This book is not about debits, credits, or accounting theory. Instead, it describes how a chief financial officer (CFO) becomes a Lean CFO by leading a company in developing and deploying a Lean management system. The finance team, business executives, and Lean leaders will all benefit from its forward-thinking improvement approach.
Explaining why the CFO role is so critical for companies adopting a Lean business strategy, The Lean CFO: Architect of the Lean Management System illustrates the process of building and integrating a Lean management system into the overall Lean business strategy. It describes why CFOs should move their companies away from performance measures based on traditional manufacturing practices and into a Lean performance measurement system. In addition, it explains how to integrate a Lean management system with a Lean business strategy to drive financial success.
- Describes the logic behind why a Lean management system must replace a traditional management accounting system
- Discusses how flow can drive the financial success of Lean
- Demonstrates the need for constructing a value stream capacity measurement system
- Explains how to break your company away from using standard costing to run your business
The book explains why you must move your company into value stream accounting, which reports your internal financial information by the real profit centers of your business, your value streams. It describes the strategic aspects of making money from a Lean business strategy and also details how to modify your enterprise resource planning system to support Lean rather than hinder it.
Table of Contents
Designing the Lean Management System
Constructing the Lean Management System
Moving into Lean Business Decision Making
Tearing Down the Old House
The Economics of Lean
Lean Is the Strategy
Lean Every Day
The Economics of Lean
The Lean CFO—Key to Success with Lean
Five Lean Principles
$how Me the Value Stream Flow
What Is Flow?
Flow Equals Real Productivity
Eliminate Waste and Improve Flow
Demand and Cycle Times Impact Flow
Lean Performance Measurements
$how Me the Office Flow
Office Flow: The Current State
Office Waste Is More Complex
Departmental Work Flow Characteristics
Wastes of Overburdening and Waiting
Waste of Interruptions
The Future State: Lean Office Flow
Step 1: Design the Processes
Step 2: Plan the Work
Single Piece Flow
Step 3: Controlling the Work
Level Scheduling to 80% of Capacity
Wrap-Up: Office Flow and the Lean CFO
Measure Lean Performance, Not Profits
Changing the Measures
Link Measures to Lean Strategy
Using Lean Performance Measurements
It’s about Spending, Not Costs
Traditional Cost Management
Value Stream Accounting
Value Stream Costing
Material Management Spending
Receiving Inspection Spending
Value Stream Income Statement
The Value of Measuring Capacity
Capacity in Traditional Manufacturing
Capacity in Lean Manufacturing
Integrity of Value Stream Map Data
Operational Value of Capacity
Financial Value of Capacity
Decisions, Decisions, Decisions
The Current State: Standard Costing and Decision Making
The Future State: The Value Stream Box Score and Decision Making
Using Product Cost to Set Price
Profitability of New Business
Determining the Profitability of Customers, Markets, and Business Segments
Impact of Continuous Improvement
Standard Costing Debunked
A Brief History of Standard Costing
Charting the Course to No Standard Costs
Simplifying Material Cost
Simplifying Labor and Overhead Costs
Eliminating Standard Costing
Tame the ERP Beast
ERP and the CFO
Lean Operations and ERP
The Lean CFO and Work Orders
The Lean CFO and Inventory Quantity
The Lean CFO and Work-in-Process Valuation
By the People, for the People
System Thinking vs. Project Thinking
All Eyes and Ears Are on You
Keep It Simple
Stick to the Plan
After a tour of duty in public accounting, Nick Katko began his Lean management system career as chief financial officer of Bullard, a privately held manufacturing company in Kentucky. In the mid-1990s Bullard made a commitment to a Lean business strategy and began hiring operations people with Lean experience. Nick worked with Lean leaders to establish a comprehensive Lean performance measurement system that was used to measure and manage the entire business.
As inventory was dramatically reduced, Nick realized the irrelevance of the standard costing system to the business. Nick created and introduced value stream income statements to Bullard, and all business decision making was based upon a value stream financial analysis of decisions. Eventually, labor and overhead rates were set to zero and inventory valuation was made with a simple monthly journal entry capitalizing manufacturing costs.
In 2000, Nick left Bullard and started Strategic Financial Solutions, Inc., with his wife Deanna. Strategic Financial Solutions provides contract CFO and controller services as well as bookkeeping and tax services to companies in the Lexington, Kentucky area.
While on Bullard’s Lean journey, Nick read Making the Numbers Count by Brian Maskell. He liked the book so much he wrote Brian and told him about his own work with a Lean Management System. Nick and Brian talked regularly and, in 2002, Brian asked Nick to join BMA, Inc., as a senior consultant.
As a senior consultant with BMA, Nick uses his experience to assist clients in Lean management implementation by working closely with them to resolve the real-world issues they face in implementation. These issues include removing traditional cost-based performance measurement systems in favor of Lean performance measurement systems, migrating from a traditional income statement to a value stream costing income statement, creating a transaction elimination maturity path, and working with management to create new business decision-making models based on Lean accounting practices.
Nick has worked with a wide range of businesses, from multinational public companies to family-owned businesses around the world. He is the co-author of The Lean Business Management System: Lean Accounting Principles and Practices Toolkit (2007) as well as the BMA Lean Accounting Webinar Series. He is a regular presenter at the Lean Accounting Summit and the Lean Enterprise China Summit.
Nick, a native of Sayreville, New Jersey, resides in Lexington, Kentucky with his wife, Deanna, and family. He holds a BS in accounting and an MBA in finance, both from the University of Kentucky, and is a certified public accountant.