group into battle (so to speak).

The group's first mission was to hold a one day LEAN event to get a better understanding of the concepts of LEAN and how LEAN can be used within the firm. The same concepts of value stream mapping, 5S, quick changeover/setup reduction, cellular work flow and A3 thinking, to name a few, where discussed with the LEAN operations team. From there, the LEAN operations team was on its way.

The process began in June of 2011. Since its inception the firm has already seen results from the LEAN operations team. The LEAN operations team to date has instituted changes in two primary areas of work flow, centering around final report processing and engagement letters to clients. The team has also instituted a formal suggestion box for staff to submit LEAN suggestions for improvement. The LEAN operations team is in the process of work flow improvements around other information flow related matters such as team communication and database storage.

The LEAN operations team has BIG plans for the future. As initiatives are rolled out, the LEAN Accountants blog will be updated with those success stories. So stay tuned for further information.

To learn more about LEAN and how you can use LEAN in your organization, please contact the LEAN Accountants of McKonly and Asbury, LLP.

The iPad And Its Role In Lean Manufacturing Success

The following article, written by Andy Amalfitano, VP & General Manager, Manufacturing Execution and Intelligence Division, Solarsoft Business Systems, was first seen on the website www.foodmanufacturing.com

When it comes to going lean in manufacturing, the iPad is much more than a space saver, it’s an agile money-saver and money-maker, too.

Although it plays a vital role in manufacturing, executives continue to struggle with the intersection of analytics and information to support lean manufacturing initiatives. But this code has suddenly been cracked, thanks in part to the iPad.

Why the iPad?

What’s the iPad’s secret for a significant production increase and more uniform conformance to a manufacturer’s lean manufacturing initiative? It’s simple. iPad’s iOS provides a new way to touch applications and manipulate data. Gone are the days with people stuck navigating through menus while juggling a laptop or netbook.  More than any other executive, today’s manufacturing professional needs agility and mobility. And when squeezing insight and meaning out of every piece of data adds up to reduced costs, improved throughput and ultimately greater profitability, the new iOS approach can make the world of difference.

Take a manufacturing company with global facilities as an example — how do operations management and senior executives quickly drill down to the latest production run statistics for a given line or machine at a glance? Enter the iPad. While there are plenty of cases where an iPad has been used on the manufacturing floor to keep track of tactical functions, it can be even more powerful in the hands of management, looking at every strategic advantage that could boost the bottom line. That’s where manufacturing intelligence comes into play.

Yet one of the biggest challenges with some business intelligence applications is that the very data and detail that makes them so powerful can make them cumbersome. For example, data from various locations may not be centralized, making performance comparisons between manufacturing sites a time consuming task. But the same design that makes consuming media on an iPad such a joy also makes it possible to rapidly drill in to the latest data sets, and can even make slicing and dicing data fun.

Lean Six Sigma Could Reduce Debt but Faces Obstacles

Lean Six Sigma could help reduce the soaring national debt but faces some key challenges in government implementations, according to a new survey by ASQ, the leading global network of quality experts. The biggest obstacle, survey respondents said, is a U.S. federal government structure that can be a barrier to comprehensive evaluation and accountability.

Lean Six Sigma has been in the spotlight recently as several U.S. presidential candidates have pledged to use the management tool, if elected. The Obama administration is currently studying how Lean Six Sigma could help eliminate federal government waste.

More than 2,500 ASQ quality improvement professionals participated in the survey. The online survey of ASQ members was fielded from August 29 through September 6, and represents quality improvement professionals from a number of industries including government, manufacturing, service, healthcare and education. In addition to noting challenges with the federal government’s structure, survey participants ranked other obstacles to implementing Lean Six Sigma in government agencies:

1. An environment faced with conflicting strategies, goals, and priorities
2. Creating a sense of urgency to deploy a comprehensive improvement methodology across all government agencies
3. The personnel management model currently used by many government agencies
4. A lack of familiarity with Lean Six Sigma and how it can benefit the organization
5. Ongoing political partisanship.

