Lean Accounting for New Product Development – Blog#1

I have two series of blogs underway right now. This blog is the first of a series I am writing about the methods of Lean Accounting for New Product Development (NPD). The second series has already started and addresses Sales, Operations, & Financial Planning (SOFP) because this is an important part of Lean Accounting that is often misunderstood.

Lean Accounting for New Product Development – Blog#1

In recent years there has been a good deal of attention paid to New Product Development (NPD) but it has lagged behind lean manufacturing. In addition much of the emphasis has been on applying regular lean tools to the existing NPD processes. These improvements often provided helpful waste reduction, but they do not make the fundamental changes to make the NPD approach truly lean.

I will not attempt in these blogs to explain or justify the methods of Lean NPD. That’s beyond my scope. But I will reference some of the methods when Lean Accounting specifically addresses them. If you want to better understand Lean Product Development, I recommend the late Allen C. Ward’s excellent book “Lean Product and Process Development”.

The methods of Lean Accounting for NPD are similar to the regular Lean Accounting used in production plants, hospitals, banks, insurance companies, and so forth. Here’s a summary:

But there are also important differences.

1. We need two different kinds of Box Score. One is like the operational box scores and addresses the current value stream performance. The second is a Lifetime Box Score that looks across the life of the product families so that decisions are made with the long term in view.

2. Much of what we do in lean manufacturing us designed to ensure standardization to eliminate variability. In lean NPD we recognize that much of the variability of the process is value-adding. It is learning. Our control & measurement methods must not revolve around limiting variability; it must revolve around catering and adapting as the variability and new learning develops.

3. In traditional lean processes we are interested in achieving cost objectives, and this is also true within lean NPD. But in lean NPD we may need to spend money to achieve additional learning. This learning may not be 100% needed for the project at hand, but can be important learning for the organization.

4. In fact, we often design the same product sub-systems using 2 or 3 teams working in parallel on the sane design. This is called set-based design. Though this may seem counter intuitive, it is done to create deeper learning and to reduce the risk of design, delivery, and quality failure. It is often true that the cost of delayed product launch out-weighs the cost of the set-based design methods. These methods significantly reduce the level of risk, while at the same time creating deeper knowledge that may well improve the quality and reduce the costs of future products.

These are examples of how Lean Accounting for NPD has special needs that require some new methods and ideas. Over the next few weeks we will look at 8 or 9 of these Lean Accounting for NPD methods. I would very much welcome your questions, opinions, and experiences with these issues. It is an exciting journey!!

In Blog #2 we will look at deciding which projects to work on and how to balance your “portfolio” of projects. You’ve got it !! It’s that Lifetime Box Score comin’ up.

If you want some more information on some key aspects of Lean NPD; here’s a quick summary I have put together.