The business metric RONA (Return on Net Assets) is used by many companies in order to gauge how well they turn their assets into income.
I am no accountant but do know there are a few ways to calculate RONA. For the sake of this article let us work with the simple formula: RONA = (Sales – Expenses) / Net Assets.
RONA Puts Inventory in it’s Place
The reason I personally like RONA is I believe it places the correct emphasis on inventory. If we decrease inventory (an asset according to cost accounting) and sales and expenses stay flat we improve RONA.
If we are able to actually increase sales, reduce expenses, and reduce inventory good golly Ms. Molly RONA is on her way up!
Some Practical Ways to Increase RONA
So, what are some ways a lean and six sigma practitioner can work to improve RONA? Here are some ideas but I would love to hear yours too.
- Reduce defects – both on the shop floor and front office using six sigma and things like poka-yoke and the often forgotten pillar of the Toyota Production System jidoka (Reduces Expenses).
- Increase throughput by using tools like Value Stream Mapping with extra emphasis on flow. This assumes, of course, the market is not a constraint (Increases Sales and Reduces Assets as inventory turns increase).
- Implement pull systems ensuring we only produce what the customer wants when they want it which lowers inventory (Reduces Assets).
- Implement TPM ensuring machines are available when we need them to be (Increases Sales).
- While on the TPM journey ensure OEE is being tracked and improved (Increases Sales).
- Become obsessed with kaizen (Reduces both Expenses and Assets and can also Increase Sales).
Is your company focused on improving RONA? If so, please share how you go about improving it.
If you enjoyed this post please subscribe to this blog via RSS feed.