Tag Archives: lean accounting

More Than Toast

More than ToastIt’s hard to believe that 2018 is the 20th anniversary for the Toast Kaizen video.  After two decades, nearly one hundred and fifty thousand copies have been sold – in more than a dozen languages from Spanish to Icelandic.  It’s everywhere.  Several years ago, while walking down the streets of Dubai, I was stopped by a gentleman who pointed to me and declared, “You’re the Toast Man.”    I frequently encounter folks who tell me, “You’re famous,” to which I reply, “No, the “Toast Kaizen” video is famous.”  And happily so.  What was originally intended as a device to encourage fellow managers to get out of their offices and go see has become a non-threatening way to explain continuous improvement to almost anyone.   As I say on the video,  “It’s not about the work, it’s about the things that get in the way of the work”.

While it’s gratifying to think that this campy thirty-minute video has found a place in Lean Transformations, it’s also a little concerning when I hear that the “Toast Kaizen” video is the Lean training.  What was created as an icebreaker, has occasionally been overblown beyond its purpose.   Some time ago, while speaking at the Shingo Conference I asked attendees in the audience how many had seen the Toast video.  Nearly every hand went up.  But when I asked who had read any of Shigeo Shingo’s books, only a few hands went up.  I asked the audience, “Did you know there’s a whole lot more to Lean than the Toast video?”

Yes, a whole lot more than viewing the “Toast Kaizen” video will be needed to really receive the benefits of Lean.  Toast is just a small catalyst to kick off the continuous improvement engine.  This is why at the 14th Annual Northeast L.E.A.N. conference, while we celebrate Toast’s 20th (tattoos and Toast caps for everyone), we are also homing in on those transformers that have truly become Lean Learning organizations and whose compelling results bear witness to their efforts.

There’s still time to register, but seats are filling fast.  Please join me on October 10-11 at the Providence Convention Center. Rhode Island is beautiful this time of year. I’d be remiss if I didn’t also mention the two Shingo Institute courses – Discover Excellence and Continuous Improvement – which are being offered in conjunction with the conference. You can learn more about those here.


Knowledge Work

An engineering manager whom I worked with twenty-five years ago challenged me one day, “You know, Bruce, if all employees were engineers, you wouldn’t need mistake-proofing.”  At the time, I was too stunned by his comment to even respond.  But happily, the memory provides good fodder for another post.

There persists a notion today in some quarters that persons with college degrees, in particular technical degrees, have cornered the market on smarts – and value.  When, in 1959, Peter Drucker predicted the rise of “knowledge work” and the concurrent demise of manual work, I think he might have inadvertently led American manufacturing down a knowledge worker rat hole, one where manual work, or in fact any kind of work involving production, became burdensome to our great culture.  Drucker’s prophecy may have been self-fulfilling, as American manufacturers raced to find ways to replace manual labor with automation.

In the 1990’s for example, General Motors spent $90 billion (yes billion) on robots, conveyors and computers in a failed attempt to supplant manual work. I wonder how they calculated the ROI.

Around this same time, manufacturer Mazda sarcastically referred to the canonization of the American knowledge worker as the “big brain approach.”  Mazda favored the collaborative thinking of many ‘small’ brains.  (At GBMP we like to refer to this as ‘Everybody, Everyday.’)

US manufacturers have spent the last twenty-five yknowledgeworkears off-shoring their burdensome manual work.  In a perversion of Drucker’s prediction, American manufacturers have largely ignored the “making” part of business, preferring to ‘innovate and incubate.’  This is their definition of knowledge work. Products can be born in the US, but they quickly migrate to other countries and grow up there to be improved by so-called manual workers.  The alluring promise of this kind of knowledge work fits well in to high tech marketing and sales plans like this one, but it obscures the holistic nature of manufacturing.

Lest I be labeled a reactionary technology hater, I’ll assert that I’m actually a bit of geek, a former IT manager.  I’m awed at the potential for information and production automation.  But I have a big problem with the implied opposite to knowledge work.  This was a recurrent theme at last September’s Production in an Innovation Economy (PIE) Conference PIE at MIT.  Speaking at the conference, Harvard Professor of Management Practice in Administration Willy Shih reflected on his work in the 1980’s with a Korean manufacturer:

“Well, I was in Asia where a high executive at a company that I was working with said, OK. You guys in the US, you do the R&D. We’ll do the commercialization. We’ll do the manufacturing. We’ll make all the money.”

Dr. Shih commented to me after his presentation “Thirty years later, American manufacturers still don’t understand how much innovation is occurring in production.  Overseas manufacturers are laughing at us and still making all the money on our good ideas.”

In my world, all work is knowledge work.   How about in yours?  Are you following General Motors’ innovation concept or Mazda’s?   Send me a comment.


BTW – There’s still plenty of time to sign up for my free webinar on Tuesday, February 11, from 3:00-3:45 p.m. EST.  The topic is “Tips for Manager Gemba WalksHope you can join me.  Click here to register. 

