August 15, 2011
Making a Start with Throughput Accounting
Moving to Throughput Accounting from a “traditional” accounting set-up involves moving from a focus on economies of scale to one on economies of flow. While we should not be prescriptive, I suggest that seven elements need to be addressed when moving to the Throughput Accounting economies of flow approach:
- A precisely defined Value Stream with a clear customer purpose and dedicated resources and people
- Cost centres and data collection structure aligned with the Value Stream(s) for easy and timely reporting
- A Value Stream map with each activity/ work centre showing flow time, cycle time, wait time, capacity, and other key data items
- An understanding of flow in the Value Stream(s) including variations in demand, and the level of failure demand and rework
- Weekly reporting of Value Stream measures of flow, quality, and customer service/ delivery; with daily measures at work centres
- An understanding of the impact of corporate practices and policies on flow – sales incentives, reward policies, KPIs, management priorities, period-end routines, and so on
- An improvement team empowered to make changes
Working on these seven areas will help establish a clear structure for Throughput Accounting and give you a firm grounding for improvement. Your improvement team should have three initial tasks:
- improve the bottleneck (constraint) stage;
- ensure that no non-value-added step delays a value-adding step;
- develop improvement plans for the end-to-end Value Stream
Good luck.