You’re implementing lean throughout your company, most likely conducting eight to ten kaizen events a year, and possibly even exceeding twenty events. These events will result in improvements and show financial gain, enhancing the bottom line of your P&L statement—or will they?
 
If all you are doing is watching the bottom line, you might be throwing a lot of money out the door. We often spend lots of energy and money on lean implementation and sometimes we work so hard we forget or ignore what’s happening to cost increases in other areas of the business. To measure the true effectiveness of kaizen events or other lean processes requires implementing accounting practices specifically for lean manufacturing. Otherwise, you will never know if the absorbed costs of becoming lean are wiping out any expected profit increases.
 
Lean Accounting accountability is the watchdog that ensures your lean journey keeps moving forward toward your goals. A simple spread sheet (figure 1) can be developed to identify on a daily basis what direction you are heading. The one lean metric that can give you a complete overview of your direction is “throughput”—a metric that identifies and calculates problems as they are accruing, allowing you to react quickly and correct downturns.

One very important aspect in lean accounting is the "Lean Set-Point," or the level at which your company was performing prior to implementing lean methods. With the lean set-point, you always have a gauge from which to analyze continuous improvements provided your recording is consistent in all respects. Input hours and output hours, together with your current average shop rate, are the key factors that visually tell the story of your progress.
 
The lean set-point, often called the "Lean Performance Indicator," was developed by ShopWerks Software’s founder James Warren. Mr. Warren owns a manufacturing company that implemented lean methods throughout operations. When he realized that lean was not producing the expected bottom line improvement he set out to find and remedy the problem.
 
In just a short time, Mr. Warren realized that he needed to have a set-point prior to starting lean so that he could analyze where they were and where they were going. The challenge was to develop a formula for calculating progress and comparisons. He reviewed the typical lean PDCA (Plan-Do-Check-Adjust) methodology to conclude that contributing factors such as shop quote rate, value-added sales, number of employees and period of time all contributed to a successful progression. He was the first to measure and prove throughput utilizing a simple formula.
 
What he saw first were several unexpected facts, the most important being that throughput hours per team member had improved at an exceptional rate, but the company was giving success away. The company was pricing its time too low, resulting in the absorption of cost increases from vendors.
 
The end result was "LeanTrack," Mr. Warren’s lean accounting software for throughput measurement. It captures historical daily, monthly and yearly data and transforms it into a visual graphic display that makes it easy for managers, sales teams and production staff to see performance metrics.
 
LeanTrack offers many colorful graphic charts and Box Score Reports (Fig: 2) that truly give an accurate picture of your company's performance. The program also includes a five year Financial Box Score Report that shows just how the lean improvement process measures up in real time (Fig: 3).

 
Mr. Warren has now made LeanTrack available by download. It's a powerful tool that will help you realize profit from your investment in lean methods. Click here to get more information on LeanTrack.