Operations & Management
Show me the money: How to show your Lean cost savings
May 14, 2013 by Dr. Timothy
One thing I hear time and time again from Western companies is about what a hard time they have showing their cost savings to the CFO. The CFO wants to see your cost savings in such a way that he or she can enter them into the budget books.
I know that it’s not very realistic, but you do have some companies that just haven’t learned that if you reduce waste and increase flow, the costs will take care of themselves.
When I’ve dealt with companies in the Far East, they get it. If they can reduce costs—by whatever amount—then they can reduce the sales price, remain competitive and still generate profit.
So to those people that are in combat over saving with their CFOs, I say: show your CFO your gains. All of them. Some of them you’ll be able to spell out in dollar terms; some of them you’ll be able to spell out in the language of the gemba:
• Spell them out in dollar terms. Be prepared for the CFO to see some of the gains, but he or she probably won’t see all of them. You’ll be able to show how you’ve saved some money. But be sure to at least make note of your other, less pragmatic savings, such as increases in quality, decreases in cycle time, listening to the voice of the customer and the like. And you really should phrase your savings in dollar terms if you’re speaking to the CFO, proposing a business case or handing up your accomplishments to anyone in the C-suite. After all, that’s the language they speak.
Now there’s a bonus if they’ve ever heard of Lean accounting. There’s even more of a bonus if they’ve heard of accounting for Lean. What I mean by “accounting for Lean” is showing in the books how much they’ve saved by practicing Lean. If you can’t win them over to Lean accounting right away, you can at least make a start at it.
• Spell them out in the language of the gemba. This goes for the kaizen teams as well as those you might be passing these gains up to. Keep the gains phrased in the language of the gemba. If they were aiming to reduce the number of steps in a process, keep the outcome phrased in the number of steps. Remember that these people have worked hard to bring their changes forward. Don’t go confusing those gains by restating everything in dollar terms. Keep the description of the savings true to what was in the A3s. Also, keep the savings pretty standard across different areas. It doesn’t matter if you’re talking healthcare or manufacturing. Talk about the number of steps removed in a process, the cycle time improvements in a process, the number of mistakes removed from a process and the like. In this way, you’ll be serving to keep the metrics more similar right across the enterprise.
I know that some of you work in very cost-conscious environments and Lean is often taken very literally—how much will it save me? Accept that they’ll see part of the savings that you’re bringing, even if they don’t see it all. Continue to show them the “less tangible” savings. They might not see the enduring savings that you’re bringing to the table, but they will see the month-by-month ones.
From the bookshelf…
Kaizen Express by Toshiko Narusawa and John Shook
It’s often easy to get confused about kaizen. With so many authors in a hurry to show you how much they know and so few prepared to tell what you really need to know, it’s easy to see where this confusion happens.
What you need is a simple description that’s bundled into a logical sequence that lets you implement Lean kaizen continuous improvement well, and that’s what this book delivers.
It doesn’t fill you up with theory but it does offer a description of Lean principles and implementation. I like the fact that it practices what it preaches—it stresses the importance of learning by doing at the individual and team levels. That’s exactly what kaizen is—the rapid doing at all levels. Whether you say it’s an A3, a PDCA or kaizen, it’s all the same. It’s all about showing that you can become the change that you want to see.
I’ve seen places where people want to argue about the A3 form for six months, where they want to have a committee to supervise Lean or where they’ve argued interminably about the philosophy of Lean. To them I say, just do it. Then do it again.
Then do another PDCA or A3 and remember to talk about your successes, share them and embed them into everything that you do. Get your managers out of their offices and down to the gemba. It’s really all very simple, but most people miss that simplicity. Until they read a book like this!
Question from the floor…
Question: How can I become a better Lean coach?
Answer: Whew! That’s a huge question. Atul Gawande (author of the Checklist Manifesto) noted that he improved his surgical techniques daily in his first two or three years, but after that his performance seemed to plateau. After asking a mentor to serve as his coach, Gawande was able to reduce his complication rate during operations. Coaches are invaluable resources for anyone seeking to improve performance.
So I say you need to know the processes that you’ll be participating in as a coach. Know them cold. Know them until you can answer the questions about the process. What do you have to do to remove what’s in the way? How might you reduce or eliminate all the extra walking or the waiting. Can you remove the blockages so things will flow smoothly? Or to be able to tell your people, “You really can accomplish more for the workers by asking them to do less.” Once you can get people to see what’s in the way, trust them to be able to get rid of it.
As I heard someone say, “If traditional managing is about thinking (often trying to do the thinking for others), leading through Lean thinking and practice is about getting others to think… and to think about the right things.” And that’s the essence of good coaching.
This article originally appeared in the May 2013 issue of Manufacturing AUTOMATION.