Thursday, May 7, 2020

Financial Analytics that Support Manufacturing Excellence

My expertise is accounting and finance, so some manufacturers may look upon this blog with a bit of suspicion.  I understand.  Beyond evaluating cash flow, traditional accounting and financial reporting conventions and practices have done a poor, perhaps even dysfunctional, job of supporting manufacturing operational improvements and has often been a hurdle or roadblock.

The new (3/31/2020) update of the MESA Manufacturing Analytics Guidebook emphasizes, provides references, and give many examples of the improvements and changes to financial models and information that are needed to support modern manufacturing analytics.  The biggest change needed is the mindset of CEO’s, CFO’s, and everyone in accounting and finance.  The new mindset must focus on supporting manufacturing with usable and actionable information that reflects operations clearly (and quickly) and supports internal decision making.   The fa├žade that traditional accounting and finance information provides any sort of “control” over manufacturing must end!

The MESA Manufacturing Analytics Guidebook presents a “Bill of Rights for Managerial Cost Information Users” developed by the Center for Managerial Costing Quality (www.thecmcq.org), now called the Profitability Analytics Center for Excellence (www.profitability-analytics.org).

Definition: Managerial Costing supports decision makers tasked with optimally achieving their organization’s strategic objectives. Decision makers at all levels of an organization should be provided managerial cost information that:

1. Clearly reflects the causal operational relationships of resources, their capacity and the processes that produce the organization’s outputs 
2. Calculates and reports reliable and actionable information on costs of processes, products, service lines, channels, missions and customers
3. Reflects the economic realities of the decision at hand, unhindered by external regulatory accounting rules 
4. Is consistent with the organization’s creation of long-term sustainable value or the long-term execution of the organization’s mission 
5. Doesn’t lead to argument and debate about its usefulness and accuracy 
6. Is readily available, sufficiently detailed and logically structured to improve visibility, facilitate analysis and provide insights

Resolution: Decision-making is challenging in all circumstances. Decision makers at all levels of an organization must ensure that those providing cost information for their decision-making honor these rights that are essential to effectively execute their management responsibilities.”

If you are looking for better financial metrics to support manufacturing, particularly as you adopt Industry 4.0 practices, The MESA Manufacturing Analytics Guidebook is a great starting place to get guidance and perspective on what decision support oriented financial information should look like.

About the Author

Larry R. White, CMA, CSCA, CFM, CPA, is the Executive Director of the Resource Consumption Accounting Institute (www.rcainstitute.org) which focuses on improving financial decision support in organizations and is a member of the MESA Analytics Working Group  He is a former Global Chairman of the Institute of Management Accountants, former member of the International Public Sector Accounting Standards Board, and currently a member of the International Federation of Accountants Professional Accountants in Business Committee.  He is a retired Captain, US Coast Guard, with a career primarily in financial management and worked for Deloitte as a Senior Business Advisor. He has written a bimonthly column for Automation World magazine 

1 comment:

john.jackiw@3ds.com said...

Larry well stated as always