going lean in government and non-profits - coming...
TRANSCRIPT
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Going Lean in Government and Non-Profits
Authors: Matthew X. Ryan, CPA, CFE, MBAFrancis X. Ryan, CPA, CGMA, MBA
Copyright 2015 Matthew X. Ryan and Francis X. Ryan
Introduction - Matt Financial Services & Risk Analysis
Public Accounting/Internal Audit
Alternative Investment (Hedge Fund) Accounting
Strategic & Operational Risk analysis
Lean implementations
Pennsylvania Army National Guard
Captain, Company Commander for Distribution/Logistics Company
Operation Iraqi Freedom (2008-2009), Executive Officer & Medical Logistics Officer
Non-profit Board experience
PICPA – Education Committee
Political Committees & State Senate Candidate Treasurer
Education & Certifications
MBA – The Wharton School
B.S. Finance – Penn State University
CPA, CFE 2
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Course Outline
Lean Defined
What is Lean?
Why study Lean?
Lean in Government & Non-Profits
The Value Stream
Mission & Vision
Types of Waste
Flow of Work
Pull of Demand
Perfection in the System
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What is Lean?
Lean provides a way to specify value to the customer.
A process oriented approach to detail ways to enhance customer value and eliminate waste.
Lean focuses on the customer and what is of value to the customer.
Lean concepts are also activity driven concepts.
A critical element is that activities drive costs or Activity Based Costing.
Waiting, re-work, transportation, waiting again, etc.
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What is Lean NOT?
Lean is NOT: Mean
Should NOT be used to layoff employees, cut benefits, etc.
Can cause lean initiatives to fail
Just for manufacturing firms
Healthcare, financial services firms beginning to embrace lean thinking
Governments and non-profits looking to lean thinking.
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Why Lean?
Why are companies looking to lean operations/thinking now?
Companies typically only look to cut waste and expenses in economic downturns
The economy?
Uncertainty?
Can you measure uncertainty?
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Why study Lean?
Do Government agencies and Non-profits have an unlimited source of funds?
What has happened to your respective agency budgets in the last 5 years?
Government debt has been, and will continue to be, at the forefront of political debates.
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Why study Lean?
Bottom line: more companies, governments, and organizations are embracing lean thinking as a way to improve operations and eliminate waste
It is a continual process – independent of economic conditions
Uncertainty in the global economy, U.S. economy, etc. is forcing organizations to look to new ways to streamline operations
More transparency/civilian-led oversight (i.e. Social Media) is forcing organizations to look at how their allocating resources
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Course Outline
Lean in Government & Non-Profits
Value and Target Costing
The Value Stream
Mission & Vision
Types of Waste
Flow of Work
Pull of Demand
Perfection in the System
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Value
What value do customers place on the services and products you provide?
Everything lean-related must be done with the customer’s viewpoint in mind:
What do the CUSTOMERS value?
Accurately identifying value is a critical first step in lean thinking
Ignore all existing assets and technologies
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Value
Customer Value is a measure of the determinants of demand and elasticity of demand for the product or service.
PRODUCT CONCEPT
Understanding Customer Value is crucial to a changed paradigm for product/service pricing.
Determinants of demand examine why consumers are buying from you.
Krispy Kreme doughnuts
Apple products
Airline industry
Auto companies13
Value
Product Concept is what the product is to the consumer.
Product concept includes:
Determinants of demand - Airlines
Elasticity of demand – Gas prices
Product features and attributes - Tablets
Product solutions – Healthcare IT
Channel of distribution – Krispy Kreme
Service – Car insurance, Comcast
Brand name – Volvo, Honda, Lexus
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Customer Value – Vector Analysis
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Customer Value - BMW
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Customer Value – Spirit Air (video)
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Customer Value – Southwest
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Target Costing
Target costing reflects the market value of the firm’s product
Directly tied to the company’s cost of capital and desired profit
Target Cost = Market Price – Desired Profit
Target Cost = Allowable Cost
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Target Costing – Cost Gap
Target Cost = Market Price – Desired Profit
Target Cost = Allowable Cost
Actual Cost > Target Cost = Cost Gap
Actual Cost < Target Cost = Desired Goal
Actual Cost = Target Cost = Desired Goal
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Target Cost
Desired Profit? Amazon.com’s Kindle
Apple iPod
As it relates to lean or activity based costing, we want to get the most accurate “Actual Cost” possible
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The Value Stream
The entire flow of a service or product’s life cycle
Includes upstream & downstream processes
Map the system
Which steps are value-added?
