Can’t See the Forest for the Trees – Accounting Controls

I have written many articles about the value of strong internal controls to prevent fraud, waste, and abuse by unscrupulous actors. One might think I am always for implementing more policies and controls. Nothing could be further from the truth. I advocate for applying management best practices like the Theory of Constraints (TOC) and rooting out inefficient policies, practices, and perceptions. It's crucial to understand that many times, a policy can do more harm than good. Therefore, it's our collective duty to identify and eliminate these inefficiencies, no matter how deeply ingrained they may be.

For example, a troubled corrugated box plant, which was part of a larger manufacturing company, had a terrible time getting orders shipped to customers on time.? Even if the customer placed the order months in advance, it typically shipped late.? This wasn’t a capacity problem.? It was a policy problem.? You see, a corrugator machine commonly uses three rolls of paper weighing up to 4 tons each to make corrugated sheets. These sheets were then transferred to the cutting and printing machines that formed the boxes.? Because not all corrugated sheets/boxes use the same paper, the policy was to schedule production to minimize paper changes.? In doing so, orders that would not ship for a month sometimes took precedence over orders that should ship today.?

We revolutionized the production process by eliminating the policy on minimizing paper changes.? Instead, we focused on making paper changes as quickly as possible and encouraging the production team to run as many different orders as they possibly could. Initially, this flooded the plant with corrugated sheets, requiring two weeks of overtime to convert all the sheets into boxes. However, the results were astounding. We set a new record for the lowest cost per ton shipped as shipments and revenue skyrocketed. The plant was on the way to record profits and eventually started acquiring other companies.

This success story underscores the urgency and significance of examining policies and paradigms and eliminating the ones that may hurt more than help.? In short, more controls are not always better.?