Financial Activity Management

The purpose of ABC is to more accurately define the overhead and/or indirect costs associated with the manufacturing process and apply those costs to the product. It enables you to know exactly how much time and materials go into a product from all areas instead of just the ones that are obvious of great value to any organization.  It leads to more efficient processing in the manufacturing process, which in turn leads to greater profits through realization of cost savings.

In the past, cost accountants would add a percentage of expenses into direct costs as an allowance for indirect costs. (Wikipedia.org) With the advent of ABC, expenses are now more accurately defined and added to product lines appropriately. Although the process to define these expenses is sometimes tedious and costly, for some companies it provides an invaluable tool with which to measure the profitability of a product.

According to the OSD Comptroller iCenter website, which provides financial services information for the Department of Defense, there are four steps to ABC implementation:

  1. Identify activities—perform an in-depth analysis of the operating processes of each responsibility segment. Each process may consist of one or more activities required by outputs.
  2. Assign resource costa activities—thiis sometimes called “tracing.” Traceability refers to tracing costs to cost objects to determine why costs were incurred. DoD categorizes costs in three ways:
    1. Direct—costs that can be traced directly to one output. Example: the material costs (varnish, wood, paint) to build a chair.
    2. Indirect—costs that cannot be allocated to an individual output; in other words, they benefit two or more outputs, but not all outputs. Examples: maintenance costs for the saws that cut the wood, storage costs, other construction materials, and quality assurance.)
    3. General & Administrative—costs that cannot reasonable be associated with any particular product or service produced (overhead).
      These costs would remain the same no matter what output the activity produced. Examples: salaries of personnel in purchasing department, depreciation on equipment, and plant security.
  3. Identify outputs—identify all of the outputs for which an activity segment performs activities and consumes resources. Outputs can be products, services, or customers (persons or entities to whom a federal agency is required to provide goods or services).
  4. Assign activity costs to outputs—assign activity costs to outputs using activity drivers. Activity drivers assign activity costs to outputs based on individual outputs’ consumption or demand for activities. For example, a driver may be the number of times an activity is performed  (transaction driver) or the length of time an activity is performed  (duration driver). (OSD Comptroller iCenter)

As we can see the methodology behind Activity-Based Costing is sound, and can result in sometimes great savings to a company willing to take the time, effort and expense to implement a plan

GAP Analysis

According to the Wall Street Journal, up to 80% of firms failed to achieve their goals and the question is, were the goals too lofty or was the execution less than desirable?  Either way, they have adopted the jargon of Lean, Six-Sigma, or Business Process Re-engineering, but have been unable to break through cultural barriers to successfully execute the implementation of a holistic system able to produce at desired levels.

The GAP analysis is a tool designed to help companies compare actual performance with potential performance.  The purpose of the GAP analysis is to help companies become aware of their ability to be competitive, profitable, and enjoy growth. The GAP provides a realistic assessment of your business and what it will take to prevent becoming trapped in the pitfalls of business basics. It addresses the “how-to’s” of surviving and thriving in this ever-changing global marketplace.  Survival of any organization is achieved through three objectives:  1) Retain Customers, 2) Improve Profits, and 3) Increase Business.

If a company or organization is not making the best use of its current resources or is forgoing investment in capital or technology, then it may be producing or performing at a level below its potential. This concept is similar to the base case of being below one’s production possibilities frontier.

This analysis covers a wide range of activities, such as identifying customer needs, performance problems, reassessing strategic goals, defining re-engineering opportunities, managing re-engineering projects, controlling risks and maximizing benefits, managing organizational changes, and successfully implementing new processes. This analysis will provide a general framework for assessing your organizational model from initial strategic planning and goal-setting to post-implementation and goal attainment.

Creating a Lean Culture

We often think that learning the tools of any given program is enough. However, through extensive research and years of experience, we know that the failure of most programs is in the lack of support for and belief in the concepts of the process – it is not from a lack of technical know-how.

The culture of a company includes all employees in all departments and at all levels. It is their cumulative beliefs and attitudes about their work and their company.

While we often preach the importance of management support (and, yes, this is critical to success!), the fact is that for any program to work over the long-haul, everyone needs to have ‘buy-in’ to the process itself. This means that the first thing that has to change is the thinking – the culture. Creating a Lean culture is not something that happens overnight. It is a gradual change of attitude that comes when people believe in what they are doing. The following are six fundamental steps to achieving this state of mind. They are by no means all of the things that need to be done in your own company, but, instead, constitute the core values.

