I knew the author, Steven M. Bragg from his podcast series “Accounting Best Practices with Steven Bragg” before I came across his book “throughput accounting, a guide to constraint management” published by Wiley & sons, 2007.
The hard cover book has 178 pages, 10 chapters, easy to read in neat presentation and legible fonts, with numerous tables, graphs and illustrations to back up all the provided examples and case studies.
It claims to contain the tools needed to improve companies performance for accountants, financial analysts, production planners or production managers.
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The book starts head on by introducing the basics of Theory of Constraints (ToC) in an uncommon, and for me daring way: explaining very briefly the Drum-Buffer-Rope (DBR) logic, in chapter 1 (page 1!).
It is daring because it’s a shortcut putting DBR upfront when it’s usually presented to newbies (long) after explaining the bottleneck concept and the differences between traditional manufacturing, trying to run every resource at full utilisation rate, versus the ToC approach where “only” the bottleneck matters (this is another shortcut, but of mine…).
It goes on with presentation about the different types of constraints, not all being bottlenecks, discussing the nature of the constraint (page 5). The Throughput Accounting (TA) KPIs are presented page 7 and 8 before diving into the financial aspects of TA.
Chapter 2 is about Constraint Management in the factory, starting with how to locate the constraint and how to manage the constrained resource. The various hints are clearly targeting managers or readers keeping some distance from shopfloor as they give enough insight without being too detailed. No people will go through and get bored, the various hints are condensed within few lines, without giving up anything important.
Four pages deal with policy constraints, again something of interest for managers and readers that may have influence within their own organization to educate their colleagues about the drawbacks of some policies and hopefully change them. The importance of constraint buffer comes page 25 followed by the importance of proper batch sizes and machine setups.
Chapter 3 is about throughput (T) and traditional cost accounting concepts and starts with the emphasis on cost versus Throughput and goes on with all the consequences describing why traditional cost accounting – companies that means – is suffering from several problems.
This chapter is important for people not very familiar with accounting, especially in operations, because it explains some of the decisions that make no big sense when considered from operations point of view. It is also important for those familiar with traditional cost accounting for to understand the limitations and problems brought up by that approach.
Chapter 4 is about Throughput and Financial Analysis Scenarios and from page 59 to 86 take the readers through 14 different scenarios, from Low Price, High Volume Decision to Plant Closing Decision.
Chapter 5 is on Throughput in the Budgeting and Capital Budgeting Process, chapter 6 about Throughput and Generally Accepted Accounting Principles and chapter 7 about Throughput and Control Systems.
Chapter 8 details Throughput and Performance Measurement and Reporting Systems, interesting because it links the operations’ reality to usable KPIs, e.g.
- Ratio of Throughput to Constraint Time Consumption
- Total Throughput Dollars Quoted in the Period
- Constraint Utilization
- Constraint Schedule Attainment
- Manufacturing Productivity
- Manufacturing Effectiveness
- Order Cycle Time
- Throughput Shipping Delay
Chapter 9 is named Throughput and Accounting Management and addresses 12 decision areas among which: Throughput Analysis Priorities, The Inventory Build Concept, Investment Analysis, Price Formulation.
Finally chapter 10 presents 7 Throughput Case Studies each of them in a couple of pages.
The book is easy to read and to all concepts are easy to understand thanks to the simple ways the author puts them. Not being an accounting specialist at all, I always liked the simple, pragmatic and concise ways Steven Bragg explains accounting rules or practices. This book is not different.
Reading “throughput accounting, a guide to constraint management” reinforced both my knowledge and my interest in throughput accounting, as well as the conviction about throughput accounting being a powerful and crucial decision-making approach.
I’ve marked dozens of pages with sticky notes highlighting my points of interest and/or inspirations for posts on my blog, reinforcing my consulting approach, etc.
Almost all companies have their management heavily influenced by traditional cost accounting and most of them make ill-oriented decisions. With the book’s content help, it is easier to explain to CFOs and CEOs why their decisions are biased by false assumptions or outdated rules, something that can be quite shocking to them.
The book doesn’t come cheap, but as it explains, quit reasoning in terms of cost savings and consider how much (intellectual?) Throughput it can leverage.