Throughput Accounting (TA) is a subset
However, there is more to the philosophy of "Throughput" than mere accounting. But let us start with TA (as documented on this great wiki page).
TA does not focus on "cost accounting" but rather the "managerial accounting" concepts taught every college freshman. Yes, grab your Accounting 101 textbook and look up the term managerial accounting. What most student miss is the subtle fact that cost accounting and GAAP are all about reporting financial results in a common framework. They are not, and were never intended, to be used for decision-making by managers seeking to guide their organizations. Yet at the end of that first semester of accounting, you know almost nothing about the managerial framework.
Managerial accounting (and therefore TA) is about measurements! But I digress: this post is not about Throughput Accounting.
As I said, TA is a subset of Throughput (with a capital "T")
In recent days it has become clear to me that my unique role on planet earth is simple: I am a Throughput Guru. I can hear your wheels turning; "Okay SKI, what exactly does that designation covey?"
Glad you asked!
Deming's TQM (Total Quality Management) is brilliant. No, not as I have pointed out repeatedly, not the Americanization of TQM, but the version that gave birth in 1950 (in Japan) to the Deming Prize. The bright students (in America) reading along will start to search their memory banks for the creation date of the Malcolm Baldrige National Quality Award.
1987. Yes, thirty-seven years later!
Why create a US version of the Deming Prize? From the NIST web site:
In the early and mid-1980s, many industry and government leaders saw that a renewed emphasis on quality was no longer an option for American companies but a necessity for doing business in an ever expanding, and more demanding, competitive world market.
Tell me that you recall this passage from Purple Curve Effect:
Why has TQM failed for the most part in America? Most implementations attempt to empower everyone in the organization. It is a misguided attempt to fix every problem at once. It is impossible. Not only that, it is a waste of money and valuable resources. Any attempt to fix any link in the chain that is not the weakest link is 100% wasted. The chain will still break at the weakest link.
Aside: Today, I now know that effort applied to the non-constraint is not only wasted, it is actually stealing finite resources from the real problem, and thereby, putting the whole organization at risk of extinction! But I digress...
Assumptions
Every consulting assignment for me starts with the assumptions. Define them, or set myself up to fail! Mine and the clients. In business today there are a lot of assumptions. Failure to flesh them out (at least most of them, if not all of them) is one of the biggest causes of poor performance. At least for businesses in the United States. Need proof?
Cost Accounting
Need more proof? Or, is your mind still trying to comprehend that simple statement of cost accounting as proof? First things first. Remember the P&Q example? Every time that a person new to the exercise works through it, they get it wrong. Me included! Further analysis would show that the company in the example used cost accounting principles to create the constraint that prevents them from achieving significant improvements in throughput.
Recall that my definition of Throughput is simple: the act of creating excess money (beyond all expenses, including but not limited to acquiring and paying for necessary physical assets to operate your business, securing raw materials and labor, etc.), and then to put that excess money in your pocket, now, and even more in the future.
More proof?
Is Apple the low cost provider? Hardly. I have written a lot about Apple and their supply chain. As a publicly traded company certain details are public knowledge. Like Tim Cook's effort to significantly increase inventory turns. A measurement. But I digress... know that Throughput is not a "low cost provider" thing. It is a focus thing.
In conclusion, consider common sense.
Why are the states of our union banning hand held cell phone usage? People are lousy multitaskers! What you focus on gets done. Simple and pure. Logic in its most basic form. Just because something that you do not focus on might get done, in no way negates the affirmative version.
You need someone to focus on your results. Someone to instruct you in the shortest path to profitability. Take your wisdom and knowledge in your field of expertise and combine it with a process and measurement expert (like me!) to move your company out of the "also ran" category and into a position of leadership. In profits. In that all-important measurement: "cash in your pocket!"
What gets measured, gets done. Uncommon sense.
Jeff 'SKI' Kinsey, Jonah
Throughput.us LLC
(330) 432-3533
