HOW TO FIND CASH IN EVERY CORNER OF THE COMPANY

MARK C. DELUZIOCEO Lean Horizons Consulting

Architect of the Danaher Business System

Foreword by Jeffrey J. FoxBestselling author of How to Become a Rainmaker

TURN WASTEINTO WEALTH

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published by Maven House Press, 4 Snead Ct., Palmyra, VA 22963 • 610.883.7988

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Copyright 2016 by Mark C. DeLuzio

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Every executive has heard of Lean, although many confuse Lean with kaizen, Six Sigma, and the Toyota

Production System. Many managers believe Lean is only used to reduce the costs and waste in manufacturing, when, in fact, the highest return on investing in a Lean transfor-mation often happens in administration-heavy organiza-tions. Lean is the modern way to run any organization.

Jack Sprat’s definition of lean is “little or no fat.” Fast forward from Jack and his wife: Lean is about eliminat-ing whatever is unnecessary in the doing of the work of the enterprise. Lean is about fewer mistakes, fewer do-overs, less time, less labor, less human effort, less space, fewer defects, less capital, less inventory – less extra any-thing. Lean is about getting to the simple of it.

Foreword

By Jeffrey J. Fox

Turn Waste into Wealth

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But as Gustave Flaubert wrote in 1851: “It’s no easy business to be simple.”

Thus, Mark DeLuzio’s fast, readable, mind-opening book on turning waste into wealth. Mark’s take on Lean is simple, understandable, and . . . actionable. He makes Lean easy business. You can read any chapter – nearly any sentence – and get an instant idea on how to improve your organization.

In addition to Mark’s bulletproof bona fides, what dis-tinguishes this book in the field of Lean is that it’s writ-ten by a day-to-day practitioner, not an observer, not an academic. (Mark and his team are working around the globe helping clients make or save millions of dollars per year.) The book is a metaphor for Mark’s view of Lean: to the point, economical, no unnecessary words, no time wasted reading textbook stuff. You can drive heavy ma-chinery reading this book . . . and end up with a lot less machinery when you’re done.

It’s telling that one of Mark’s major contributions to the U.S. practice of Lean – Lean accounting – is a radi-cal departure from his education, training, and financial management experience. First as a Certified Manage-ment Accountant, and later as the Chief Financial Of-ficer for Jake Brake (a Danaher Company), Mark was a traditional accountant. However, while leading the

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first Lean transformation at Danaher (and the first in the United States), Mark pioneered his innovative Lean accounting. If your company uses purchase price vari-ance, or uses machine run-time as a productivity metric, or looks at capital investment the old-fashioned way, or has traditional accountants minding the beans, then this book is for you.

Actually, this book is for you if you want to turn waste into wealth.

— Jeffrey J. Fox

Foreword

Turn Waste into Wealth

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6

The New Cost Reduction FrontierUsing Lean to Cut Administrative Waste

Although widely accepted for improving procedures on the factory floor, the fact that Lean can dramati-

cally reduce waste in administrative functions is less well known. Administrative costs dwarf manufacturing costs. As a percentage of revenues, administrative costs are two to ten times greater than direct production costs. (Pro-duction can be manufacturing a part, making a TV com-mercial, baking donuts, harvesting apples, and so on).

Consider administrative costs to be any cost not as-sociated with marketing, selling, or manufacturing. Thus, accounting, clerical, legal, tax, insurance, utilities, man-agement salaries, order processing, document process-ing, IT, human resources, and so on are all administrative costs.

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Administration has various names: front office, back office, central office, white collar, bureaucracy, overhead, and G&A (general and admin costs). Administrative functions, unlike production processes such as turning a lathe, are typically invisible. Transactions and improper direction may lie deep within databases, policies, or soft-ware. For example, the root cause of late shipments may be due to a poorly engineered customer demand over-sight process. Flaws in product design, weak forecasting, cumbersome forms, redundant paperwork, endless ap-proval systems are examples of administrative waste.

Lean administration reduces waste, errors, process-ing time, and back office delays. Back office problems are particularly common in an organization’s accounting and finance functions. Back office problems are endemic in insurance, banking, and paperwork-generating indus-tries such as residential real estate sales. Every company is undoubtedly losing money in its back office, or what-ever the administrative function is called.

Mis-billing, late billing, and non-billing cost industry millions of dollars a day.

Late ordering of fresh seafood robs $1,000 from the restaurant’s evening revenues. Mis-ordering the correct grade of cement delays the building completion by two

Mark C. DeLuzio | 15Lean Purpose

Turn Waste into Wealth

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days, causing $200,000 in lost time. Mis-forecasting part requirements triggers a line shutdown or expensive, ex-pedited emergency shipments. Mis-handling insurance escrow accounts costs the mortgage bank millions of dol-lars a month in redundant mailings, overnight express mailings, unnecessary interest payments.

Getting it right the first time, and every time, is the most worthy of wealth-creating missions.

White collar waste is the white whale of opportunity for companies that deploy Lean administration.

