{"id":839,"date":"2017-12-12T16:59:36","date_gmt":"2017-12-13T00:59:36","guid":{"rendered":"http:\/\/savingusmanufacturing.com\/blog\/?p=839"},"modified":"2017-12-12T16:59:36","modified_gmt":"2017-12-13T00:59:36","slug":"lean-leadership-summit-focuses-on-essentials-to-becoming-a-lean-company","status":"publish","type":"post","link":"https:\/\/savingusmanufacturing.com\/blog\/reshoring\/lean-leadership-summit-focuses-on-essentials-to-becoming-a-lean-company\/","title":{"rendered":"Lean Leadership Summit Focuses on Essentials to Becoming a Lean Company"},"content":{"rendered":"<p>After being delayed for a few weeks because of Hurricane Irma, <a href=\"http:\/\/www.leanfrontiers.com\/\">Lean Frontiers<\/a> held its annual Lean Accounting Summit in Savannah, GA on October 24<sup>th<\/sup> and 25<sup>th<\/sup>.\u00a0 This was my fourth year to be invited as a speaker at the conference. This year\u2019s summit was different in that the Lean Accounting Summit was combined with Lean Management and Lean People Development into Lean Leadership to include the people development aspect of being a lean enterprise.\u00a0Co-founder Dwayne Butcher, said, \u201cIt\u2019s about time that the whole enterprise be involved in becoming a Lean company. Lean is a business model and must therefore include every part of the business, including those in Executive Leadership, Accounting, HR, Sales, Product Development, Supply Chain. We need to breakdown the silos between these departments.\u201d<\/p>\n<p>Between the keynote speakers, there were three tracks related to Lean Management, Lean Accounting, and Lean People Development.\u00a0 Besides giving my own presentation, \u201cRebuild Manufacturing \u2013 the key to American Prosperity,\u201d based on my new book of the same name, I attended all of the keynotes and some of the sessions in the Lean Management and Lean Accounting tracks.<\/p>\n<p>Lean Frontiers is not a consulting firm. Its sole focus is to provide learning opportunities to address:\u00a0 Enterprise?wide adoption of Lean and the foundational skills needed by Lean companies. Dwayne announced a new program, the Lean Learning Pod, that will be taught by Jean Cunningham on Lean accounting. Participating companies will meet in a virtual manner on a regular basis, and Jean will be a mentor to the companies.<\/p>\n<p>Jim Huntzinger, said, \u201cThe first Lean Accounting Summit was held in 2005, and out of that summit, Lean Frontiers was born.\u00a0 Lean is still perceived as a program with short term results by too many, and we need to make the transition to Lean as a business model.\u00a0 We need to traverse unclear territory \u2014 trust the process to go from current condition to the target position. We can use XYZ Thinking:\u00a0 If we do X, then we will get Y, but if we get Z instead, then we will learn.\u201d<\/p>\n<p>He introduced the first keynote speaker, Art Byrne, former Wiremold CEO, author of <em>Lean Turnaround<\/em> and now a consultant. He has been practicing Lean since 1982 when he was a General Manager at a General Electric facility. He wrote his book and then wrote the <em>Lean Turnaround Action Plan<\/em> to show what would happen if a company becomes Lean. The reader is supposed to be management of fictitious company &#8211; United Gear &amp; Housing.\u00a0 He asked, \u201cWhat is Lean?\u201d His answer was, \u201cIt is strategy to run any business to remove waste to deliver more value to customers.\u201d<\/p>\n<p>He described United Gear as a traditional batch company with long set ups of 2-3 hour, a six-week lead time, and a strong management team.\u00a0 The company is purchased, and the new owner make it clear that everything has to change to with Lean as the strategy.\u00a0 They will have to: \u00a0lead from the top, transform people, increase gross by 5 &#8211; 7. Puts, reduce inventory by $70 M increase value, and reduce set up by 90%.\u00a0 He said, \u201cThe present capacity = work + waste., and waste is typically 60%. \u00a0I particularly liked his comment. \u201cThink about the stupidity of putting all the same machines in the same department as if the machines liked to be near each other. Instead, we should be putting the machines in the sequence of operations to be performed to go from batch to continuous flow. You could rearrange the machines into cells to go from raw material to finished product. Fewer people would be doing the work, and lead time could drop dramatically from 6 weeks to 2 days.\u201d<\/p>\n<p>He said the Wiremold strategy was to: \u201cConstantly strengthen our base operations, achieve 100% on-time delivery, 50% reduction in defects every year, do 20 inventory turns\/year, double in size every 3 to 5 years, use visual control and 5S, do one piece flow and standard work, do Kaizen, use a Pull system, and stretch targets.\u201d<\/p>\n<p>In his concluding comments, he said, \u201cStandard cost accounting and lean don\u2019t go together. The key is for senior management to function as one team.