You can learn about all of GBMP’s public lean training events here  – from benchmarking Plant Tours to Lean Accounting Workshops, Six Sigma Green Belt Certificate programs and more. Hope to see you soon!

Good Witch or Bad Witch?

GlindaA recent comment from a business friend, call him Tom, who manages a small factory, reminded me of a scene from The Wizard of Oz.   “Our president is an accountant by training – but,” he added, “she’s a good accountant.”

“So, what is a good accountant?” I asked.

“Well, you know,” Tom said, “she thinks that numbers are important, but what’s more important is the story behind the numbers.  She understands accounting, but she also has taken time to understand the business, especially our Lean efforts.  On more than one occasion she’s supported us at a time when a bad accountant would have just read chapter and verse from GAAP standards.”

“So then, what’s a bad accountant?” I asked.

“I wouldn’t have the time to describe that right now,” Tom replied.

After this discussion I took few minutes to jot down traits of a bad accountant for myself, all from instances that I’ve personally observed.   Before proceeding however, I hasten to add that good accountants are numerous and have on occasion been know to be heroic.   But there are still some status quo controllers out there whose myopic and archaic views are dangerous for lean implementers.  Here are a few traits to watch for:

A bad accountant…

  • Stays in his/her office.  Wants to be seen as ‘above the fray.’
  • Reads reports and computer screens (and the Wall Street Journal.)  No direct observation.
  • Sees him/herself only as a scorekeeper.  Takes no responsibility for business performance.
  • Understands accounting only.  Does not take time to understand other functions or the business as a whole.
  • Sees accounting as a rigid science.  Follows GAAP standards without question.
  • Heard saying: “The auditors will object.”   Is quick to object to new ideas and uses the auditor threat to quell objection.
  • Thinks that a positive inventory variance offset by a negative variance elsewhere is good enough as long as the net is zero.
  • Believes that shipment spikes at the end of the month occur because production only works hard at the end of the month.
  • Slashes inventory requisition quantities as a means to reduce inventory.
  • Encourages inventory run down at period ends to improve turns.
  • Thinks that set-up reduction means amortizing long set-ups over similar parts.
  • Treats inventory as an asset and employees as a variable expense.

These are just a few traits that come to mind.  Can you add others?  Is your accountant a ‘good witch or a bad witch?’  Let me hear from you.


BTW:  Only 111 days until the 2013 Northeast Shingo Conference.

Insignificant Digits

Significant digits, the number of digits to the right of a decimal point that are warranted by the accuracy of the means of measurement, are a critical part of scientific investigation.   In developing products and services, the concept is essential.  For example, how many products have failed to “delight” customers because of tolerance stack-ups on component parts?  And how many of those components have failed to meet spec because the significant digits of the design did not match the capability of the production process?  In these cases, the number of places to the right of the decimal point is very significant.

But in many cases, the accuracy of our measures is insignificant.   Take, for example, the price of gas at the pump.  Why not $3.80 per gallon instead of the mixed decimal and fraction rendering shown in the sign to the right?   The answer is that in the 1930’s when gas price was 10-9/10 cents per gallon, (equal to about $1.40 per gallon today) a penny was worth ten percent of the price of the gallon – pretty significant.  The fractional price derived from an attempt by retailers to minimize the cost at a time of gross oversupply.  Today the condition is reversed; the third digit, and arguably even the second is not significant at all, at least not in a practical sense.

So it is with allocation accounting, another measurement system mostly developed during the Great Depression.   According to management accounting expert, Brian Maskell, “the bulk of current accounting methods formalized in 1930’s has changed very little since.”  A highly subjective cost accounting allocation scheme, for example, spread “insignificant” amounts of 1930’s overhead over labor cost.  Even then it was at best a rough approximation intended to recover the cost of non-production resources.. Today that once-insignificant figure amounts to a gigantic lever on relatively small labor amounts.

Overhead multipliers, once just small fractions of labor cost, are often two to three times the cost of labor today.  Call this an unintended consequence of the second industrial revolution.   In the words of Eli Goldratt, “traditional cost accounting is “precisely wrong.”   However significant the number of decimal points on a labor time may be from a scientific context, they are worse than insignificant in the bigger picture.   Yet many organizations continue to scrutinize value-added functions to four decimal places while ignoring huge non-value added wastes.   Make versus buy and pricing decisions based only on this model are as relevant as the 9/10¢ at the gas pump.   The difference is that gas pump prices, while confusing are essentially harmless, while traditional management accounting decisions are killing American business.

What other insignificant digit examples can you cite?  Won’t you please share them.


BTW  Brian Maskell will be in Boston on Monday & Tuesday, July 18 & 19 (that’s next week!) to teach his sought-after “Lean Accounting for the Lean Enterprise” workshop – a must for CFOs and finance professionals from companies implementing an enterprise-wide Lean initiative. A few seats remain, so call GBMP at 617-287-7630 today to learn more and register or visit the GBMP website and click on Events: www.gbmp.org