Which are non-value-added?
Which are non-value added but required?
Dependent upon the Mission, Vision, and/or Values of the organization.
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Value Stream
MAP THE SYSTEM Identify areas of waste – eliminate
Identify areas of non-value added but required
Address with elected officials, others
Identify critical value-added steps
Based upon the MISSION & VISION of the organization
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Value Stream Doctor’s Visit
Call to schedule Appt
Re-arrange schedule if needed
Arrange transportation to office
Arrive at office, check-in with reception
Complete initial patient form
Update insurance if needed
Wait for nurse to take you to back room
Nurse asks general questions/takes vitals
Wait for doctor
Doctor asks questions and conducts check-up
Doctor writes prescription
Check-out of office
Drive to pharmacy
Pick up and pay for prescription
Drive home25
The Value Stream - VA
Mission: To fulfill President Lincoln's promise “To care for him who shall have borne the battle, and for his widow, and his orphan” by serving and honoring the men and women who are America’s Veterans.
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The Value Stream - VA
Core Values:
Integrity: Act with high moral principle. Adhere to the highest professional standards. Maintain the trust and confidence of all with whom I engage.
Commitment: Work diligently to serve Veterans and other beneficiaries. Be driven by an earnest belief in VA’s mission. Fulfill my individual responsibilities and organizational responsibilities.
Advocacy: Be truly Veteran-centric by identifying, fully considering, and appropriately advancing the interests of Veterans and other beneficiaries.
Respect: Treat all those I serve and with whom I work with dignity and respect. Show respect to earn it.
Excellence: Strive for the highest quality and continuous improvement. Be thoughtful and decisive in leadership, accountable for my actions, willing to admit mistakes, and rigorous in correcting them 27
The Value Stream – American Red Cross
Mission: The American Red Cross prevents and alleviates human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.
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The Value Stream – American Red Cross Vision: The American Red Cross, through its strong
network of volunteers, donors and partners, is always there in times of need. We aspire to turn compassion into action so that...
...all people affected by disaster across the country and around the world receive care, shelter and hope;
...our communities are ready and prepared for disasters;
...everyone in our country has access to safe, lifesaving blood and blood products;
...all members of our armed services and their families find support and comfort whenever needed; and
...in an emergency, there are always trained individuals nearby, ready to use their Red Cross skills to save lives.
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The Value Stream
What about waste?
How can you identify waste?
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Seven Types of Waste
T – Transportation
I – Inventory
M – Motion
W – Waiting
O – Over-processing
O – Overproduction
D – Defects
Transportation
Transporting product between processes is a cost incursion which adds no value to the product.
Excessive handling
Movement of paperwork/movement between offices
Causes?
Non-standardized supply location
Supplies to complete one task located in multiple locations
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Unnecessary Inventory
More materials on hand than are required to do the work.
Doctor’s Office: overstocked medications
Iraq: Medical Logistics warehouse
Causes?
Supply/demand not well understood
Outdated supplies not deleted/eliminated
Personal preferences catered, duplicated
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Unnecessary Motion
Ketchup Bottles
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Speaking of Product Concept:
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Unnecessary Motion
Movement of people that does not add value
Looking for information
Looking for materials and people
SEI Investments – open floor concept
Materials, tools located far from the work
Causes?
Inconsistent information systems (includes communication)
Materials stocking that does not match the demand
Scheduling that creates work-arounds and re-work
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Waiting
Idle time created when people, information, materials, or equipment are not on hand.
Doctor’s Office: waiting for nurse, waiting for doctor, waiting for prescription, waiting for diagnosis
Auditing or taxes: waiting for client data/information
Check-out lines (solution: self-checkout?)
Airports: TSA pre-check
Causes?
