Harry Truman once said, "The only things worth learning are the things you learn after you know it all." - a very wise observation. So what are we to make of manufacturing accounting people who know little about lean manufacturing, nothing about lean accounting, and little interest in learning about either of them?
You might want to read this mundane accounting document, called Accounting Research Bulletin 43 issued by the Finacial Accounting Standards Board. If you drop down to Chapter 4, page 11 you can read a lot of language that sounds a lot like exactly the same stuff you probably heard in accounting 101 classes. It discusses "the general principles appicable to the pricing of inventories of mercantile and manufacturing enterprises." The basis for standard costs and all of the accounting practices preventing companies from shortening cycle times and becoming lean.
It was issued in 1953 - but is actually just cleaning up some of the details in Accounting Research Bulletin 29 issued in 1947 - during the Truman administration. 1947 - the year Jackie Robinson made it to the big leagues; stamps cost 3 cents, drive in movies were invented and Zip-A-Dee-Doo-Dah made it into the top ten on the music charts.
Inevitably, when August rolls around and the Lean Accounting Summit looms, I get emails and phone calls from frustrated manufacturing people who are desperate for a way to get their accountants on board with the lean effort. They hope that, somehow, I have a magic formula for getting through to people who have not lifted a finger to learn anything more about their chosen profession since the day they walked off of a college campus.
I hate to disappoint, but I cannot begin to fathom such minds. It seems to me that everyone has a fundamental moral and ethical obligation to their employer to keep up with that which they are supposed to provide expertise; and at the very least degreed, intelligent people should have a trace of curiosity, but for so many in the accounting trade this is not the case.
The accountants who block their employers from achieving success because of a conviction that they already know it all and have nothing to learn beyond that which they learned in school and can find codified in dusty, old tomes from the Truman addministration seem beyond salvation. One has to wonder why any of them are paid more than basic, entry level wages given that they can all be replaced overnight with another accountant who knows ARB 47 inside and out and has not contributed a single original thought to the business - they are available by the legions and more are being cranked out from colleges every day.
After explaining, cajoling, berating, begging and pressuring for ten years I am out of ideas. Perhaps if everyone whistles Zip-A-Dee-Doo-Dah whenever the cost accountants come into the room they might get the message ...but probably not. Folks who think 1947 thinking is cutting edge probably think Zip-A-Dee-Doo-Dah is a pretty hip tune.
Original: http://idatix.com/manufacturing-leadership/the-zip-a-dee-doo-dah-gang/
Evolving Excellence
As long as I've been with my current company (in a lower level role)I've heard time after time the need for change. So what happens? Consultants come in to save the day.
Except that doesn't actually change the culture. The truth is, certain key people (in management) simply don't want to change. So it ends up like pouring oil in winter - slow. Once the consultants leave, things just go back to the way we've always done them.
Sometimes I think just taking them out behind the barn (figuratively) is the only way.
Posted by: SH | 15 August 2012 at 10:31 AM
Hi Bill
All the problems actually predate even 1947 and go back to the turn of the century, when some poor business people successfully changed the handling of period based overhead costs and had them instead buried into inventory. Before that time period overhead like executive salaries had to be written off in the year they occurred.
They were also never attached to the cost of goods sold, as they are today. Standard costing is nothing more than a smoke screen for bad business practise. It is amazing that through multiple economic declines that provided how poorly stated inventories really are we still use an outdated accounting system to run our businesses.
In the past I never trusted in any standard costing formulas, because every time we actually figured out the true cost of anything we did, we found the standard cost system was totally wrong. It doesn't matter if it was low or high both are equally bad. In fact if we would have used it we would have been broke more than once. I'll bet that most outsourcing decisions that have helped gut our manufacturing base are based in large part to poorly thought-out costing based purely on standard cost allocations.
Despite having a degree that is based on accounting, never actually practised as an accountant. Instead I entered into management, luckily I worked with people that understood that financially accounting data is out of date (it only shows the past and then with too many assumptions) and to slow to run a business on. We always looked to non-financial data that showed us what was happening in real-time. Knowing what is going on and being able to react before you can close your books is critical to survival and growth.
As to there being no accountants that understand the difference, it is not quite true. I have met some true management accountants that couldn't care less about financial statements; instead they care about actual production, performance and activity numbers that tell them the true state of the business. But this breed of accountant is trained internally in a business, and they all work for those rare businesses that keep their staff. So all that those companies too lazy to train people get are public accountants (financial and tax accountants) that failed to make the grade to become partners at their public accounting firm. It is this type of an accountant that master mind all those fraud cases like Enron, since all they actually know is how audits and taxes are done.
Take a hard look at how accounting firms are run and you will see some of the most poorly managed businesses on earth, but for legal reasons their incomes are protected (securities and tax laws). Those laws and the lack of enough competition are what allow them to charge fees high enough to stay in business.
The reality is that executives can stop depending of the wrong type of accountant, they just have to have the guts to hire and train people to do real management accounting. I doubt that it will happen anytime soon as they wouldn't like what true management accountants would reveal.
Posted by: Robert Drescher | 16 August 2012 at 08:02 AM