Lean Accounting

You are a cost conscious company. You have understood cost plus profit pricing is no more acceptable by the market. Now market decides the price of the product .The lower your cost the higher will be your profit.

So if it yes then we have to look at all the costs, which are incurred inside the company. You have to look at the right costs. Then only you will be able to reduce it.

Lean Accounting is not for the Accountants and Finance Managers. It is for all the Managers in the company irrespective of their functions. You should be able to link your all activities-Value Adding and Non Value Adding activities to the Dollar/Re value. If you are not able to do then the managers do not understand the implications. Cost of the product is related to how fast it flows through the plant.

Purchase department primary function is make the material available so that the flow is not disrupted .The secondary function is to buy at the cheapest price per piece. There function is never to buy the products in bulk to get cheaper prices for the items, which are not runner. Lower Labor rate per piece or very high machine utilization is not important. What is important is quick changeovers and maintaining the ‘flow’.

Your record room need not be bigger than your conference room.

Why regular stock taking is so sacrosanct. Instead why have stock at all. Why not have calculated level of stocks. (Kanban).

Why will you rob a bank? Because the money is there. Similarly why Accountants cannot spend more time in the plant on the gemba where value addition takes place.

Traditional companies build control through company information system. In lean companies it is built into operations.

Technical and other Functional Managers do not understand the yearly and monthly financial figures presented by the Finance dept.

Production people dread when the monthly financial pictures are presented by Financial Accountants.

What is the real picture?

Lean Accounting has answers to all this.

The average accountant spends 80% of his time in book keeping and hardly any time on the shop floor where the value addition is taking place. That is why we say Financial Accounting is a non-value adding activity.

If your Management Accountants generate reports 12 times a year you have the opportunity to correct 12 times or if you generate report every week you have the opportunity to correct 52 times a year. If the Accountants are working with Production, Design, R&D, Quality, there will be more meaning to the lean improvement being done or corrective action taken in real time.

This will be more meaning full.

We traditionally believe that in order to control the business you need to track and check everything in details in the accounting system. This is not correct.

A lean company puts control within the organization by bringing in processes under control. Checks are put where the value addition is taking place. What value addition Quality department will add if the production is not able to produce right first time?

The Accountants feel that it is their duty and responsibility to check everything if every thing is going right. This is being done as if everything is out of control.

There is now a need to shift their current paradigm to an environment, which is changing to Lean, Less of Man, Material, and Machine etc. A lean company on the other hand has short lead time, Low inventory.

Many traditional measures to control these are not required in a lean company.

Accountant role will therefore be providing, coordinating, tracking following parameters-

  • Value Stream Costing.
  • Operational Parameters.
  • Capacity available in machines.
  • Capacity Available in Manpower.
  • Sales Operations and Financial Planning.
  • Inventory Valuation.
  • Plain English Financial Tracking.
  • Balance Scorecard.
  • Financial Parameters
  • Lean Decision Making.
  • Lean Capital Planning.
  • Target Costing.
  • Value Analysis.

Financial parameters will get better if operational parameters are getting better .If Operational score card is achieved, financial score card will be better .

If NOT –operation card parameters selected measures are wrong. Revisit the process.

It is easy and it can be done.

It is easy to make things difficult. It is difficult to make the things easy.

Jishuken Center of Excellence has experts who come from manufacturing and Lean Accounting background and have intensive experience. These experts work with the clients teams .

Jishuken Center of Excellence focuses on imparting training and certifying the Managers, Staff and Associates so that these gains are sustained and become a habits and culture of the organization

Jishuken Center of Excellence offers the highest quality training and consulting services available anywhere; and we feel strongly about implementing Lean Accounting simultaneously with the implementation of the Lean /Toyota Production System and produce results in your plant, with your people, addressing your problems and opportunities.