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Lean Case HistoryDiversified Industrial Company

Accounts Receivable Optimization

Every outstanding receivable is your money in someone else’s bank. Every late billing delays pay-ment. Every mistake on a customer invoice requires costly revisions, delays payment, and irritates the customer. The lack of standard work means the same mistakes can happen again and again.

In less than forty-five days, using the Lean ad-ministration toolset, a $50 million company gener-ated millions of dollars in cash.

Category Before Lean Post Lean Administration Administration

Dates Year 1 Year 10

Days Sales Outstanding 100 38

Past Due Receivables $3,000,000 $250,000

Accounts Receivable Headcount 1.0 0.3

Mark C. DeLuzio | 17Lean Purpose

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She Walked from San Diego to St. Louis in One Year and

Never Left the Factory Floor

The company makes electrical components. The ma-chine operator is a woman who spends her workday

assembling parts. Let’s call her Kay. Prior to a Lean so-lution Kay routinely walked from here to there to fetch parts, to bring the parts to her assembly machines, to deliver the parts to the next operation, to find tools and maintenance supplies.

Kay walked and walked. Based on careful pedometer readings, measuring her every step in a ten-day test pe-riod, Kay walked 1,549 miles in one year. San Diego is 1,549 miles from Saint Louis.

Kay walked close to three quarters of a mile every hour (1,549 miles divided by an annual 2,000 work hours). Even if she ran at Olympic gold medal speeds, Kay spent seventy minutes a day, every day, walking and not work-

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ing. Every second she walked was a second she did not make a part, and every unmade part was unmade money.

If Kay’s total direct cost was $30 an hour, then her employer, the electronics-part maker, paid her $35 every day just to walk around. If Kay worked 250 days a year, her endless wandering to find things cost her employer a wasted $8,750 per year.

The machines were moved. The necessary parts were placed adjacent to Kay’s work bench. The tools were la-beled and organized for instant access and usage. The parts were now in an economically efficient, continuous, one-piece flow.

Kay’s walk time was reduced by 98%. Instead of walk-ing five to six miles a day, she now walks about 100 feet a day. Her production rate is up 75% per day. Based on the selling price of her company’s products, Kay’s cell now generates an additional $1,200 in revenue per day.

Kay’s operation is immensely more profitable and tru-ly lean.

But poor Kay. She had to join a gym.

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Mark DeLuzio is the CEO of Lean Horizons Con-sulting. Prior to founding Lean Horizons in 2001,

he was Corporate Vice-President of the Danaher Corpo-ration, where he was the principle architect of the vaunted Danaher Business System, the primary reason for that company’s decades-long, world-class performance.

Mark is the pre-eminent thought leader in the Lean industry, noted for numerous Lean innovations, including the design and implementation of the first Lean account-ing system in the United States; Value Stream Mapping for Information; pioneering the linkage of strategy de-ployment to policy deployment; waste mapping; and the Lean Horizons Lean Sustainability System.

Mark was mentored by Toyota’s Autonomous Study Group, which was created by Taiichi Ohno, the father

About the Author

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of the Toyota Production System. Mark’s mentoring in-cluded several study missions to Japan, where he imple-mented various aspects of the Toyota Production System in world-class companies.

In 2007 Mark was inducted as a Life Member of the Shingo Prize Academy (essentially the Lean Hall-of-Fame). He is a popular speaker sought by corporations, conferences, and noted higher-learning institutions such as MIT’s Sloan Business School, Northwestern Univer-sity’s Kellogg School of Management, and the Rensse-laer Polytechnic Institute.

Mark is on the board of Directors of Hillenbrand Inc. (NYSE). He holds both a BS in Marketing and a BS in Accounting from Central Connecticut State University. He has an MBA in Operations Management from the University of Hartford. He is a Certified Management Accountant (CMA) and holds a Certificate in Produc-tion and Inventory Management (CPIM).

Mark is a Gold Star Parent.

Headquartered in Glastonbury, Connecticut, Lean Ho-rizons has offices in Europe, Asia, Mexico, and South America.

150 | Turn Waste into Wealth150 | Turn Waste into Wealth150 | Turn Waste into WealthAbout the Author

Like what you’ve read here? Then buy the book and learn how to find cash

in every corner of your company.Mark DeLuzio’s readable and mind-opening book on how to become a Lean company is simple, understandable, and . . . actionable. He makes Lean easy. Read any chapter – nearly any sentence – and get an instant idea on how to improve your organization.” — Jeffrey J. Fox

Cash is lying around everywhere in companies. It’s piled to the ceilings in

warehouses and on shelves, hiding in plain sight as inventory. It litters administrative offices, disguised as incorrect invoices, late billings, incomplete forms, input errors, sloppy requests from salespeople. All that cash is retrievable, bankable – available for re-investment.

Turn Waste into Wealth offers hard-hitting tips and numerous case histories to help you get that cash by turning your organizations into Lean companies. You will learn:

• Why Lean is the modern way to run any organization • Steps to transform your organizations into a Lean culture• Lean accounting practices that promote Lean behaviors• How to identify and deal with Lean naysayers• And much more