The Lean CFO: Architect of the Lean Management System, 1st Edition (Hardback) book cover

The Lean CFO

Architect of the Lean Management System, 1st Edition

By Nicholas S. Katko

Productivity Press

151 pages | 53 B/W Illus.

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pub: 2013-09-16
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This book is not about debits, credits, or accounting theory. Instead, it describes how a chief financial officer (CFO) becomes a Lean CFO by leading a company in developing and deploying a Lean management system. The finance team, business executives, and Lean leaders will all benefit from its forward-thinking improvement approach.

Explaining why the CFO role is so critical for companies adopting a Lean business strategy, The Lean CFO: Architect of the Lean Management System illustrates the process of building and integrating a Lean management system into the overall Lean business strategy. It describes why CFOs should move their companies away from performance measures based on traditional manufacturing practices and into a Lean performance measurement system. In addition, it explains how to integrate a Lean management system with a Lean business strategy to drive financial success.

  • Describes the logic behind why a Lean management system must replace a traditional management accounting system
  • Discusses how flow can drive the financial success of Lean
  • Demonstrates the need for constructing a value stream capacity measurement system
  • Explains how to break your company away from using standard costing to run your business

The book explains why you must move your company into value stream accounting, which reports your internal financial information by the real profit centers of your business, your value streams. It describes the strategic aspects of making money from a Lean business strategy and also details how to modify your enterprise resource planning system to support Lean rather than hinder it.

Table of Contents

The Architect


Designing the Lean Management System

Constructing the Lean Management System

Moving into Lean Business Decision Making

Tearing Down the Old House

The Economics of Lean


Lean Is the Strategy

Lean Every Day

The Economics of Lean

The Lean CFO—Key to Success with Lean

Five Lean Principles


$how Me the Value Stream Flow


What Is Flow?

Flow Equals Real Productivity

Eliminate Waste and Improve Flow

Demand and Cycle Times Impact Flow

Lean Performance Measurements


$how Me the Office Flow


Office Flow: The Current State

Office Waste Is More Complex

Cycle Times


Departmental Work Flow Characteristics

Wastes of Overburdening and Waiting

Waste of Interruptions

The Future State: Lean Office Flow

Step 1: Design the Processes

Step 2: Plan the Work

Prioritizing Demand

Single Piece Flow

Step 3: Controlling the Work

Level Scheduling to 80% of Capacity

Control Interruptions


Visual Workplace

Wrap-Up: Office Flow and the Lean CFO

Measure Lean Performance, Not Profits


Traditional Measurements

Lean Measurements

Changing the Measures

Link Measures to Lean Strategy

Using Lean Performance Measurements


It’s about Spending, Not Costs


Traditional Cost Management

Value Stream Accounting

Value Stream Costing

Material Spending

Labor Spending

Machine Spending

Quality Spending

Maintenance Spending

Material Management Spending

Receiving Inspection Spending

Value Stream Income Statement


The Value of Measuring Capacity

Capacity in Traditional Manufacturing

Capacity in Lean Manufacturing

Integrity of Value Stream Map Data

Operational Value of Capacity

Financial Value of Capacity


Decisions, Decisions, Decisions

The Current State: Standard Costing and Decision Making

The Future State: The Value Stream Box Score and Decision Making

Using Product Cost to Set Price

Profitability of New Business

Determining the Profitability of Customers, Markets, and Business Segments


Capital Purchases

Hiring People

Impact of Continuous Improvement


Standard Costing Debunked


A Brief History of Standard Costing

Charting the Course to No Standard Costs

Simplifying Material Cost

Simplifying Labor and Overhead Costs

Eliminating Standard Costing


Tame the ERP Beast


ERP and the CFO

Lean Operations and ERP

The Lean CFO and Work Orders

The Lean CFO and Inventory Quantity

The Lean CFO and Work-in-Process Valuation


By the People, for the People

System Thinking vs. Project Thinking

All Eyes and Ears Are on You

Keep It Simple

Stick to the Plan



About the Author

After a tour of duty in public accounting, Nick Katko began his Lean management system career as chief financial officer of Bullard, a privately held manufacturing company in Kentucky. In the mid-1990s Bullard made a commitment to a Lean business strategy and began hiring operations people with Lean experience. Nick worked with Lean leaders to establish a comprehensive Lean performance measurement system that was used to measure and manage the entire business.

As inventory was dramatically reduced, Nick realized the irrelevance of the standard costing system to the business. Nick created and introduced value stream income statements to Bullard, and all business decision making was based upon a value stream financial analysis of decisions. Eventually, labor and overhead rates were set to zero and inventory valuation was made with a simple monthly journal entry capitalizing manufacturing costs.

In 2000, Nick left Bullard and started Strategic Financial Solutions, Inc., with his wife Deanna. Strategic Financial Solutions provides contract CFO and controller services as well as bookkeeping and tax services to companies in the Lexington, Kentucky area.

While on Bullard’s Lean journey, Nick read Making the Numbers Count by Brian Maskell. He liked the book so much he wrote Brian and told him about his own work with a Lean Management System. Nick and Brian talked regularly and, in 2002, Brian asked Nick to join BMA, Inc., as a senior consultant.

As a senior consultant with BMA, Nick uses his experience to assist clients in Lean management implementation by working closely with them to resolve the real-world issues they face in implementation. These issues include removing traditional cost-based performance measurement systems in favor of Lean performance measurement systems, migrating from a traditional income statement to a value stream costing income statement, creating a transaction elimination maturity path, and working with management to create new business decision-making models based on Lean accounting practices.

Nick has worked with a wide range of businesses, from multinational public companies to family-owned businesses around the world. He is the co-author of The Lean Business Management System: Lean Accounting Principles and Practices Toolkit (2007) as well as the BMA Lean Accounting Webinar Series. He is a regular presenter at the Lean Accounting Summit and the Lean Enterprise China Summit.

Nick, a native of Sayreville, New Jersey, resides in Lexington, Kentucky with his wife, Deanna, and family. He holds a BS in accounting and an MBA in finance, both from the University of Kentucky, and is a certified public accountant.

Subject Categories

BISAC Subject Codes/Headings:
BUSINESS & ECONOMICS / Quality Control