An excerpt from my interview of Ross Maynard. Ross has worked as a coach and consultant with a wide range of British and European organizations for over 20 years.
Entire Transcription and Podcast: Managing Value Streams in Lean Accounting
Joe: I think it makes so much sense of building the organization from the value you provide a customer. Is that how Lean Accounting tries to structure itself?
Ross: Oh absolutely, yes. In fact, in terms of the Lean measures that we use in Lean accounting, I would always encourage the client to think of what measure of customer value can they build into their value steam accounts. What measure, what is the customer looking for, and how can we measure that in a sensible and timely manner to focus on the customer value aspects. I can give a small example of that if you are interested?
For example; We are working with, I won’t name the company, but a company in the aerospace industry at the moment, an involved engine manufacturer. They were traditionally looking at the cost per product for the pieces that they produce. And then when we began to analyze the customer value aspect, they began to realize that the customer actually values the time that the engines are in the air. They don’t want them to be always being maintained, always having to be checked and refurbished. So they came up with the concept of cost per flying hour as a measure for the value stream. Because in actual fact, you don’t necessarily want to be reducing the product cost of these engine components. You want to be adding value, which is flying hours for the airline companies or the aircraft companies. That can mean a higher cost per part to give more flying hours. That became a key measure of customer value through their value stream.
Joe: You talk about the key performance indicators. I always look at velocity. Is there a way to measure velocity?
Ross: Flow, yes. We measure flow through the value stream through a number of measures. In the manufacturing environment, you can measure manufacturing lead time, for example, customer lead time as well if an item is built to order. In a service environment, customer lead time is appropriate. We can also measure the amount of inventory in the process, so raw material inventory, work in progress, and finished goods. The amount of inventory is an indication of the amount of flow time through the process, as you can imagine. So those are areas of measures of flow that we would typically use.
Entire Transcription and Podcast: Managing Value Streams in Lean Accounting
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