lean financial metrics
DESCRIPTION
Three Lean financial metrics that can be used to show direct contribution to key metrics like Revenue Growth, Gross Margin, COGS, EBIT, and Cash Flow. If visually managed it will get the attention of LeadershipTRANSCRIPT
Apr 12, 2023 www.leanteamsusa.com 1
Robert BairdLean Teams USA
+1 215 353 0696
Metrics that demonstrate the financial contribution from Lean Sigma
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Why do most leaders not pay attention to Lean Sigma?
53% do not see financial contribution
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Financial Contribution
As a Lean Practitioner do you measure the contribution towards important business metrics like Revenue Growth, Gross Margin, COGS, EBIT, or Cash Flow?If the answer is no then use these financial measures as a result of Productivity, Quality, and Lead Time improvements.
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Direct Labor Efficiency Variance
• A favorable (+ number) labor efficiency variance indicates increased productivity of direct labor during a period.
• One form of productivity is using less labour hours because of task improvement
• Direct contributions to Gross Margin, EBIT, and COGS
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Direct Material Quantity Variance
• A favorable material variance indicates improved quality • This variance can be used from quality improvements through the
use of less material because of yield loss improvement• Direct contributions to Gross Margin, EBIT, and COGS
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Savings from Lead Time Reduction
* Labor = Cost per hour for sum of Direct involved, Lead Time = hours
• Period Cost is the time period (week, month, etc)• Calculating the Period Cost for Lead Time 1 and then subtracting
Period Cost Lead Time 2 will provide the $ improvement – Only the Lead Time number changes for 2nd Period Cost
• Direct contributions to Gross Margin, EBIT, COGS, and Cash Flow
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Benefits
• Tangible financial results demonstrated from continuous improvement efforts
• Solid connection to key business metrics • Visual management will get the attention of
Leaders
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• Metrics that demonstrate the financial contribution from Lean Sigma (blog)
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