The Role of Finance Team in the Lean and Lean Accounting Implementation Journey.

Lean accounting challenges the long-followed practices of standard cost accounting. Finance personnel find it difficult to accept. They are apprehensive to come on board. They assume lean accounting does not comply with principles of generally accepted accounting practices (GAAP) and its focus on reduction in inventory will not reflect well in balance sheet where inventory is shown as an asset. Also, since banks grant short-term loans for working capital funds against inventory stock, the company will struggle with availability of funds due to reduction in inventory. They want to continue reviewing business performance using variance analysis for deviation from budget instead of adopting new measures that focus on operational performance.

Lean brings the traditional methods of standard costing under fire. As the industry advances in technology, a company’s performance cannot be based on numbers generated in the traditional system. The true arena of value addition is the plant floor and profits are steered by efforts of operations team. The numbers generated in the back office are only an outcome of the activities on plant floor. A traditional accountant cannot be ignorant of the company’s processes and operations or oblivious to the products, market and customers.

The finance team lacks knowledge about technicalities of a company’s product because they rarely utilize an opportunity to understand the intricacies of the manufacturing process or spend time in the finishing area of the company to understand the product lines.

They do not understand the function or uniqueness of the products. Hence, the finance team cannot divide activities, based on value addition, in isolation or identify major a cost centre on the plant floor. The finance team interacts primarily with management team and external stakeholders like banks, rating agencies, government departments like excise and taxation, auditors, SEC or investors.

When the company embarks on a lean journey, it starts scrutinizing the processes for waste in the company. ‘Waste’ is broadly defined as the activities for which the customer does not pay. An accountant’s role, as defined earlier, consists primarily of non-value adding activities because the customer does not pay for these activities, they pay only for the product. But in the process of manufacturing a product, the company has to perform certain non-value adding activities that are essential and contribute to successful outcome of the value adding activities.

Lean and Lean accounting does not minimize or eliminate the role of accountants. Rather, accountants play the most critical role in lean implementation. Lean also takes into consideration the requirements of GAAP, statutory and legal compliances that a business must comply with.

This and much more is in the “The Lean Business Guidebook – How to Satisfy Your Customers and Maximize Your Profit?”?Authors-MJS BINDRA and EKROOP KAUR with 482 pages, 78 exhibits in 18 chapters. The recommended methodology can be suitably modified for use in your company for implementing Lean Accounting.

?Published by Routledge: Taylor & Francis Group: Productivity Press: New York NY in paperback, Hardback and eBook.

?Please order your copy on the Links shared below: Routledge,: https://lnkd.in/dNXXe_S4; Taylor and Francis: https://lnkd.in/dFjP5sKC;

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