Lean Accounting – Management Control Practice

5.2.2.1 Overview Management Control Practice

Although the first initiative started in 2008, measurable key performance indicators (KPI‟s) were not formulated from the beginning. The main reasons for the lack of performance measurement in the beginning were the absence of data within systems and the absence of an organization-wide strategic structure. Towards the end of 2009, the first efforts were made to specify and quantify KPI‟s. Currently, KPI‟s at the division and department level are formulated on a yearly basis by the management, based on the following four pillars:

 On-time Delivery

A kanban instead, is a signal coming from a downstream activity, whereby the work is pulled by the upstream activity. In this case, it is the other way around, because the work is initiated by activities higher in the value stream.

 Motivation

 Quality

 Profitability

These KPI‟s are currently measured with the use of underlying performance measures, also formulated by the management. Based on these performance measures, the status of the KPI‟s is visualized and periodically updated on a so called „Dashboard‟, which is an A3-format, placed within the main hall. The performance measures currently in use within Case I are summarized within table 5.273. The reward system subsequent to both initiatives is also depicted in table 5.2.

Table 5.2 – Status of MC practice within Case I

Case I Initiative I Initiative II

Produc- tion Office Produc- tion Office Le an A cco unt ing - M an age m e nt C ont rol Performance Measurement** W aste Product defects Process defects X X X X Rework Downtime X XX Q ual it y Product/service quality First-time-through (FTT) Customer satisfaction Employee satisfaction Employee education/training Improvement ideas XX XX XX XX

Business consequences of improvement(s)

On-time delivery XX XX XX O pe rat ional P er fo rm anc e Productivity XX XX XX XX

Operational equipment effectiveness (OEE) Throughput time

Cycle time compared to customer takt time (day-by-the-hour)

WIP compared to SWIP XX

Amount of time from material receipt to delivery of the finished product (dock-to-dock)

Inventory turns

Capacity (non-productive, available) Supplier

Performance*

On-time delivery Product quality Reward System*

Reward based on non-financial measures X X X X

Reward based on team performance

Reward based on process/product quality

5.2.2.2 Status Management Control Practice

Analysis of the use of performance measures indicates that productivity, on-time delivery and the number submitted and completed improvement ideas are measured frequently and visualized on a dashboard at the work floor. On-time delivery and WIP-to-SWIP however, is not measured anymore in Belgium, since the Manager Operations refused to implement the introduced kanban system. Although some other forms of performance measurements are present within case I, analysis of the use of these measurements results in the following findings:

 The current MC practice shows different ways of measuring quality within case I. Subsequent to both of the initiatives, the number of errors is used to indicate the quality of the office processes, such as the after sales and account receivables processes. Within the production process of bottles, downtime is used to measure quality. Although, errors within the production process of bottles are also measured in

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the Netherlands and Belgium, this is not done as frequent as downtime. Moreover, except for downtime measurement in Belgium, neither of the process defects nordowntime measurements is made visible on the work floor.

 Errors within after sales are measured by the amount of incoming credit accounts and errors detected by the employees. The detected errors are collected in a red bucket on the work floor, but are not measured or visualized on a dashboard. There is also no standard procedure for the detection, measurement and periodic feedback on the errors made.

Since within after sales the measurement of errors is based on the credit accounts and submitted errors, this comprises a part of the actual errors made74.

 Performance measures are interpreted differently within departments, resulting in different ways of calculating the same performance measurement.

 Case I still struggles with the validity of data, due to the use of different systems and the lack of interfaces. This influences the quality of the performance measurements.

 The current MC practice contains several measures that are task related. For example, to indicate the status of employee motivation, the amount of submitted and completed improvement ideas is measured. How these improvements ideas are completed or the results from the implemented ideas are not measured, or made visual.

 Moreover, WIP-to-SWIP is not measured at all within office processes. Tasks to be completed are made visible within the after sales and accounts receivables department with the use of buckets that contain these tasks. However, the workload is not measured or visualized on a dashboard at the office departments.

Although there is a need for including more performance measures that support the Lean initiatives, currently many of these measures are not (or incidentally) measured within the firm. In some cases this has had a negative impact on the progresses being made. For example, the firm has an urgent need to, but struggles in measuring the number of bottles in circulation and the turnover rate of bottles. A reason for this problem is that many of the bottles do not return back to the firm after being used by the customer, or are returned to a different gas supplier. Also, the stock of empty bottles is not measured or visualized and needs to be assessed separately by the gatekeepers. This has the following consequences:

 Often during production, when a shortage in bottles of product type A is noticed, bottles of product type B are filled beforehand to cover the shortages. This causes disruptions in the visual management of inventories and the production process, and production and inventory measurements to be biased, which in the past has led to a failure to deliver on-time. These effects prevented the further development of the kanban system within the production process of bottles.

 Continuous investment is needed in empty bottles, which is a costly operation.

 The firm has no knowledge in the actual numbers of bottles consumed by the end customer.

Analysis of the current reward system indicates that, the pecuniary reward system for the management is in some cases based on non-financial measures that are directly related to the performance measures currently in use on the work floor or to the formulated KPI‟s. However, not all the non-financial measures in use to reward

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management performance are directly related to the formulated KPI‟s. Team performances or process quality improvements are not leading within the current reward system. Employees are evaluated based on individual task related performances, which do not have to be related to the KPI‟s. When rewarded, this is non-pecuniary and dependent on the evaluating manager.