Ultriva Looks at Lean Accounting

Lean accounting cost management provides a fresh way to look at accounting for operations in manufacturing companies. Lean cost management provides the tools that help staff to understand the changing physical operations in the plant. Traditional accounting is not spoken by the staff on the shop floor yet these are the people who have to use the information to improve. Accounting information must be translated, easy to understand, actionable, and timely.

Manufacturers determine the operational elements in the value stream to track. Those elements are shown in the top half of the scorecard; in the bottom half of the scorecard financial performance is shown. This includes common elements such as sales per employee, inventory turns, variable margin, and gross margin.

Operational items are displayed on the top of the scorecard because it is where people have to focus. If the operational scorecard is improved, the financial scorecard will also improve. To test the efficacy of the operational parameters, improvements are made on the operational side that do not improve the financial picture were the wrong operational parameters.

A traditional profit and loss (P&L) statement illustrates sales, cost of sales based on standard costing, labor variance, material variance, overhead variance, and labor rate variance. None of these data provide actionable responses in a lean accounting environment. In lean accounting, manufacturers look at the variable costs each month and decide which cost categories should be the focus for continued process improvement.

“The central hallmark of demand driven supply chain is a digital kanban system which achieves savings in several key areas,” according to Narayan Laksham, CEO of Ultriva, (www.ultriva.com).

• It reduces the need to build inventory. All production is initiated based on the immediate needs of customers. Inventory turns for digital kanban parts are optimized (a definition of lean accounting.)

• Time spent by customer service communicating on expedited parts issues is practically been eliminated through a demand driven supply chain. Often customer service staff members spend 40% of their time expediting part orders prior to electronic kanban implementation.

• Sales have increased with the benefit of the e-kanban program because the copper manufacturer no longer uses capacity to build parts without an order to buy NOW. 100% of production capacity is utilized to build parts that are already sold as soon as they hit the shipping dock.

Laksham insists, “Capacity is expensive and a demand driven supply chain via digital kanban provides lean accounting efficiency and elimination of waste.”

Business process efficiencies increase with digital kanban, since orders are no longer run through the scheduling department, cutting shop orders and batching them. Demand driven supply chain replaces a very long chain of events in the order entry and scheduling function. Customer needs are displayed in real time. Everyone, including the customer, can see the status of any digital kanban at all times.

Ultriva's flagship product, Ultriva Electronic Kanban, eliminates stock-outs while reducing inventory levels up to 75 percent. Ultriva Lean Scheduling complements demand-driven replenishment strategies by optimizing production schedules in real time around the most variable customer demand. Ultriva Supplier Replenishment extends the replenishment capabilities of Kanban to include schedule-based replenishment, discrete POs, min/max, consignment and VMI (vendor-managed inventory) replenishment methods. Ultriva's products are in use in more than 100 plants worldwide, incorporating more than 4,000 suppliers, transacting over one billion dollars of inventory and reducing manufacturing costs for industry leaders such as AGCO, Emerson, Ingersoll-Rand, McKesson, Rexnord, and Timken.

Ultriva

www.ultriva.com

Cindy McGowan

pr@ultriva.com

408.248.9803