Lean Thinking | AccountingWEB

Lean Thinking

Lean and lean thinking are terms we hear bantered about on a regular basis. It is important for business people and advisors to have a clear understanding of what lean means and how it can be applied to benefit an organization.

The concept of lean was popularized by the book Lean Thinking written by James Womack and Daniel T. Jones as an extension of their description of the Toyota production system and its applications. They provided new insight into value, the value stream, flow, pull, and perfection. These are tools to eliminate waste and create wealth in an organization.

Essentially lean thinking is a customer oriented approach utilizing simplicity, speed, flexibility, visibility, and accountability. These applications are applied to manage processes through application of a philosophy of continuous improvement to achieve total elimination of operational and organizational waste. Continuous improvement effort is directed to achieve a more efficient flow of information and activities. Other elements of lean include effective organization, process control, improved measurement of the right metrics, and streamlined logistics.

Flow improvement involves an assessment of productivity, process mapping, balanced scheduling and workloads together with creation of cellular layouts to utilize multi-skilled workers. Organizational enhancement takes advantage of focused multi-disciplined and cross-trained teams. A key to lean success is effective lean training and clearly defining roles and responsibilities.

Lean is process focused and requires application of a number of tools. These include continuous improvement, statistical process controls, and 5S housekeeping. The concept of 5S housekeeping essentially is a having a clean and orderly work environment and is usually one of the first steps taken in a lean initiative. The English translation of the five Japanese words comprising 5S is as follows:

  1. Sifting
  2. Sorting
  3. Sweeping
  4. Standardizing
  5. Sustaining

Another application is the use of mistake proofing to minimize errors. Linked to process control is the use of metrics to monitor process cycle time, space utilization, travel distance, and productivity. Logistics can have a significant impact on the success of lean applications to provide the process speed required to achieve better flow.

Most people associate lean with manufacturing. While it is true this is where the initial applications were utilized, it has been expanded to all types of organizations and situations including hospitals and medical environments. One of the greatest opportunities for lean is in accounting and administrative situations.

Lean requires effective deployment of improved process flow and logistics. People get excited about these two areas but fail to devote adequate attention to metrics, organization, and training. If the organization and management team fail to embrace the concepts of lean and do not provide the necessary level of training required for success, then initiatives will fail to reach their full potential. Beginning a lean journey requires organizations to know where they are before beginning an initiative. This requires conducting an assessment and benchmarking against defined criteria. Once these steps are completed, the organization needs to produce a lean road map to keep the team on course.

Lean initiatives hinge on successful kaizen events. These are time-phased series of activities that involve training, planning, design solutions, and deployment. In addition the events require documentation and demonstrating performance efforts. The kaizen cycle includes an approach to process improvement utilizing team development together with defining the process under examination. The next step requires collecting and analyzing data to understand the process. Effective kaizen workshops utilize W. Edwards Deming’s approach of plan, do, check, and act. This correlates to plan correction, implementing change, verifying actions, and solid documentation. The kaizen cycle to improve processes requires application of continuous improvement concepts to ensure success.

Another element of lean success is communication. Why are we changing? This question relates to the business environment, competitive position, and market opportunity. Then it is important to understand how employees will fit into the change and what levels of management will be involved plus defining their new roles. What we are changing leads to development of an overall plan, the dollar savings, the implementation schedule, and major milestones. Effective communication process requires keeping people informed on initiative status and what’s in it for them. Employees want to know where they fit, how the initiative affects their job, and how they will benefit.

So what is the performance potential for adopting and embracing lean thinking? I think it can be huge. Some of the benefits will be shorter cycle times and faster response to market changes. For manufacturers, distributors, and retailer lean makes it possible for them to lower their investment in inventory, reduce overhead, increase sales and contribution resulting in increased cash flow.

Lean offers great potential to those organizations willing to make the leap and commit to a new direction and approach. Commitment and training are essential plus top management needs to buy into the concepts. Considering the current economic reality, lean offers wonderful options to businesses as they search for new ways to survive.

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Lynn Northrup, CPA, CPIM - Lynn's focus is on building business value for both family-owned businesses and other CPAs. I also specialize in lean accounting, process improvement, internal control, and assessment of audit risk. Other accomplishments include publishing two books, development of self study programs for Bisk Education, and an Adjunct Professorship at Villanova University. My wife Jessica and I live in southwestern Colorado and we look forward to contributing to the AccountingWEB community.

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