I’ve recently been working on Lean Accounting with a great company in Indiana. We have been through the basic lean accounting implementation approach and the team are now writing a project report document. The team said to me “Don’t call it Lean Accounting. This really is the control and improvement of the value streams, serving customers, & making money.” All true. But, call it what they will, I can see they have grasped what Lean Accounting is all about.
They worked out their own take on the benefits of Lean Accounting. This was a real motivator for the team because it brought home to them how much they had achieved in a short space of time. They wrote a report with plenty of details, but then summarized it into a series of (what they called) “pithy statements” matched to Lean Accounting principles:
I must hand it to them. This was one of the best teams I have ever worked with. Despite having two other substantial projects on the go, they came to every session over the last six months prepared, enthusiastic, ready to make changes, and ready to implement immediately. They wrapped up the day with me by identifying the tasks that need to be completed, and made plans for the next steps.
I am not saying there were no problems. The decisions related to how the value streams should be defined were difficult for the company’s leaders to sort out. This set us back the first 2 or 3 months. But once they got the green light, the team forged ahead. There were difficulties getting SAP to give them the information correctly, on-time, and by value stream. The capacity calculation in one value stream is complicated and there is still work to do in it. But the team worked through these issues and came to sensible solutions.
WHAT MAKES THE DIFFERENCE?
Why has this team been able to do well despite the workload and the difficulties? I can not tell you that I know the full answer to this, but here are some of my observations.
1. They have a truly cross-functional team. The team was a little larger than usual and covered a wide breath of the business. They had two financial people, two value steam managers, two engineers, a key shop floor leader, a purchasing leader, a lean specialist, an SAP expert (occasionally), and senior leaders. The team also included a financial person from the corporate office, an internal auditor, and a financial person from another division of the company.
While this was a big team, the combination of the people and their willingness to pitch in and do the detailed work, led directly to a lot of momentum and success.
2. The leaders of this division are committed to lean. Like all of us, they have a long way to go. But they have made great strides with their inventory control and some visual management, and they have recently completed several 5-day kaizen events to create cellular flow. The value stream managers have been right on-board with recognizing how lean accounting supports lean thinking and methods.
3. The division financial people are also on-board with lean and lean accounting. Their attitude has been to make lean accounting work for them, rather than forever comparing back to the old system. They have also been astute with finding ways to gather the information despite the limitations of the ERP system. The team has financial leaders at the division and local levels.
4. The senior leaders are actively supporting the lean accounting work. The manager of the division has attended every lean accounting kaizen session as an active team-member. He is deeply knowledgeable and experienced, and has pushed back on many issues. This has been very helpful to keep the team on track with the company’s true needs.
Similarly, the group (or platform) manager has attended several of the events and provided significant guidance and support. It is this level of leadership that has created success.
DOESN’T EVERYBODY DO THIS?
I recognize that much of this seems like “motherhood and apple pie” when it comes to significant change projects. But many companies do not put this level of conviction and effort into making significant lean change.
I worked on a similar project last year with an aerospace company. The CFO was the sponsor of the project. Yet, he did not attend a single work session and missed all the report-outs. None of the company’s executive leadership attended anything the team was working on. It is not surprising that they had no understanding of lean or lean accounting, and they cancelled the project after the team had worked hard for 5 or 6 months. This is an extreme example, but not completely uncommon.
While all the methods of Basic Lean Accounting are in place, the next steps are to roll these out across all the value streams, and to make lean accounting the standard work for measurements, financial reporting, capacity analysis, decision-making, understanding the financial benefits of lean improvement, and substantial simplification of the transactional processes like shop-floor control, purchasing and AP, and inventory control.
Once the basic Lean Accounting is in place and working, then they will move onto some of the more advanced issues of eliminating the standard costing, valuing inventory, month-end close using lean accounting, providing financial forecasts in the SOFP planning process, target costing of the value streams, and so forth.
This team is on the road to success!If you found this interesting, there is more information about getting started with Lean Accounting. Watch our video Lean Accounting Assessment