The lean process doesn't stop at the shop floor. The perfection of lean processes means adopting completely lean business practices. A majority of companies that have adopted the lean manufacturing run into problems with their current accounting system.
Originally designed to support mass production, traditional accounting methods fall short in the lean process. Traditional accounting systems produce reports which often times can be misleading when it comes to determining the effectiveness of the lean process. Here’s a quick example of why traditional accounting doesn’t work for the lean process:
Your company implements the lean manufacturing process and in doing so, is able to eliminate $40 of your $100 inventory. In the lean world, this would be seen as a positive impact because you’re reducing you inventory waste. However, traditional accounting practices would see the reduction of inventory as costing the company money. Without lean accounting in place, the $40 loss in inventory shows the lean creates loss, not effectiveness.
To combat this issue and receive accurate data, companies need to turn to lean accounting. Lean accounting is the missing piece of the puzzle that helps companies move toward their long-term lean goals. It provides information and measurements that focus on lean goals of waste elimination. It simplifies that financial data so everyone can understand the reports and provides actionable information.
For additional lean accounting resources, check out BMA, Inc. and for lean process resources stop by IMEC
Last week we discussed the lean process but what does that mean in terms of inventory management? Companies that have adopted the lean process operate by the “less is more” philosophy. Many companies are turning to a more effective inventory system which means no longer stockpiling warehouses with inventory. They realize the importance of being able to quickly adapt to ever changing demands. Anymore, large inventories only create obstacles for business trying to keep up with their customers and the economy.
According to R. Michael Donovan & Co., manufacturers typically have 25-50% excess inventory. What do they mean by “excess inventory”? Excess inventory is any inventory that doesn’t support an objective within the lean process.
Manufacturers need to be careful not to reduce inventory without an actionable goal. Simply liquidating inventory can lead to a magnitude of costly issues including lower productivity, lost sales, and lower profits.
In order to have an effective lean inventory process a company needs to have the right tools in place, changes in their process, right measurement, and the willingness to make the changes permanent throughout the organization.
Reducing inventory to get your business in line with the lean process takes preparation and collaboration across your company. Many companies who have put the lean process in place have seen an improvement of work flow and processes, especially when it comes to inventory.
For additional resources on the lean manufacturing process, visit the IMEC website.
We are always looking for ways to further improve business processes. We want to improve quality and flow and eliminate waste all while increasing profitability and decreasing costs. To reach these goals many businesses, especially manufacturers are turning to lean processes.
But what exactly is lean manufacturing? Lean manufacturing is a process that focuses on eliminating waste by only producing what is needed to meet customer demands. Benefits of the lean process include lower costs, higher quality, and shorter lead time.
The Lean Enterprise institute cites five principles of the lean process
- Indentify. Identify value of the product from the customer’s standpoint
- Map. Map all of the steps in the value stream for each product. Look for steps that don’t create value and eliminate them.
- Create flow. Make sure the remaining steps follow a tight sequence so the product will seamlessly flow to the customer
- Establish pull. As flow is introduced, let customers pull value from the next upstream.
- Seek Perfection. Keep repeating the first four processes to identify waste and values and to put those values to good use. A perfect process is one where maximum value is created with no waste.
The lean process was originally created for manufacturing but can be applied to any business setting. In fact, lean accounting is becoming a popular method among accountants. The lean philosophy applies all industries because it goes further than mass productions and meeting quota, it's a customer and employee driven process.
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Accurate recording of time is crucial to manufacturers Labor costs have a significant impact of the profitability of a business. Detailed information about the time spent on production gives you the data you need to manage your workforce more efficiently. Without timely and correct data, prices of products and customer invoices run the risk of being inaccurate and ultimately impact your sales and profitability.
Manual spreadsheets are costly and time consuming. Managers waste valuable time on calculations and run the risk of error with duplicate data entry. There’s a myth that time tracking is complex and pricey, but with the correct tools in place, time tacking software can integrate with your ERP system, cutting down on time spent on duplicate data entry and reducing the opportunity for error.
Time tracking software also allows you to prepare a better pricing model. Accurate job costing requires the entire data associate with the job to be correctly reported- including labor setup, production, and customer service. Dangers of miscalculated information about the time and material for each job could result in lower invoices and reduced profitability.
Real-time information offered by integrating your ERP software system with employee and timetracking software gives your company the information it needs to make important business decisions.
*photo credit: Michele Filion
We’re happy to report that we've been receiving a lot of questions for the Ask the Bean Counter lately and this one covers a topic that effects every business. Inventory management is something that many companies struggle with and tracking or calculating inventory incorrectly can have a negative impact of the success of your business.
Errors in inventory could cause serious problems in recording the true activity of your business.
If inventory is overstates, the cost of goods sold is usually too low. This causes the net profit to be too high. If inventory is understated, then the cost of good is usually too high which causes the net profit to be too low.
Have a question for the Bean Counter? Submit it here
If you run a service based company, time is your inventory. Accurate tracking of employee time and material spent on a project is clutch when it comes to managing projects.
While it may be tempting to stick to spreadsheets to track time and expenses they are limited in their capabilities and more often than not lead to inefficiencies in tracking project statuses and budgets. Not to mention that they block your project managers from getting the real-time information they need to measure progress and make informed decisions.
