Lean manufacturing has gained increasing acceptance on the production line in recent decades. Manufacturers are using sophisticated “lean” techniques to eliminate duplication and waste in order to achieve efficiency.
Similarly, finance teams are beginning to see the value of applying this lean concept to their own operations, thereby streamlining processes and saving money.
Toyota Production System
The lean manufacturing concept comes from the Toyota Production System, which strives to remove wasted steps, create a continuous flow and deliver maximum value to the customer. Waste comes in many forms, such as time lags, duplicate processes or scrapped production.
Finance staff can also “lean up” their administration by analyzing the processes they currently use. For instance, a company typically goes through several steps before paying a bill. These could include receiving a product, matching the packing slip to the purchase order and matching both to the invoice. The three way match process can be complex, involving several control points and departments; involving purchasing, receiving and accounts payable, before all the documents are sent for final approval, entered into the payment system, the check printed, signed and filed before being held until due and mailed. Applying lean principles to this process might include eliminating the invoice, having receiving approve the payment when they match to the receipt to the packing slip and adjusting other steps that reduce work without losing control.
Through time, companies frequently amass a large shadow infrastructure of inefficient side systems. For example, some employees make a copy of every invoice crossing their desk because in the past somebody may have lost a document and was reprimanded. In another department, someone else has created a spreadsheet that duplicates what is entered into the payment system. All these informal controls impose a huge burden on the company though increased cost and inefficiencies. It’s difficult to uncover these systems, whence the name shadow infrastructure. It’s as likely as not these inefficient side systems will not be found during an audit or process review. So the best way to attack them is through training that teaches effective, efficient administration and cultural change that rewards improvement and embraces learning from mistakes.
Often there’s a big difference between the time it takes to accomplish a task and the actual time spent performing it. In other words, it may take two weeks to pay a bill but the actual time spent working on it is 20 minutes. The difference between the two weeks and 20 minutes is called takt time.
In order to achieve a leaner system, the time that the task is not worked on should be considered waste. In the case of the payment system example above many companies have improved their payment process by reducing their payment terms to enable them to batch payments weekly or bi-weekly. The efficiencies gained by going through the payment process less frequently outweighs the advantage of shorter average payment terms.
To set up lean accounting, staff should examine all their processes to find the gaps, duplications and unnecessary hurdles; and measure the resources dedicated to each process.
First they should conduct a review by examining the processes they employ, identifying the outputs and determining their necessity. Normally it’s best if someone not performing the function conducts the review. Understanding what initiates work and what activities make up the work process are critical to gaining a deep understanding of the process and enabling you to make significant improvements.
For example, the review might include interviewing the accounts payable staff to determine who is involved in paying bills, how the documents flow, how many times the process is done during a period and how long the process takes. This data is organized to determine the amount of resources required in each step of today’s process. It also includes the information to create a process map. These flowcharts are visual tools that are a big help an analyzing and improving the process. If the in-house expertise or staff time is not available outside sources are frequently used to perform the interviews, create the data set and process map and manage the improvement process.
One common goal companies adopt is to handle any piece of paper only once, reducing, or in some cases, eliminating, the takt time. With improvements in technology, this is much easier to accomplish.
On principle, a lean operation should create value for the customer. By reducing costs and “leaning up” your finance department, you can pass on some of those savings to your customers, becoming more competitive. Creating efficient processes that in turn benefits your customers will lead to a more prosperous business.