Value Stream Mapping (#67)
/In this podcast episode, we discuss value stream mapping, especially in regard to how it can be used to improve accounting operations. Key points made are noted below.
The Value Stream Mapping Chart
This episode is about value stream mapping, or VSM. What it does is show you where there’s waste in a process. It doesn’t show you how to eliminate it, but it does point out where you can find it. All of the VSM information you collect goes into a VSM chart. The chart identifies all steps in a process, and key information about each item. The “key information” can vary quite a bit by process, but it’s common to find things like total work time required, cycle time to complete a transaction, and error rates.
The chart also identifies the amount of time spent between steps, where the information from the last step is batched together, and consumes transit time to get somewhere else, and then parks in an inbound queue in front of the next process step. It’s really common for the time between steps to be longer than the time during steps.
The Need for a Consultant
To create a VSM chart, you really need to bring in a consultant. It takes a fair amount of time to collect information, and you probably don’t have enough staff available on-site to do the work. Also, it isn’t something that you do just once. Instead, you do an initial measurement, act on the information, then measure again to see what happened, and then keep measuring as long as you keep taking action steps. In addition, it makes sense to re-measure the process at longer intervals to see if it’s backsliding. Because of all this work, it really makes sense to hire a specialist who comes in at prearranged intervals, does the work, and gets out.
A consultant is also useful, because the people being measured don’t like being measured, and they have less chance of pressuring a consultant into fudging the numbers than they would with a fellow employee.
Using the industrial Engineering Staff
If you just can’t afford a consultant, then another good source is the industrial engineering staff. They do this kind of analysis all the time, and they might do some kind of internal billing arrangement in exchange for helping out. You could also try the internal auditing department, but VSM data collection is so repetitive that they might not want to help – and besides, they’re looking for control problems, and a VSM chart does not highlight control issues.
Information Structuring
So how do you structure this information in a VSM chart? It’s not difficult at all. First, create a series of blocks across a spreadsheet, with each one being a separate step in a process. Then fill in identifying information about each step within each block, in sequence. So for example, if you’re documenting a procurement cycle, the first block might be to submit a requisition, the next block is for processing a purchase order, and the third block is to receive goods at the warehouse – and so on.
Beneath each block, jot down the information you want to collect. For example, there might be an error percentage field, and another field for the number of full-time equivalent staff used for the task – whatever it might be, the information goes directly under the block that you’re measuring.
Also make note of the processing time required under each block, and then also note the time required between steps. With all of this information, you can quickly glance at an entire process, and decide where to direct your attention to improve it.
What you do with a VSM chart depends on what you’re trying to improve. For example, if overtime is too high an expense, then you can track overtime for each step, see where the most overtime is located, and concentrate on overtime reduction in that area. A more common issue is document error rates. In this case, you may need to do two VSM charts. The first one reveals which process contains the most errors. Then you run the VSM again, but now as a drilldown for just that one process. It’s quite likely that a single machine, or work practice, or employee is responsible for the bulk of the errors.
If process time reduction is the issue, then chances are good that you need to focus on the time between process steps, with the greatest emphasis – obviously – on whatever gap requires the most time.
All of these examples bring up an interesting point, which is that you can run multiple VSM charts on the same process, in order to fix different things. On the first pass, the goal may be process time reduction, so that’s what you measure, and that’s what you reduce.
The next time around, you focus on errors only, and you reduce those. But at some point, these different goals will probably interfere with each other. So for example, let’s say that you’ve just shrunk a process way down, but you did so by cutting out some controls that resulted in more errors.
At some point, you’ll need to come to terms with which goal is more important, and back off a bit with the other conflicting goals.
Where to Use Value Stream Mapping
So where does VSM work best? Definitely in high-volume processes, because this is where it makes the most sense to try to wring even a few extra seconds out of a repetitive process. Conversely, don’t even bother if there’s really low volume, or where people constantly switch around among different jobs during the day. If there’s no volume, then measurement results aren’t very reliable, and there’s not much payback from making an improvement.
Given these restrictions, there’re really only a few places in an accounting organization where value stream mapping can help – and those places are pretty obvious. You should be looking at customer billings, cash receipts, and payables, in particular.
If you liked hearing about value stream mapping, then you might also like to listen to a discussion of accounting run charts, which show you how to track process performance over time. That discussion was back in Episode 32. There are also articles about value stream mapping and accounting run charts on accountingtools.com. To access them, just go to the website and enter a few key words in the search bar at the top of any page.