Value Stream Assessment and Costing- Improve Profitability, Reduce Risk, and Increase Market Share
Value Stream Assessment and Costing is a powerful tool to understand COGs. margins, risks and changes to improve profitability and market share.
Methods & Solutions
During value stream or process assessment the complete lifecycle of the company is evaluated, from Customer PO through delivery, as well as IT and Sales.
By going to where the activity performed, observing, and talking with the people who do the work (Going to Gemba), issues or problems and risks, and effective improvements are identified. Mapping and assessment include people, processes and information flow and reports (IT, ERP and other systems).
Process mapping reveals interrelationships between the issues and constraints and provide clear visibility of solutions.
The impact of each issue or constraint in terms of direct and indirect costs (i.e. Labor, materials, waste) and risk is calculated. Using this information, COGS and margins are reevaluated.
Prioritizing improvements based on cost and return on investment (ROI) provides a comprehensive plan for improvement and growth to reach physical and financial goals.
The cost of risks, problems and change is calculated, before and after amelioration, to demonstrate the ROI.
Operations and Production Costs and COGS versus Financial Reports
Costs associated with issues, risks and constrains are quantified. These costs are typically assigned to overhead and admin results in erroneous margins and financial results that are at best misaligned or at worst leading to management mistakes. This process can be used to reduce Cost of Goods (COGs), and to improve financial performance.
Business owners and their financial advisors (CPAs, Accountants, Bankers and Consultants) often report that “Financial Reports do not match Reality”. They don’t because the reality of operations and production issues and risks are not reported in ERP or accounting systems correctly.
The cost of issues and risks remain unaddressed and disappear, falling off Management radar. The organization understand these “small little problems” are happening but they slip into the subconscious of daily business life (of getting product out the door to meet demand. The problem is “patched” and only repeats in the same or different spot, for the same root cause.
In many businesses, these unaddressed problems prohibit the organization from reaching its goals, and in some cases sink the ship.
Using process assessment, mapping and costing, accurate COGs and margins can be calculated and financial reports improved. Most importantly, a plan can be created to improve financial performance.