Six Basic Steps to Cultural Change

  1. It begins with enlightenment. That is to say, everyone in the company must be informed of the concepts and reasoning behind the direction the company is taking.
  2. People need to understand, not only, WHAT is coming at them, but WHY and most importantly, HOW WILL IT HELP ME?
  3. Use as many methods of getting “the message” out as possible. (Formal meetings with the whole company and/or individual departments, newsletters, posters, video, etc.) Create an air of excitement surrounding the process or program.
  4. Ask lots of questions to ensure that people understand what is going on and how a certain process works. LISTEN to the answers. Also, create an environment of open-communication by encouraging people to share their own questions or concerns.
  5. Never “punish” people or yell if something is not going well or as planned. Instead, find out why it is not working and – together with that person or team – find a way to improve or correct the situation.
  6. Finally, it is important to generate ideas from the source – meaning – go to the person doing the job, or using the tool, or running the machine, or driving the hi-lo, or filling out the form. THAT’s where you’ll find the knowledge in the company. That’s where you’ll find the improvements, changes and ideas that will, not only improve the company, but will help to create an environment of trust and caring.

Getting to know GDC’s Founder/President

GDC Total Business Solutions

 

Curtis Walker is the Founder/President of GDC Total Business Solutions, an organization that provides training, implementation, and consulting on Lean Conversion and cost cutting initiatives. His industry knowledge spans far, including automotive, manufacturing, food processing, hospital, patient  care, medical manufacturing, construction, textile, energy, plastics, mining and many more. As a consultant, Walker has worked with over 350 companies in 12 years and today, he is recognized as one of the top 10 authorities in lean operations and culture in the U.S.

Walker started his journey in 1981 when his company, at that time, a Japanese firm located in the United States, sent him to Japan for training. The company was quite familiar with a method of operations called “lean,” which was a concept originally referred to as the Toyota Production System or TPS.  Over the next three years, Walker spent half the year in Japan, soaking up all that he could about TPS operations, techniques, methodology and culture. For the other six months, he was back in the U.S., implementing what he had learned. He found himself quickly immersed in learning the rules of TPS or lean operations from the people who had invented them.

Ultimately, in 1999, Walker determined that it was time to spread his own wings in order to “preach the gospel of lean” to other companies who could benefit from a real understanding of what it means to instill the Toyota Production System, including its processes and culture, into their own organizations. In the years since then, Walker’s company has successfully completed seven plant-wide lean conversions, turned around two companies destined for financial foreclosure, and conducted projects ranging from classroom training to full implementation of lean conversion, strategic planning, start-up structuring, risk management, plant-floor layout, activity based costing, inventory reduction and Six Sigma projects.

“The lean approach represents a potential gold mine for companies because it increases productivity and quality, decreases waste and costs, and maximizes profits along with customer satisfaction. However,” Walker emphasized, “the one thing to remember is that ‘lean’ is an approach rather than just a set of processes. As such, it must be embraced for the long-term rather than a one-time activity.”

According to Walker, going lean will create more quality and value with less work, but only when it is an ongoing, corporate “way of life.” Additionally, if allowed to run continuously, lean techniques can improve supply chains, resulting in the preferred “just-in-time” delivery that most organizations aspire to, therefore ensuring better distributor, employee and customer relations.

From a 10,000-foot vantage point, Walker is quick to note that if you aim to be a top competitor, a lean organization is more than a choice…it’s a mandate in today’s business climate.

If you are interested in integrating this effective business plan,  GDC-TBS offers a free assessment to any company that has even the slightest idea that they are missing opportunities to save money.

For more information visit our website

http://www.gdctbs.com

Holos Leadership Systems- Moving America Forward

The holistic approach is based on 7 different modules used to create a proactive approach to continuous business improvements.

1st Module- GAP Analysis allows you to take an overall view of the organization’s strengths, weaknesses and opportunities. It helps you examine where the business is and where it can be by looking at customer needs, performance problems and goals.

2nd Module- Lean Operating System (LOS) is a strategy that is for everyone in the company, from the janitor to the CEO. This module helps determine the company’s final destination by looking at the short and long-term goals and then defines how to get there by creating new ideas for the company that embraces change

3rd Module- Human Capital Development (HCD) shows how to prioritize people development activities so that the focus is on the most important core elements of any organization – “It’s People”. It shows how to apply key tools for developing people’s activities to perform toward achieving the holistic approach

4th Module-Business Process Optimization (BPO) helps with continuous improvement of productivity and eliminates any type of waste while creating simplicity and flexibility

5th Module- Continuous Improvement Toolkit (CIT) are the tools needed for success and improvement and how to use them effectively

6th Module – Financial Activity Management (FAM) allows you to analyze resource cost based on activities within the organization, to deliver cost competitive products

7th Module- Lean Sustainment Audit (LSA) is the evaluation of the business performances. It audits the performance and cost improvements achieved. This module also explains that this approach must be a way of life in facilities that is continuous

Together, all these modules can optimize business performance by discovering, documenting, automating and continuously improving business processes to increase efficiency and reduce costs.

For more information, feel free to visit our website at http://www.gdctbs.com/

Stay tuned next week as we get in more depth about the GAP Anaylsis

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