October 22, 2015 Industry Forum Blog I think it’s fair to say that accountants love cash and hate risk. Running out of cash is still one of the biggest reasons why companies collapse. Cash is not only needed to start a business but to keep it running. For an accountant, risk starts as soon as cash is turned into something else and lasts until that something else is turned back into cash. So if you want your accountant to support your improvement initiative then you need to demonstrate how it will release cash in the business and manage the risk. For those of us from operations backgrounds this may sound daunting. However if you can show how the techniques you are using link to improving the cash flow cycle, then you have the key. The Cash Flow Cycle For a simple explanation of the cash flow cycle click here. We are going to focus on the steps between paying for employees, facilities and materials to receiving cash back. All the steps in between those two points represent risk; buying materials, holding stock, producing too many parts (overproduction), producing scrap, shipping parts incorrectly, customers cancelling orders or going out of business. Improve the cash flow in two ways Reduce the length of time it takes from paying out to receiving the cash. Minimise the size of the risks along the cycle. Some examples Activities that match production to customer demand; like using Value Stream Mapping to plan and deploy pull systems. This reduces the size of risks incurred by buying and storing inventory and cash tied up in excess WIP and finished goods. Using Set Up Improvement (SMED) to produce smaller batch sizes. This reduces the amount of stock held and releases cash. Using techniques such as Structured Problem Solving, PM Analysis, Quality Maintenance and Six Sigma tools reduces the cash tied up in scrap and the time to complete the cycle. Eliminating the 16 losses using TPM methodology also reduces the time to complete the cycle and amount of cash tied up producing scrap. Activities that create product flow through your value stream reduce the size of the risk associated with WIP, inventory and finished goods. Eliminating waste and minimising non value adding steps Using SMED to level demand and improve flow in areas of fixed capacity. Minimising the amount of information processing. This also reduces the risk of order corruption. Eliminating delays between ordering and manufacture and at load time and despatch time. Reducing the time taken for value adding steps using basic tools such as 5S, 7 Waste, Standardised Work and Visual Management. In summary Taiichi Ohno said, “All we are doing is looking at the time line, from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time by reducing the non-value adding wastes.” I hope these examples help you to realise how the activities you deploy to improve operations also improve the health of your finances. This understanding will also help you communicate with your accountants in a language they understand. If you want to read more about how lean makes financial sense I recommend Lean Means Beans by Anne Hawkins.
