What Will 'Lean Beans' Accounting Do for Me?

First of all, it will INCREASE CASH!

As we use our existing Inventory of materials and WIP (work-in-progress), the amount of direct materials we need to purchase in the current period is far less than what we purchased in the last period.  If we assume that our Beginning Inventory is the same in this comparison of Mass vs Lean production, and we assume that Direct Labor and Indirect Manufacturing costs remain the same in both Mass and Lean production, then procuring fewer Direct Materials and reducing our existing Inventory will cause our Ending Inventory to be much lower.  Thus total costs will be higher in the Lean production.  Assuming that Revenues are the same in both Mass and Lean, we could easily show a pretax Loss in our Lean production Income Statement the first year.  But think about the increase in CASH FLOW which is realized by the reduction in Inventory!

Second, it will INCREASE SALES!

Lean Accounting provides better information for decision-making.  It shows us true profitability and margins on families of products and divisions.  Lean Accounting will aid us in our outsourcing decisions. However, most important of all, the Cash created by reducing Inventory can be utilized to purchase a smaller like business or supplier, thus INCREASING SALES!

Third, it will INCREASE CAPACITY!

Most companies look for short-term cost reductions in Lean.  While you will not see short-term cost reductions, you will see short-term reductions in "Waste!"  When you make Lean manufacturing improvements, you: 1.) Eliminate the Waste of Material handling as we deliver Materials directly to the point of use.  2.) Eliminate the Waste of downtime, scrap, and rework, making our business run faster.  3.) Improvements in lead time reduction eliminate the need for 'fire-fighters' reacting to problems.  Due to this elimination of all sorts of Waste, our business is running smoother and faster, creating Capacity.  Now, if we want to see improvements in the Financials, we need to DO something with this INCREASE IN CAPACITY!  One company's strategy was to use the increase in Cash to purchase an overseas supplier which was unfavorably affecting its Inventory Turns. They then dropped this supplier into the space created by working smarter and faster and freeing up capacity.  This supplier was doing $25mm with a 10% ROS.  Now this manufacturer has increased Revenue by $25mm, and increased Operating Income by 10%.  They have utilized Lean Accounting to increase Capacity, thus increasing both Revenues and Profits.

Fourth, it will save time and money in Accounting Systems!   

Lean Accounting eliminates loads of 'transactions!'  Work orders are no longer needed.  Many Procurement costs go away as we are implementing Kanbans.  As we reduce Inventory, most of the perpetual Inventory system can be eliminated.  No more cycle counting!  And best of all, 'check-book style' Lean Accounting P&L's are easy to put together, and give Operations people information which they can act upon and improve now!

Last, but not least, Lean Beans will motivate long-term improvements!

Lean Accounting performance measures are 'visual' and updated at least daily, if not hourly!  These 'visuals' are on the walls throughout the plant and the office, for all to see, as well as on the Desktop of all associates of the business.  The Lean Accounting performance Metrics are placed on Scorecards and Dashboards for all to see.  We have given people information, not just data, and information for which they can be held accountable.

Other benefits to having a Lean Accounting system:

• You will see your Lean improvements "hit the bottom line."
• Helps financially validate your Lean improvement projects.
• Helps Operations people make the "right" decision.
• Eradicates costs - not just transfer costs.
• "Creates" cash - rather than "saves" cash.
• Lean Accounting is proactive - not reactive.
• "Checkbook-style P&L" for greater understanding of the business.
• New Lean Accounting metrics drive what we want to improve.
• Lean Accounting system is Cost Management – not Cost Accounting.
• Lean Accounting is Target Cost & trends – not Standard Cost & variances.
• Lean Accounting is Responsibility Accounting.
• Lean Accounting is profitability analysis.
• Lean Beans / Lean Accounting is the right choice for your Lean Change Management implementation!

Register today for a Lean Accounting seminar in a city near you!