Many companies that use time-based billing are beginning to turn to timetracking software for its enhanced time and project management capabilities. The right timekeeping system allows your company to track employee time and attendance to ensure your employees' time and talents are being utilized and you have the right workforce in place. It allows department heads and projects managers to clearly see the time and resources spent on tasks and projects. More accurate time tracking means you are less likely to miss billable hours when it comes time to invoice.
The project management capabilities within time tracking software help you keep up with project statuses and see how company time is distributed among clients, projects, tasks, and employees.
Are you using spreadsheets for project management? Download the white paper Using Spreadsheets for Project Management: Understanding the Hidden Costs to see how investing in a web-based project management solution could save you money, time, and aggravation.
For manufacturers there are two key resources for funding and assistance. One is the Trade Adjustment Assistance (TAA) which can be used in the Midwest for Illinois, Iowa, Minnesota and Wisconsin. The other source is IMEC (Illinois Manufacturing Extension Center) funding for training.
For the last month, we have been partnering with IMEC (Illinois Manufacturing Extension Center) and have been able to offer our clients some funding through IMEC for training regarding the work flow processes in their current ERP system software, accounting software and inventory management training. This funding is available first come so if there’s anything you think we can help you with, please contact us at 815-965-9800 and ask for Charmaine or email me at cbliss@datacraftrockford.com
IMEC is a team of specialists who work with Illinois companies to be more productive and globally competitive. IMEC solutions help companies develop profitable business strategies, meet customer quality requirements, contain operating costs, increase capacity and on-time delivery, and solve technical operating problems such as product defects or process bottlenecks. We prepare the client's team to accelerate improvement and achieve results that will stick -- long term.
Since IMEC's inception in 1996, the 1,900 companies who have called on IMEC for assistance have realized an average of $7 dollars in sales and cost saving improvements for every $1 dollar they have invested in our resources.
Trade Adjustment Assistance for Firms (TAAF) is a program for companies that have been affected by import competition and want to improve their competitive position. This unique, focused source of consulting and technical service assistance offers up to $75,000 in cost sharing of projects aimed at enhancing a domestic company’s ability to compete successfully.
If your manufacturing or service business has been impacted by import competition you should contact the Trade Adjustment Assistance program.
Applied Strategies International, LTD. (ASI), the Midwest Trade Adjustment Assistance Center, provides consulting services and technical assistance to manufactures in Illinois, Iowa, Minnesota and Wisconsin.
We recently had a few inquiries submitted to the Bean Counter (Have a question? Submit it here) about chart of accounts, what they are, and why they matter.
A chart of accounts is a way of sorting the information gathered from all the activities of your business. It is a list of categories used to collect information.
These categories could be something like:
- A Bank Account for all your checks and deposits
- A Sales account to accumulate all your information for invoices to you customers
- A Cost of Goods account to accumulate all the costs for the materials or goods that you sell
- Office Expenses for all the paper, ink, pens and pencils, etc that you purchase
A Chart of Accounts organizes these categories in a certain order so that you will know the status of your business and if you are making a profit.
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If you are planning to switch your accounting and ERP softwares, migrating data from your old software to the new software can present challenges if not done properly.
To avoid any data migration issues, a well-planned data conversion should include:
- Clean cutoff - In order to have a clean starting date in your new software system, you need to have a clean cutoff date in the old one. Don't enter anything in the old system that would be BEFORE the cutoff date. It's best if there is a way to "Close" the financial software as of that date.
- Run parallel- Run both of your software systems together until you're comfortable with the new software. While you're using both systems, pull reports and financial statements to make sure the data matches and you're getting the information you want from the new system.
- Don't rush. Even though it might be really tempting to switch over to the new software system, take your time. Bad data conversions are expensive. Lost data, errors, time delays, inefficiencies, and disruption of normal business operations all are potential hazards.
Migrating from one software to another is a big project that requires proper planning. A well planned and executed conversion will get your business running on its new accounting and ERP software systems without putting your company at risk.
Looking to switch software systems? See how Open Systems Inc makes it easy.
Download Making the Switch:Migration from OSAS to TRAVESE Version 11
*photo credit: Stepan Mazuroy
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If you have been around the DataCraft website lately or are on our mailing list (subscribe here) you've probably noticed some new information surrounding Intuit QuickBase software.
We are really excited about Intuit's CRM solution software and all the great functions and features it provides. QuickBase is a SaaS project management, CRM, sales management, and human resources software all rolled into one.
One thing that has a lot of people excited about QuickBase is the ability to share real-time information thanks to cloud computing. There's been a lot of buzz about cloud computing and the capabilities it offers, but there's also a lot of confusion about what it is.
What, exactly, is cloud computing? 
Cloud computing is a virtual network of services that can be accessed from your web browser. With cloud computing, your IT is managed in a secure off-site location which helps to manage the costs that tend to accumulate with operating on-premise software, such as licensing, installation, and ongoing maintenance.
The ability to pull up important information anywhere is changing the way departments collaborate and ultimately, how small and medium sized businesses are run.
*Photo credit: Mohamed Aouichi