Lean Accounting

(hopefully explained or at least aware)

I came across an article ‘Lean Sustainability Requires a Change in culture’, well no s*&t Sherlock! But I decided to read it anyway. In reading the article I became intrigued with one comment in particular “I firmly believe that if more companies would make this transition (too lean accounting), we would be losing less business to China and other offshore suppliers.”

Now I’m not much of a financial wiz (otherwise I’d be an accountant) but thought I would highlight some of the differences between traditional vs Lean accounting. I will emphasise that I believe lean accounting is a transition based on a company’s lean maturity and should be worked on with the financial team as you progress to a lean thinking enterprise, and based on that maturity the above comment I believe would be true.

Traditional Accounting vs Lean Accounting

Lean Accounting fundamentally changes the accounting, control, and measurement processes so they motivate/support the progress to a lean enterprise and subsequently drive improvement. It provides information that is suitable for control and decision-making and creates an understanding of customer value, growth, profitability, and cash flow. The main areas on how it does this are

  • lean-focused performance measurements
  • simple summary direct costing of the value streams
  • decision-making and reporting using a box score
  • financial reports that are timely and presented in “plain language” that everyone can understand
  • radical simplification and elimination of transactional control systems by eliminating the need for them
  • driving lean changes from a deep understanding of the value created for the customers
  • eliminating traditional budgeting through monthly sales, operations, and financial planning processes.
  • value-based pricing
  • correct understanding of the financial impact of lean change

For further information (as this can be a deep subject matter) here are some follow on articles and I have also included a youtube video which Lean Accounting explained by Jean Cunningham from the Lean Summit 2011.

Lean Sustainability Requires a Change in culture
http://www.industryweek.com/blog/lean-sustainability-requires-change-culture?page=1

Lean Accounting Defined
http://www.leanaccountingsummit.com/LeanAccountingDefined-Target.pdf

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Sales: Just who is undermining performance?

Sales – the good guys or good for nothing? I guess it depends on your perspective, I have certainly heard both views, and whilst in Sales been the target of those and worse comments too. Personally during my tenure in the function and since, whilst I have come across the odd “rogue trader” more interested in his/her expense account than the success of his/her company, almost without exception I have found sales people to be dedicated, motivated individuals, driven almost without exception to succeed. What I have also found time and time again is sales organisations and processes that were well and truly broken with the Sales people taking the blame for a systematic failure in a company’s processes.

A few months ago Adam and I completed an assignment for a UK company, where the problem definition was something along the lines of “The ONLY problem is that the sales team are hopeless, they never go and see their customers” and on first inspection we found that indeed if the Sales team were out more than 1 day per week, then that was the exception.

However, having completed a process map, taking a typical opportunity through enquiry to order and delivery it soon became clear why this perception held – in fact the Sales team it appeared had taken it on themselves to manage the whole process, not only estimating the jobs, but project managing them through engineering, progress chasing through manufacture, even buying and organising site installation. What was worse was that everyone else including the management had let them and had abdicated all responsibility themselves, more than happy to point the finger at the Sales team when things went wrong. It was an absolute miracle that Sales ever went to see a customer at all, let alone grow the business. To be fair having had the scenario explained to them the senior management took on board our findings and re-engineered the organisation from top to bottom, allowing the sales team to let go of the internal processes, confident that they would be supported whilst out facing the customer.

When considering your organisation, remember – Sales people are employed to sell, and that it does not matter how good your operation is or how clever your design, without orders your business will die. Orders are the output of a process. A process that transforms prospects into orders.

If the process is optimised, it will be efficient, effective and create value for your customers and your business. If not, it will destroy value.

Richard Shaw – Business Practitioner

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