This top-level hoshin plan is then rolled-out
to the first-level executives, their first-level
managers, and down to the value streams.
Hoshin is not the traditional command
and control plan where (often unattainable)
goals are set by managers for their under-
lings. The hoshin process includes at each
level timely and detailed "catch-ball" steps
whereby the people required to achieve the
results are very much involved in the plan-
ning and goal-setting for their own areas of
responsibility. Hoshin is a cooperative and
empowering business transformation
process. Hoshin plans are typically devel-
oped annually and reviewed monthly.
Sales, Operations, and Financial
Planning (SOFP)
SOFP is typically done every month
and is a comprehensive, company-wide
process for short- and medium-term plan-
ning. SOFP is a formal and rigorous plan-
ning process completed for each value
stream. Sales and marketing provide fore-
casts for the number of products that will
be sold by a value stream each month for
the next 12 months (for example). These
are high-level forecasts of total unit sales,
although sometimes it is helpful to go one
level down and forecast by product families
within a value stream. The operations peo-
ple provide forecasts of the value stream
capacity each month for the next 12
months, and product engineering brings
the plans for new product introductions.
Through a series of formal, tightly-
scheduled meetings the customer demand
is matched by production capabilities. The
final executive SOFP meeting is chaired by
the most senior person in the organization
— often the president or CEO — and a com-
pany wide game-plan is developed.
Everybody in the organization can buy in to
this game plan because it has been devel-
oped cooperatively. SOFP is the planning
process in lean companies. It provides both
short-term updating of such things as kan-
bans and cell manning, and longer-term
planning such as capital equipment, and
hiring or redeploying people.
The financial planning outcome of the
SOFP process is to update budgets each
month and thereby largely eliminate the
wasteful annual budgeting choreography
most companies engage in. Calculating
short-term month-end results also decreases
the need for month-end reporting processes.
Financial Impact of Lean Improvement
The true impact of lean improvement
must be understood at the outset of any lean
transformation. Using the current state and
future state value stream maps, lean
accounting tools are used to understand how
the changes taking place in the value stream
will affect the operational performance, the
financial performance, and also how the
capacity usage changes within the value
stream. This analysis often shows excellent
operational improvement but little improve-
ment in cost or bottom-line profitability.
3
What bridges the gap between these? The
answer is capacity change.
Most lean improvement projects elim-
inate waste and create available capacity in
the form of machine time, people's time,
and physical space. The financial impact of
lean improvements on the company's bot-
tom-line comes from the decisions made by
management on how this newly freed-up
capacity will be used. Figure 4 shows a
real-life example of this from a company
making temperature and pressure gauges
used on off-shore oil rigs.
One of the most difficult changes
made by senior managers when they are
beginning the process of lean transforma-
tion is to stop thinking about production
improvements in terms of short-term cost
reductions. This is very much mass-pro-
duction, standard cost thinking. This think-
ing will limit the progress the company can
make with lean manufacturing and other
lean initiatives. We need to start thinking
about customer value and business growth.
This does not mean that cost information is
unimportant; cost is very important. So
important, in fact, that we need much bet-
ter tools to show the cost information: tools
like value stream costing and box scores.
By understanding this true nature of
lean, we change our question from, "How
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Target Volume 22, Number 1