Calculating the Financial Benefits of Lean using Lean Accounting – Part 2

The first step in this process is to understand the “future state” of a lean implementation. A lean implementation uses current state and future state value stream maps to plan continuous improvement. After the current state map is created, a lean implementation team will create a future state map that identifies what wasteful activities will be eliminated and how much productive capacity will be created. Future state maps are usually created for 6-12 months after lean implementation begins. Some lean implementations also create a longer-term future state map for 2-3 years out.

Once the future state has been created, a Lean Steering Team (LST) can begin its work to define the financial benefits of lean. Two areas need to be addressed: using available capacity to grow revenue and capacity management.

Revenue growth opportunities should be looked at in the classic marketing approach:
• Can we sell more existing products to existing customers?
• Can we develop new customers for our existing products?
• Can we develop new products for existing customers?
• Can we develop new products for new customers?

Here are some issues to consider when the team is reviewing options of revenue generation:
• What impact will lead time reduction have on your competitive position in existing markets?
• How can you position yourself against your competitors if you lead times are less that theirs?
• If lean principles are applied to the product development process, what impact will this have on generating revenue from new products?
• How much available capacity will be used in generating this revenue?