\u201d<\/p>\n<p>In her presentation on \u201cOvercoming Barriers to WOW Results,\u201d Cheryl Jekiel, CEO of the Lean Leadership Resource Center, said that the International Labour Organization for the United Nations asked her to develop and teach a class on Lean HR to be taught in 46 countries. \u00a0She had to develop the course for others to use to teach. In developing the course, she used the following working definition of Lean:<\/p>\n<ul>\n<li>7 common practices to improve<\/li>\n<li>It\u2019s about the customer<\/li>\n<li>Measurable improvement<\/li>\n<li>Problem Solving<\/li>\n<li>Repeatable processes<\/li>\n<li>Overall involvement<\/li>\n<li>Visual management<\/li>\n<li>Engaging leadership<\/li>\n<\/ul>\n<p>She said, \u201cHR can make the difference in the results. HR owns the things that are the obstacles. HR has a role in the culture of the company and can weave improvement into activities. HR owns talent strategies: hiring, training &amp; Development, performance management, and reword systems. HR can build lean competencies into job design. The greatest is the waste of human development. Most companies don\u2019t tsp into the power of their people. We define people by the tasks they do and not their capability. People are endlessly creative. The power of the ideas to solve problems is in people. Lean is about building a muscle \u2014 the more you do it the better you are at doing it. Lean is a way of expanding capability. \u00a0HR tends to engagement, and engagement goes with Lean. Studies show that companies are 7-11% more profitable when employees are engaged. Convert categories into dollars to make the connection of engagement into money.\u201d<\/p>\n<p>One of my favorite presenters is Jerry Solomon, who gave the presentation, \u201cBridging the Gap Between Accounting &amp; Operations.\u201d He spent 40 years in the manufacturing industry and is now retired in Naples, FL.\u00a0 His last 14 years were at Barry-Wehmiller in St. Louis as CFO.<\/p>\n<p>He said, \u201cLean is two pillars to eliminate waste in pursuit of perfection in safety, quality, delivery, and cost.\u00a0 The two pillars are:\u00a0 respect for people and continuous improvement. Inspirational leadership and a profound cultural and organizational change are required to become a Lean company. Elimination of waste is driven by Kaizen events, which need to be narrow and deep. The respect for people means no layoffs and requires strong C-level support.\u201d<\/p>\n<p>He explained, \u201cLean Accounting is using Lean tools in accounting and \u201cplain English\u201d P &amp; Ls. Accounting is one of biggest roadblocks to successful Lean journey. Lean is about being a cash and capacity generator.\u00a0 We need to change the metrics we use. In the traditional cost accounting pie, overhead is 10-20%, Direct labor is 60-70%, and materials are 20-30%. Today in Lean accounting, overhead is still 10-20%, direct labor is 10-20%, and materials are 60%.\u00a0 Standard cost accounting is replaced by actual costs and can be understood by everyone. The benefit of Lean accounting is relevant information when you need it that is understandable to the 99% of people and not just the 1% who are accountants. It provides real-time information to run the business.\u201d<\/p>\n<p>On Wednesday, the keynote presentation was \u201cThe Continuous Improvement Engine\u201d by David Veech, The Ohio State University, author of <em>Leadersights <\/em>and <em>The C4 Process<\/em>.<\/p>\n<p>He said, \u201cThe foundation of the continuous improvement engine is trust. Two key things are required: clear expectations with standardized work and leader vulnerability and mastery. Challenges lead us to acquire knowledge and skills. It\u2019s how we lead that sets our stretch goals. It\u2019s a process that occurs with repetition. No one is in this alone, so we have accountability. Learning and coaching is required for mastery. The goal is to have a team of experts.\u201d<\/p>\n<p>He explained, \u201cYou need a system for problem solving to find out if ideas work \u2013 you can use PDCA, DMAIC, or my C4 system.\u201d\u00a0 He said, \u201cC4 is short for Concern, Cause, Countermeasure, and Confirm. C4 offers straightforward, easy-to-remember techniques for identifying and solving workplace problems. These four steps-clearly identify the concern, find the true root cause, correct the cause with an effective countermeasure, and confirm that the solution worked.\u201d<\/p>\n<p>He added, \u201cProblem solving builds mastery. Mastery results in self-efficacy, and people that have self-efficacy are willing to try new things and keep trying until they succeed. They need to have intrinsic motivation, which comes from the heart. This intrinsic motivation turns into ideas and generates initiative. The \u201cexhaust\u201d of this continuous improvement engine is: \u00a0satisfaction, meaning, awareness, and responsibility. Building relationships in teams is critical to the process.\u201d<\/p>\n<p>In the first breakout session, I attended \u201cEliminate Standard Cost Step by Step\u201d by Nick Katco, author of the Lean CFO series. He told us that there is nothing in Generally Accepted Accounting Principles (GAAP) that would prevent using Lean Accounting methods. He said, \u201cIn GAAP, you need to calculate inventory valuation and Cost of Goods Sold. Using Standard Cost Accounting, you often have to make assumptions whereas in Lean Accounting, you use \u201cActual expenses incurred to get goods in condition for sale. A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues.