Streamline Your Accounting With the Lean Approach

Manufacturers excel at improving efficiency and cutting waste in production using the Lean approach. But did you know you can apply the Lean methodology to your accounting processes as well?

Mike Sibley, leader of the James Moore manufacturing team, and his partner and team member Kevin Golden walk through the ways you can use Lean to streamline your accounting procedures to boost productivity and profit.

Your accounting team is under pressure to complete the monthly closing process quickly and accurately to provide management with the information needed to keep the business running smoothly. Using Lean to reduce the snags in this process gets your company the up-to-date data it needs to be able to make informed, rapid-fire decisions. It also empowers your accountants to use their analytical know-how proactively to pinpoint errors faster and ask big-picture questions using company data.

“Lean frees up accountants to be those analysts for production managers, supervisors and operations, as opposed to just spending all their time being scorekeepers,” Mike said.

How Lean applies to accounting

Lean, a familiar concept to many manufacturers, focuses on identifying and eliminating wasteful steps in the production process. You might be used to walking the plant floor looking for operational areas where value and responsiveness can be improved.

Applying Lean to accounting is no different. However, the accounting mindset and processes come with their own distinct learning curve.

Mike recalled a client that struggled to close its financials within 60 days after the end of the month. An examination of the company’s processes revealed that the accounting department was spending significant amounts of time trying to get precision down to the level of cents.

“The owners said, ‘We’re not worried about pennies. We’re trying to make decisions here that are in the millions of dollars,’” Mike said. “When we worked with them, we were able to get them down to a 10- to 15-day close, which was a dramatic improvement.”

Start with the end in mind

Applying the Lean approach to accounting may not require you to start from scratch. Your procedures may not be bad; your accounting processes could just need some simple tweaks rather than overhauls.

“We’re talking about taking what you have and understanding it better, so you can reposition it and make some modifications that could have some big results,” Kevin said.

Kevin recommended beginning with the end in mind. Management makes decisions based on financial reports it receives from accounting. Start by understanding exactly what kind of information management needs and in what format.

“All too often, accounting departments produce all sorts of data and reports that owners and managers don’t even understand,” Mike said. “They don’t look at it, and they’re not using it. Spending time creating those can itself can delay reporting.”

Dissect your current process

Take a close look at your accounting department’s flowcharts, policies or process documents. (If your department doesn’t have any, this is a great time to map out your procedures.) Then, follow this basic playbook to start integrating Lean.

• Identify the bottlenecks. If accounting frequently waits for information from other departments, determine the specific factors holding up the line. If a major time-drain is fixing data inaccuracies or omissions, investigate why these mistakes occur. Pinpointing and addressing the root cause of errors gives accountants more time to get their jobs done.
• Set expectations. You establish workflows and timelines with vendors and clients. Have similar conversations with other departments in your company so everyone is on the same page. “Work with other departments to get information in the way you need it when you need it,” Mike said.
• Use automation to your advantage. Automating parts of your process can save time and reduce mistakes. Take advantage of available tools that can make data entry, synthesis and analysis a matter of seconds. Whether you use QuickBooks or a more sophisticated ERP or MRP system, your accounting software likely has a database that synthesizes multiple types of information. Harnessing your data and computer models that quickly process swaths of information than humans can help you make more informed, targeted decisions.

You’re saving time with Lean. Now what?

With less waste, reduced busywork and improved, watertight processes, your company’s accountants have bought back a lot of their time. This empowers them to add extra value to the business by using their analytical skills to help the production team identify areas of concern more quickly.

A lynchpin of the Lean approach to manufacturing is continuous improvement. Even if your processes are now performing without a hitch, products and technology change and machines wear down. Keep applying the Lean mindset with the help of your accounting department to keep your operations and administration running smoothly.

Mike described one client whose material costs were steadily on the rise. Getting to the core issue revealed that the company’s trash bill – calculated based on weight – had dramatically increased in a matter of months. Once the problem was identified, the company could investigate and remedy its potential cause: waste in the production process or perhaps a drop in the quality of materials provided by a supplier.

These insights accountants can bring help correct issues as soon as possible. Even catching a problem two months earlier than you would have otherwise can result in a significant cost saving. Engaging your finance team to identify issues more quickly is a powerful tool for your production team, whose focus on supervising may not allow them to pause regularly to analyze data.

“Not everybody is good at analyzing numbers,” Mike said. “That’s where the power of your accounting team can come in. Once you speed up your financials and invest that extra time in a proactive approach to data analytics, you’re really able to move the organization forward at a much faster pace.”

Lean isn’t just about saving money. It also frees people to work on the parts of the job they’re excited about.

“When departments communicate with each other better, they’re all going to bring valuable perspectives to the table,” Kevin said. “They’re now free to focus on meaning and the bigger picture, rather than just tasks.”

Revisit your processes every few years to check for ways to update them. And make sure you’re staying fresh with the latest developments in technology.

Next: Apply Lean to other departments

Ultimately, Lean can be applied to any process or department in your company. Focus on priority areas first, such as production and accounting, and move stepwise through the organization looking for opportunities to tighten your procedures. Lean can be used in unexpected ways – reducing redundant fields on forms, cutting back on the amount of plastic used in shipping, onboarding new staff and carrying out performance evaluations.

“You can move Lean into HR, into sales – everywhere in the organization,” Mike said. “At that point, you’ve got all sorts of groups of people that understand the Lean process and can speak that language.”

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