Plan, Do, Check and Act - A How To

Plan, Do, Check and Act or PDCA, is a cycle that can be used as a tool for almost any project from simple to complex or as an effective tool for company-wide policy change. PDCA can be used in a number of circumstances such as

• For development of a new product or service
• For improvement of an existing product or service
• For creating formal policy and formal work process flow
• For analysis and collection of data for problem solving existing issues
• To create a policy for continuous improvement* As a tool for seamless implementation of any change

PDCA is most effective when you make it a policy for change within your organization. Embed this process into any continuous improvement model that your company may have. Create teams of people who will actually implement the stages of PDCA which are usually your front line staff or personnel. By doing this, you will get buy-in from your front-line staff by soliciting their feedback in the planning stages of the PDCA. This is absolutely essential and is often the most neglected phase of initiation of PDCA implementation. A PDCA has to be structured using feedback from the people who are doing the actual work

Once you have effectively implemented a team to act as the change agents for your company and have gained the appropriate buy-in, then it is time to roll-out the PDCA cycle company-wide.

Some examples of how to roll out a PDCA are:

• Training for supervisors, team leads, and front-line staff
• Development of a desk-aide (or template) for ensuring that the PDCA is a visible, living policy document for staff
• Publicize PDCA accomplishments. Highlight results and  accomplishments of the PDCA model.

As with any process implementation, sustaining the process is as critical as the implementation of the process. Similar to the fifth S in 5S LEAN thinking (Sustain), the ability to appropriately sustain the process to gain real long term process improvement is mission critical to PDCA. When implementing PDCA, the most important thing to keep in mind is that PDCA is not designed as a one-way project plan. The PDCA design is circular, which means that any one of the four processes can be revisited and repeated as needed for refinement and correction. Consider a regularly scheduled review of the PDCA, or make the review a part of monthly leadership meetings.

Finally, make it a part of your company-wide staff meetings. Give front-line staff the opportunity to offer honest feedback about each stage of the process. The PDCA cycle can be repeated for continuous improvement, and can be revised as needed. Outside of data, your subject matter experts are the only people who can tell you how the PDCA changes are working at the front-line level.

Portions of this article was written by Tiffany Willis, an expert in the logisitics and supply chain management. Ms. Willis can be reached at http://www.yoexpert.com/. For further information on PDCA or other LEAN strategies and principals, please contact the LEAN Accountants of McKonly and Asbury, LLP.

A3 Thinking – Let's Solve Problems

In our LEAN Manufacturing series we have talked a lot about the processes and functions of LEAN. Now let's talk about how to use LEAN to problem solve. 

Problem solving can tend to be the most difficult part of LEAN. After you have identified the problem, usually through the use of LEAN concepts, improving the process tends to be more straight forward. But, what is it that is so difficult about problem solving? 

What is it that usually gets in the way of being able to solve problems? In most environments, whether or not a manufacturer, the problem usually is: 

• The problem is not obvious.
• There are multiple causes of the problem.
• No common problem solving method.

 Now the causes of these problems can be rooted to people, lack of data, communication, politics or a number of reasons. However, ultimately, these roots lead to the ultimate problem. 

A concept that started here in the United States and was then implemented and refined by Toyota is called A3 Thinking. A3 Thinking is considered the Deming approach to solving problems. What A3 Thinking does is to “Highlight the Problem” in order to implement a solution to resolve the issue. A3 Thinking allows all participants to learn from every issue by: 

• Allowing everyone who touches the issue to see it thru the same “lens.”
• Capturing the issue on a single sheet of paper.
• Solving the issue through following common logic.

 A3 Thinking is most commonly used by manufacturers to improve safety, increase quality or increase productivity. A3 Thinking specifically focuses on four areas: 

1. Plan
2. Do
3. Check
4. Act