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07 June 2006


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"Or is changing the financial system a funamental prerequisite to lean?"

The short answer to your question is yes...assuming that a given company truly wants to be lean. Most only want to use the lean tools to cost cut their way to a little more profit under their old systems. Anybody can tell you that you get the behavior that you measure. What measurement is truly more valued than those put out by the accountants? In the end, it's all about making money for a lot of companies. Until companies change the way they look at the money metrics, all most of us "lean thinkers" are doing is learning some good Japanese words and earning some pretty belts on the way to reinforcing the good old way to do business.

"Or is changing the financial system a funamental prerequisite to lean?"

The short answer to your question is yes...

I don't believe it's a funamental prerequisite, it's just a lazy mans way.

If I build something to sell to a customer for £10 or I build something to put in stock as an asset worth £10 it's the same difference, no?

Being able to build junk and have it show up as valuable definitely does encourage lazy thinking - why try harder when you don't need to.

In your example where there's a backlog of orders it was wilful stupidity that led to them building just to use up stock. It also proves that there's motivation not to keep raw material in stock because it will devalue - a la JIT etc.

damnit, i meant to say "short answer is -NO-".

I am going to show my ignorance and see if I am correctly answering “What do we mean by the financial system?”.
To be simplistic, there are three main financial statements (Balance Sheet, Income Statement and Cash Flow Statement) and they are built on a variety of financial concepts like the Money Measurement Concept (accounting deals only with things that can be represented in monetary terms). These statements attempt to create a common reporting output that all industries (manufacturing, service, non-profit, etc.) can use.
We use a variety of tools to analyze and draw conclusion from these statements. You could even classify them into categories like Liquidity (do I have enough cash?), Activity (are things under control?), Operating (what is happening to costs and profitability?) and Leverage (is there too much debt?).
I think that both the statements are analytics are the “financial system” that is being discussed.
These statements are governed by GAAP and, in my opinion, no matter how much we want to change these statements they are not going to change. I suggest that instead of spending time on the statements, we focus on the analytics.
I think there are measurements in the current financial system that we like and need. Examples of beneficial measurements are the Quick Ratio, Days Receivable, Inventory Turns, Debt to Equity and Gross Margin. What other measurements are useful? Now we need to look at what we do not like. One that Bill does is constantly harping on is ROI, but are there others?

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