\u00a0 In the continuous nature of manufacturing, there are difficulties in matching specific costs to revenue because products not sold in same period as produced, prices change over time, and production costs change over time.\u201d<\/p>\n<p>He explained how to do a Lean Inventory Valuation for material and production cost capitalization using three different methods:\u00a0 days of inventory, units of inventory, and days of conversion cost.\u00a0 He said, \u201cLean transformation is designed reduce inventory levels in manufacturing companies \u2014 30-60 days is good target. There is no GAAP requirement to value every single product. Average costs replace standard costs. Capitalize total costs, not individual products by a journal entry.\u201d\u00a0 In conclusion, he advised:\u00a0 \u201cDesign a lean inventory valuation methodology which works for your company and partner with your auditor to create a methodology they will be able to test.\u201d<\/p>\n<p>I had to leave early on Wednesday to catch my plane, so the last presentation I attended was \u201cLean Transformation from the CFO\u2019s Seat\u201d by CFO \u00a0Pete Gingerich of Aluminum Trailer Company. Last year I attended a presentation by the President and CEO, Steve Brenneman, so I was interested in what Mr. Gingerich had to share about their Lean transformation. He said, \u201cIn 2007, we did $27 Million and went down to $10 Million in 2009. We had to lay off half of our employees. Steve Brenneman started in 2009, and our first steps were office procedures for handling work folders and then we did 5S on the shop floor. We had lots of problems with material shortages, so we went to a Kanban system. We split into three value streams in 2012 and now have six.\u201d<\/p>\n<p>He explained, \u201cOur big change was in how we pay our workers; we switched from piece rate to hourly and started at a rate of 10% higher than previous year\u2019s rate. We also instituted a profit sharing plan. We didn\u2019t use standard cost accounting, but we did have assumptions for material, labor, and overheads. Now, we know the actual costs for each value stream. Value stream planning is clearer and easier.\u201d<\/p>\n<p>He added, \u201cWe thought that our custom trailer was the most profitable, but it is actually our midline model trailer because too many engineers are involved in our custom trailer.<\/p>\n<p>We have an annual meeting for top management, quarterly meetings for managers, and weekly meetings for team leaders. We have switched to rolling forecasts from budgeting, and we do weekly production planning forecasts and weekly P &amp; Ls. Each value stream has its own weekly P&amp; L with more detail. Lean accounting is based on shop floor metrics. We avoid allocations because if you can\u2019t control them, why do you want to see them. We can close a quarter in one day. We clarified the definition of sales and revenue so employees would understand. We have had to work with suppliers on our Kanban system to cut inventory, such as having tires on a rack that is replenished daily. In 2009, we only did five turns of inventory, but in 2016, we did 19 turns.\u201d<\/p>\n<p>It\u2019s always a pleasure to hear about a successful transformation into a Lean company rather than just a Lean manufacturer. I am a big proponent of Lean accounting because standard cost accounting is the biggest obstacle to more companies returning manufacturing to America using Total Cost Analysis.\u00a0 When costs are divided into separate accounts, the purchasing agents and buyers do not have access to all of actual and hidden costs to be able to do a true TCO analysis. More CFOs need to take the time to attend the Lean Accounting Summit or get training from one of the qualified consultants and learn how to convert to Lean accounting.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>After being delayed for a few weeks because of Hurricane Irma, Lean Frontiers held its annual Lean Accounting Summit in Savannah, GA on October 24th and 25th.\u00a0 This was my fourth year to be invited as a speaker at the conference. This year\u2019s summit was different in that the Lean Accounting Summit was combined with [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[140,6,180],"tags":[11,186,198,185,183,82],"class_list":["post-839","post","type-post","status-publish","format-standard","hentry","category-lean","category-reshoring","category-workforce-development","tag-american-manufacturing","tag-lean-accounting","tag-lean-culture","tag-lean-manufacturing","tag-lean-training","tag-total-cost-of-ownership"],"_links":{"self":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/839","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/comments?post=839"}],"version-history":[{"count":1,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/839\/revisions"}],"predecessor-version":[{"id":840,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/839\/revisions\/840"}],"wp:attachment":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/media?parent=839"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/categories?post=839"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/tags?post=839"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}