The Lean CFO: Architect of the Lean Management System

This book was introduced to me by a young, at that time rather annoying controlling colleague of mine who bombarded me with continuous affirmations on how 20-30% of rework we witnessed in our operations at the time wasn't a big issue because of cost allocations, absorption, surcharges, inventory provisions and so on... Naturally, without formal training in accounting or finance I struggled to understand him, although our operation wasn't very complicated. As a result, every time we had one of these conversations I felt extremely annoyed to the point that I told him to read The Gold Mine before talking to me again. He finished it, asked for the sequel and a few other books later he then came back to me saying I should read Real Numbers and then The Lean CFO.I had heard of Real Numbers because of all the Wiremold stories, but Lean CFO was new to me. I proceeded with reading and while Chapters 1-5 didn't give me anything new, from Chapter 6 onwards I started to become glued into the book as I suddenly felt like having discovered a totally new set of very valid discussion points supporting Lean as a winning business strategy. Without going too much into detail, the points about capacity, The Box Score, ERP, comparison of Standard Costing and Lean Accounting are pure gold. Chapters 8, 9 and 10 alone are worth the money and I can only tell you that I have read many pages of Lean CFO and Accounting in Lean Enterprise again and again with my colleague and many other people every since.I can only thank Nick for writing this great book. I have and will keep recommending this as a must read for anyone in this line of business. It is much easier to give up practicing Lean than keep doing it because it goes so strongly against human nature - this book gives good inspiration boost and helps to bridge the gap between lean and finance. It helped me and my controlling colleague to speak the same language and very quickly had built the Box Scores and he was suddenly able to see the operation same way as I did.

This book speaks to the CFO or equivalent finance leader within a manufacturing-type of organization as the intended audience, but is very accessible to any reader with a basic understanding in finance or Lean. The book offers practical insights on how organizations can account properly for Lean. Chapters 6-10 are excellent primers for value stream costing, traditional vs. Lean perspective on capacity, pitfalls of standard costing for decision making, and how ERP should not be used. The explanations are concise and understandable to the non-accountant lean practitioner. The visuals and explanations of the value stream maps, box scores and value stream income statements are clear and easy to understand. At about 130 pages the book is the perfect size for the busy executive to digest in a couple of hours.Areas for kaizen (improvement):In chapter 4 $how Me the Office Flow, the author recommends "schedule to 80% capacity, whether it be for the entire process or its team members" because office work is highly variable by nature. While the premise is correct, this is a bad prescription. Not all office work can or should be scheduled, 80% of 8 hours. Based on personal experience, office workers engaged in highly repetitive transactional work can load to 90%+ while for senior managers, sales people, development teams with iterative work, 80% is far too high and unrealistic. Scheduling to capacity for an entire process (the whole team) versus its team members (individuals) are also very different games. The author is correct in explaining the general principles of leveling the schedule, loading to less than 100% (far less) and managing variability and interruptions by responding to andon signals and demand pull.The book positions the CFO as the "architect of the lean management system" but this is overreaching. The lean management system as described in the book is the lean performance management system, more specifically a lean accounting system for manufacturing. There are many parts of "the Lean system" that are not addressed by the CFO or the contents of this book (lean people development, lean product development, lean supplier development, lean strategy deployment, etc.). While one could argue that setting up the right measurements will drive all of these areas to Lean, in practice someone other than the CFO must lead people to design and build the rest of the lean management system by applying tools and principles.The definition of Lean used in the book is based on the so-called 5 Lean Principles of customer value, value streams, flow and pull, continuous improvement and engaged employees. The book deals mainly with the first four. The fifth principle, and the accounting for long-term investment in the development of people within a Lean enterprise, is not addressed. Investing in people is a challenging topic, a source of tension at many points on the Lean journey, and a key part of the Lean management system that requires enlightened CFOs to educate the rest of the organization.Future editions of the book, or perhaps a workbook sequel, could follow a fictional company making decisions, mapping value streams, setting up box scores, etc. rather than using discrete sets of data without links to a story of a company. This would help provide context, help readers relate to the examples, particularly those who are not financial professionals.Summary:The Lean CFO is a very good resource and awareness-builder for the CEO / CFO / P&L responsible executive supporting Lean. It is also a great primer in lean accounting for all Lean learners. Recommended for anyone serious about Lean.

In the Lean CFO, Nick Katko presents a useful blueprint for building a Lean Management System. For those in accounting and finance who are struggling with how to add value to operation managers in a lean manufacturing environment, this book is a helpful guide. Insights come from understanding the intersections of Lean operations, Lean measurements, and useful financial reports that unfold with good illustrations in chapters on establishing flow, developing meaningful performance metrics, linking them to Lean strategy, and focusing on spending rather than costs. In Chapter 8, I appreciated Nick's insights about the importance of eliminating standard costing and variance analysis. Research shows that most mature lean manufacturing companies continue to hold onto the wasteful practice of standard costing coupled with variance analysis. Katko clearly presents the case that standard costing is another form of wasted resources and cash outflow. Work cell metrics are a better device for controlling cycle time, cost and quality of outputs. In teaching an MBA class today, I made reference to some of the material in this book.