Go into the factory and pick an operator at random. Then ask them how profitable the factory was last year, last month, last week, or even yesterday. You are likely to get a blank stare and possibly some raised eyebrows followed by: “what the hell are you talking about?” In most American manufacturing companies the typical operator has no concept of plant financials and how what he or she does on a daily basis impacts the company’s financial position. Yet every operator deals with money on a daily basis (at least their own money). I can only speculate why all companies don’t communicate in terms of money on all levels within the organization. I mean, if you break it down to the dollars and cents, it’s really not all that complicated. Could it be that business leaders think the floor operators don’t understand money and how their actions impact the bottom line? Is it because the business leaders themselves don’t understand how money is affected by their daily decisions? We are comfortable talking in terms of downtime, efficiency, and units produced – but not in terms of financial gains and losses on the shop floor. I mean, at the end of the day, isn’t it all about the money? Sure quality, safety, and customer service are critical…but if the company runs out of money, then what’s the point.
Here’s the process used by most plant finance functions. All of the plant’s costs roll up into these beautiful financial statements that get reported up to the plant leadership team and the corporate office. Unless there is something terribly uncomfortable about those numbers, no one ever hears or sees or cares about what those financial reports say. The line managers are happy as long as they hit schedule for the day, and so are the line operators. They go through their weeks, months, and years relatively oblivious to the financial impact their work has on the company. Why not integrate the finance / accounting function into daily factory operations? With today’s technology, plants can relatively easily have the capability of tracking conversion costs real time and feeding that information directly to the shop floor operator. This information empowers the operator to make educated decisions on how to and why its so important to effectively execute daily operations on a micro level. Again, dollars and cents are something that every operator can understand because its the language that his or her entire world speaks (outside of their own place of business of course). Its the job of plant leadership and the finance function to get this knowledge into the hands that will make the difference: the factory floor operator. At that point, you are ready to truly leverage the finance function to drive continuous improvement.
In this series of posts, I will lay out three key aspects of Continuous Improvement Finance strategy and how the finance function can be used as a lever against waste not only at the macro level, but also at the micro level within the factory.
Part 1) Measuring Plant Performance: The Common Denominator in Business – Establishing metrics and communication that ties daily execution to the life-blood of the business.
Part 2) The Factory as a Profit Center – Changing the attitude toward manufacturing and operations from cost control to wealth creation.
Part 3) Profit-based Performance Appraisal & Compensation – How to instill a culture that getting better means getting ahead all the way down to the shop floor operator level.
All waste can be measured in dollars. People may not be able to relate to waste the way Lean looks at it…but they can definitely relate to the dollars.
I look forward to sharing with you in future posts.
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