Finance and Lean Synergy: The Key to Full Value Chain Cost Management

This article outlines a two-pronged strategy for achieving cost reduction and efficiency improvement: focusing on cost accounting led by the finance department and efficiency enhancement led by the lean management department. It emphasizes that the synergy between these two functions is crucial for comprehensive full value chain cost management. The core idea is that improving production efficiency directly supports and enables cost reduction efforts.

The Dual Pillars of Cost Reduction and Efficiency Enhancement

• Cost reduction and efficiency improvement are achieved through two main approaches: cost accounting and efficiency enhancement.
• Efficiency improvement, particularly in production, is fundamental to realizing cost reductions.
• Effective implementation requires collaboration between the finance and lean management departments to form a holistic full value chain cost management system.

Financial Department's Role: Cost Accounting

• The finance department primarily leads cost management.
• Key tasks include cost indicator decomposition, accounting, variance analysis, and initiating improvement projects.
• Cost calculation examples include "cost per ton" for steel production and "cost per vehicle/unit" for home appliance or automotive products, encompassing material, logistics, and manufacturing costs.
• Product conversion coefficients (e.g., based on standard work hours, standard costs, or physical dimensions like thickness) can be used for complex product cost allocation.
• Recommendation: Account costs based on product measurement units (weight, volume, length, etc.) and evaluate management through a dual lens of profit and efficiency (Operating Profit = Sales - Variable Costs - Fixed Costs + Efficiency Indicators).

Lean Management's Role: Efficiency Improvement

• The lean management department primarily leads efficiency enhancement.
• Key tasks include efficiency indicator decomposition, launching efficiency improvement projects, and evaluating efficiency indicators.
• A direct correlation exists: a 10% increase in production efficiency can lead to a 10% reduction in costs, assuming other resources are controlled.
• Example: Reducing equipment maintenance costs by improving Overall Equipment Effectiveness (OEE) through initiatives like autonomous and planned maintenance, which in turn reduces breakdowns, spare parts needs, and emergency repair personnel.

Overcoming Challenges Through Cross-Functional Synergy

• Common challenges arise when finance lacks production familiarity, lean management lacks financial methods, or departments operate in silos.
• Without synergy, cost reduction efforts by finance may be top-down and ineffective, while lean improvements may lack systemic financial integration.
• Effective full value chain cost management requires both financial acumen and deep operational knowledge, bridging the gap between financial statements and shop floor operations.
• A systemic methodology that integrates both cost and efficiency perspectives is essential for sustainable improvement.