QUESTION: We have been implementing Lean in Operations for one to two years, and seeing improvements in Operations. However, our financial statements do not reflect these improvements. What should we do?
ANSWER: Change accounting systems!
We are not being factitious here! Remember that your traditional Standard Absorption cost system is volume-based. But in Lean we do not "make one" until the customer "takes one." Thus your traditional Standard Absorption cost system does not work in a Lean environment!
In many businesses today, financial people are only concerned with "control" and budget "variance analysis/paralysis." And these financial professionals are probably sitting in an isolated location, separated from your Lean Value Streams in Operations. These folks are most likely "corporate police" rather than "business advocates" and "business partners" with Operations. We would even bet that some financial people in many businesses beginning the Lean journey today are not committed to the Lean "cultural change" but rather only to the "bottom line," transactions, and recording history.
The best way to get ALL people in your Organization to embrace change and thus modify behavior is to have ALL Associates working in small, cross-functional teams_ what we call Product Families or Value Streams. And this is the very first step to successfully implementing Lean Accounting. Lean Beans LLC can help you tear down your department walls and functional silos, and build Product Families.
In the 1990's, "command and control" was the mantra of Accounting. Do this! Why? Because Accounting said so! Operations managers were forced to understand their own piece of the business_ not in terms of income and cost, but rather as variance and percentages (of the whole business) that bear little relationship to reality. In the 1990's, businesses adopted JIT and TQM and other "tools," but often remained blinded by old accounting practices. In much of business today, the same is still true.
Lean Accounting, like Lean, is a business strategy. Some have gone so far as to describe it as a "social system." However, it is definitely not a CD-rom! It is not an expensive software system such as ABC Cost. In Lean Accounting, we strive to stream-line information for each Product Family or Value Stream, and to keep the accounting for Lean simple_ in a "checkbook" style format that non-financial people can understand. Financial people now become "consultants" in Product Families, rather than "report-generators." In every company attempting to make the Lean journey without Lean Accounting, accounting becomes a barrier to Change. Lean Beans LLC can help your financial group re-focus on processes (rather than transactions,) become value-added in the Product Families, focus on Cost Management (rather than Cost Accounting,) and "mind what they measure" -- only the direct costs which a Product Family can influence.
And this is just the type of customized Lean Accounting training and implementation assistance that Lean Beans LLC can bring into your business at your location. We will teach your financial people how to use Target Costing in Budgets, so that your Budgets CAN be meaningful. We will help your financial and operations people transform your traditional company P&L into small Lean P&L's_ one for each Product Family and each Value Stream. We will show you, then, how to measure performance based on variances of Actual costs to Target costs, and perform trend analysis. We will teach you how to gather the data for your Value Stream P&L from the shop floor, rather than from G/L accounts.
For those of you who would like us to customize the seminar and bring it to your specific business at your specific location, please do email us at info@leanbeans.net. This service is offered to you at a fixed cost which includes our travel expenses, and you may invite as many participants as you wish! We are happy to discuss with you a seminar or workshop customized to your business, and facilitate this on-site at your location. We will also provide a proposal to assist you in the implementation of Lean Accounting. Learning objectives for this workshop include:
* Study of the philosophy of the Lean methodology of business, together with Six Sigma.
* Discover how the financial function is playing an integral role toward global business advocacy.
* Differentiate between cutting "costs" to "save" cash, and cutting "waste" to "create" cash.
* Become skilled at Value Stream Mapping to create a Vision for improvement.
* Learn how to plan costs and profits with Target Costing, and utilize this in Budgeting.
* Receive hands-on assistance in creating a Lean P&L and new Lean metrics for your business.
* Explore Transactional Lean, Lean HR, and Lean SOX.
We also offer you a choice of Lean and Lean Accounting topics from which your business colleagues may choose. Once you see and hear our commitment to assisting you in understanding Lean Accounting, we are sure you will be convinced that Lean Accounting is a "must have" for your Lean transformation. Below is a testimonial from the COO of a client with whom Lean Beans LLC has been working since March 2009. Please listen to what our client has to say:
"Two years ago our organization embarked on its Lean journey. Then, early in 2009, we decided to move towards Lean Accounting, and contracted with Lean Beans LLC to assist us. We have been moving in the direction of Lean Accounting ever since.
As part of our process, we produce parallel financials for our businesses: one, the traditional P&L with its dreaded variances, and the other a "Lean" P&L. Since March 2009 I have stopped working with the traditional P&L, and work exclusively with the Lean P&L. Why? From an operational perspective, the Lean P&L tells me what I need to know, and is simple in its presentation format. Instead of spending an inordinate amount of time looking for explanations to standard cost variances, I can analyze trends which, by the way, have been consistently improving in spite of the economic mess.
Please let "others" know that Lean Accounting is as much about operations and business management as it is about finance."