Articles

Inventory is the enemy

Lean production techniques pioneered by Toyota provide accountants with a source of competitive advantage, says John Haylock BankLink's Practice Performance Manager.

Henry Ford has a lot to answer for. Despite his mass production techniques being superseded in the car manufacturing business, they remain part of the standard model for running an accountants’ office. However it is the ‘lean’ approach, subsequently developed by Toyota, which can help accountants streamline their practices, provide better service to clients and increase their profits.

The mass production techniques pioneered by Henry Ford were, at the time, a brilliantly successful strategy that lowered prices and brought cars to the masses. This success led to it being adopted by a whole range of enterprises.

However, over time the advantages of mass production gradually started to erode away and its weaknesses (like quality control and slow delivery) became more obvious. This created opportunities for a different style of manufacturing – ‘lean’ production – with improved quality, flexibility, speed of delivery and, perhaps most surprisingly, reduced costs. The lean process has been so successful that it has been applied to many other sectors, including the accounting profession.

One of the pioneers of lean manufacturing was Toyota and there is much that accountants can learn from Toyota. (Their story is brilliantly summarised in Jeffrey Liker’s 2004 book ‘The Toyota Way.’) Lean production is driven by demand from customers and supplies are delivered as required. This requires very flexible and quick short-run manufacturing processes, overcoming the burden of a traditional batch-based mass production plant.

In his book Liker quotes Taiichi Ohno, who is viewed as the founder of the Toyota Production System. To Ohno, inventory (or work-in-progress as accountants call it) was the enemy of efficient production. The ideal scenario is where ‘one-piece flow’ occurs. This is where as one step in the process is completed, the next person in the chain is immediately ready to work on it.

So how does the concept of lean manufacturing relate to accountants?

It provides us with some key techniques which can help you streamline your practice:

• Schedule jobs so they are received at a steady rate.
• New jobs should only be started as other jobs are being finished. Your rate of production should be driven by the rate at which completed jobs are delivered to clients.
• Key bottleneck points should be managed and resources prioritised to alleviate the bottleneck. Reviews are often a bottleneck and ideally should be done as your team members complete their work on a job. I recommend setting aside some time every day for review – and nothing else should be prioritised ahead of these. Reviews should never be batched up and done in bulk.
• Short deadlines should be set for client queries. If a response is not received by the deadline then you should follow your client up.
• Finish jobs already started. The priority should always be to try and work on another job already in progress, rather than starting a new job.
• All records should be checked thoroughly before jobs are started. Ask the client for the required information and do not start the job until it is received.
• Your annual checklist sent to clients should be written in language your clients understand and be personalised to the client. This will help them complete it and supply you with what’s required.
• Do everything you can to ensure your client is keeping the required information. And also that they can supply it to you quickly when requested.
• Set high standards on your clients for the quality of information they provide. If they cannot provide information to the required standard you should stop working for them.
• Make sure your clients understand what is required of them. If your client requires a computerised accounting system you should ensure they are fully trained.
• Consider efficiency tools to streamline your clients’ accounting. Tools like The BankLink Service will improve the exchange of information with your clients and ensure data is accurate and available when you need it. This will help you to process jobs during the year – helping you achieve smooth even flow.
• Explore solutions to add efficiency for your practice. BankLink Workflow Manager is a capacity planning tool which allows you to schedule work for the whole year by knowing, in advance, the work that needs to be done, the available resource to do the work, and the current status of work.
• Remember, inventory (or work-in-progress) is the enemy.

You will notice that several of these suggestions relate to the quality of information supplied by your clients – this is the equivalent of the raw materials bought and processed by car manufacturers. So it’s important that your practice carefully consider how you can encourage your clients to supply you with high quality materials.