Right now we come to the second theme of Lean Accounting, which is improving flow by eliminating constraints. And as we've heard several times, in fact, profitability is maximized when the rate of flow is maximized. This means that we have to manage by business process, or buy value stream as it's called in the lien terminology, in order to manage and improve flow. And this is called value stream management. So value stream management comprises a number of things. It's about organizing by value streams, is about controlling by value streams, planning by value streams, improving by value streams, and managing by value streams.

So what is a value stream? The lean lexicon defines a value stream as all of the actions both value creating and non value creating, required to bring a project backdoor service from concept to launch. And from order to cash collection. These include actions to process information from the customer, and actions to transform the product or service on its way to the customer. Essentially, then a value stream is everything that we do in the business process. From the moment the customer places an order with us, to the moment we deliver that order to the customer, to their satisfaction, it's all the steps in process production.

It's all the steps in servicing, and it's everything that we do to support the process as well. Why do we manage by value stream? Well, the value stream is where value is created for the customer. Obviously, looking at the whole value stream allows us to identify the value that we're creating for the customer and the waste those impediments to value. By creating value. We help grow the business and we create profitability as we've seen from the economics flow, we can identify the flow through the value stream and the obstacles to that flow.

And we can see the whole process so that we can see the issues with the process and we can make improvements accordingly. And lastly, by focusing on creating value for the customer, we are focusing on improving profitability, and business growth. There are several different kinds of value stream. And the most common in organizations is of course, order fulfillment, or revenue generating value streams. These are the ones that take customer orders and deliver service to the customers. But businesses also have other types of value streams.

For example, acquiring new customers is a value stream. new product development is a value stream and customer development may also be a value stream. order fulfillment value streams are of course the most common as I said, but these other activities processes are required in organizations to help them grow and develop in the future. How many value streams should a business or organization have? Well, that's an impossible question to answer. And it depends partly on how advanced the organization is with lean.

So for example, with one company that worked with that had about 150 employees. They started with three revenue generating value streams, but they got better at understanding the flow of their products through their processes. And they moved later to five value streams, which gave a much more clearly defined flow of work. Let's talk now about improving flow by eliminating constraints. As we've seen, the process cannot go any faster than the slowest step. So the capacity of the process is limited by the capacity of the bottleneck.

And what causes that constraint. While it might be shared resources, it might be long setup times and might be The slowest paced equipment, it might be complex working procedures, unreliable steps or unreliable equipment, machines prone to downtime, poor skills training. Lean Accounting needs to provide information that allows the constraint to be identified and then improved. And how does Lean Accounting help improve flow? Well, the lean performance measures that we covered in the previous section help identify the constraint. For example, work in progress will build up at the constraint because it has the lowest throughput, therefore are working progress measure, each step in the process will clearly identify which is the constraint.

Similarly with the end to end flow time, we can break that down across the steps in the process. And the steps with the longest flow time are going to be the slowest steps the steps with the constraints. Timely reporting performance data weekly in data means the issues can be properly identified and worked on. And the finance team provide the information that the process improvement team need to identify the root cause of problems and identify solutions. Members of the finance team it should be part of the process improvement team, because they're helping to analyze the data provided. And they're providing that expertise, financial and expertise with data to help improvement plans.

So Lean Accounting achieves its second aim, which is improving flow by eliminating constraints by providing the performance data that we need to identify the constraints to analyze performance, and to come up with ideas and plans to improve performance.