Poor understanding of time required to complete task
Lack of accountability for delivering on time
Compounding delays (next slide) 38
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Waiting: Can Production
Activity IncomingStorage
Processing Time
Finished Storage
Mine 0 20 min 2 weeks
Reduction Mill 2 weeks 30 min 2 weeks
Smelter 3 months 2 hrs 2 weeks
Hot rolling mill 2 weeks 1 min 4 weeks
Cold rolling mill 2 weeks <1 min 4 weeks
Can maker 2 weeks 1 min 4 weeks
Bottler 4 days 1 min 5 weeks
Tesco RDC 0 0 3 days
Tesco store 0 0 2 days
Home storage 3 days 5 min N/A
TOTAL 5 months 3 hrs 6 months
Overproduction
Procedures continued after demand/requirements fulfilled.
Doctor’s office: filling out paperwork multiple times
Also relates to items produced too early.
Manufacturing firm: product takes 6 months to build, but all parts are ordered up-front
Causes?
Misinterpretation of regulations
Poor communication
Insufficient technology40
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Inappropriate Processing
Too many procedures/processes after the product is complete.
Clarifying orders, redundant information gathering
New Volvo ordered – walkthrough/acceptance of vehicle
Could new designs eliminate problems in extra processing?
Causes?
Work area layout that does not promote continuous flow
Multiple/complex forms41
Defects
Work that contains errors or lacks something of value Variation in outcomes; incorrect billing/charges
Causes? Lack of understanding of what is "defect free"
Lack of specification in work processes
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Flow of Work
When the value chain stops moving forward, waste occurs
Value streams need uninterrupted flow
Capacity must be analyzed and managed
Uninterrupted flow
Does your firm rush to get products/services completed before month-end?
Do you have periods of waiting for others to finish processes?
Can you smooth out that cycle?
Prevent bottlenecks 43
Capacity
Is a Physical Measure
KWH of electricity, hours worked/week
Is a Measure of Maximum Amount
Seats on a plane
Families served/helped
Depends on Rate and Time
Capacity = Rate x Time available
Time is a greatest resource you have, and the one resource you can never get more of once used
Is Costly
Production facilities
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Capacity & Flow
Primary objective is to reach a consensus within the organization concerning
What capacity is, and
What baseline measures should be used to capture it
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Flow of Work
Primary Capacity Measurements Are Waste and Throughput
No “Solution” to the Capacity Measurement Problem Can Be Developed
Capacity Measurement Assumptions Must Be Regularly Revisited
Capacity Management Issues Change With Time Frame and Unit of Analysis
Capacity Management Issues Emerge Whenever Resources Are Deployed to Create Value
Capacity Management Is Concerned With Minimizing Waste
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Pull of Demand
Ensuring nothing is made ahead of time
No service or product is produced until ordered by the customer
Very short cycle times (eliminating waste to reduce cycles)
Leads to a significant reduction in inventory
Inventory carrying costs = waste (no value to customer)
How often do you actually use certain goods/services?
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Pull of Demand
Demand for repair parts for vehicles/equipment
Defense Logistics Agency (est. $7 billion in unneeded repair parts…plus the cost to store)
Unused/underutilized equipment (DoD, DHS, etc.)
Vacant land or property
Rental space underutilized
Government-owned property
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Perfection in the System
Many business processes have become ineffective, out of date, overly complicated, time consuming, etc.
40-70% of white-collar effort adds no value
As roadblocks removes, morale improves
Work-arounds: if everyone works around a process, why have the process?
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Perfection in the System
“Perfection” is simply a continuous movement towards lean
There is no “end” to going lean
Technology changes allow for greater efficiencies (and sometimes greater waste)
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Perfection in the System
Steps towards Perfection and Lean: Organize: appoint Lean Champion and team,
communicate goals to entire team
Understand current processes: MAP the system, collect cost and time data, re-map the system again, perform walk-throughs
Streamline: identify areas of waste, what does the CUSTOMER value?
Establish measurements: audit the process, establish feedback sysem
Continuous improvement.
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Thank you for your participation in today’s program.
Matthew X. Ryan, CPA, CFE, MBA
412-215-2983 (cell)
Francis X. Ryan, CPA, CGMA, MBA
Semper Finance Inc.
717-891-2707 (cell)
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