MICHEL BAUDIN and DON HENDRICKSON
At Boeing Portland, management accountants and financial analysts have been helping the lean production effort since its inception in 1995. As shop floor teams design cells and flow lines, reduce setup times, or introduce Kanbans, they document improvements in the language of things - that is, in terms of work in processreductions, operator productivity increases, and lower rework rates. Assigned “cost management focals” from the finance department then process this data together with the project plan into funds flow schedules that provide the cost justification for the projects. The results have prompted redesign on some projects, kept the managers of support groups motivated to help implement, and made top managementaware of how valuable lean production is. At Toyota, the philosophy that profits come from squeezing costs is implemented through target costing in preproduction and cost improvement, or “Kaizen costing,” in production. At Boeing Portland, target costing has led to the selection of single-spindle, flexible milling machines that support one-piece flow for parts going into the new generation of737s. Most of the lean production effort, however, has been spent on improving existing lines, where the individual small-scale shop floor projects roll up to cost underruns in the millions of dollars. The major limitation of this analysis is that it treats delivery performance as an “intangible,” even though it is of paramount importance to the assembly plants that rely on Portland for parts. Inthis area also, although Portland’s accounting numbers do not reflect it, assembly’s shortage statistics show that Portland’s performance is improving.
DRAFT 6, 4/7/98
© MMTI, April 1998
How the finance department at Boeing Portland supports the move to lean production
BY MICHEL BAUDIN AND DON HENDRICKSON
LEAN W HENJapanesePRODUCTION is implemented in a plant, thefinance department already being made fall under the umbrella of “Kaizen costing,” or cost improvement. Underlying the Target costing/Kaizen costing approach is the way costs are calculated and, in this area, a common practice in Japan is to subordinate management accounting to corporate strategy (See T. Hiromoto2). If, for example, top management wants to standardize components, then overhead willbe allocated to products in proportion to the number of nonstandard items in their makeup. To an American manager, this is antithetical to the purpose of management accounting, which is to help managers make, not implement decisions. Management accounting is expected to provide feedback on the economics of operations, to be used -- along with other data -- in setting strategy
Michel Baudin is amanufacturing consultant and has been working with Boeing Portland on lean production implementation since October, 1995. He is based in Palo Alto, CA. Don Hendrickson, CMA is Finance Manager for Boeing Portland, and was responsible for Process and Inventory Accounting at the facility.
is not invited to participate in the design or implementation of the many waste elimination projects that takeplace. The 9/97 issue of the Japanese Kojo Kanri (Factory Management) magazine was focused on “Cutting costs in half by reducing production lead time.” The articles inside, however, were on how to use visual management, mobilize operator creativity, convert to one-piece flow, or implement “load-load” lines of machines with automatic part ejection. Performance improvements were described exclusivelyin the language of things, and nowhere did it say how they translated into cost reductions. Toyota’s philosophy is that, since prices are set by the market, once products are defined, profits come from squeezing costs. In the product design phase, many activities are driven by “target costing1,” in particular Value Engineering (VE), manufacturability improvements, and production line design....