What if a project paid for itself, and then – to everyone's surprise – generated a number of cascading benefits?
To see how these concepts played out in our project for this client, please visit Eliminating Physical Inventory Shrink by Automating Production Accounting.
This month's case study features one of our premiere client projects, AccuCost. Surprisingly, I had never written about this project, though it is one of my all-time favorites.
A little back story first. At this particular client, there is an unspoken rule – a CFO can have one, but NOT two, large physical inventory shrinks. A physical inventory shrink occurs when inventory is physically counted and costed, and the result is less than inventory on the financial statements.
Well, the then-CFO had two large back-to-back inventory shrinks, so he was replaced by someone I'd worked with in both my Arthur Andersen days and my early Todd Herman Associates (THA) days. The new CFO was also familiar with an inventory accounting project I did for the CFO of another company. Thus, he engaged THA to improve the inventory accounting in his company.
AccuCost was created to eliminate physical inventory shrinks. Sure enough, about six months after AccuCost launched, another physical inventory was taken, and there was a shrink of only $20,000. No CFO loses their job for a shrink this small – in fact, such a CFO is usually roundly congratulated for a great outcome.
A funny thing happened, though – this client began closing its books faster than ever. Previously, the month-end closing took 6 business days to get good "first draft" financials – now, it was down to 3 business days.
What explains the 3 business days' drop? The accountants were relying on incorrect reports or introducing errors into their spreadsheets. Once the accountants no longer had to do the inventory accounting, they could do other closing tasks – and leave the heavy lifting to AccuCost.
After we connected the dots between AccuCost and faster closing, our client's and THA's staff began looking for other transactions that could be automated using AccuCost's capabilities. As we found these, we designed – and our client's systems staff developed – a new module to handle each additional transaction.
By using AccuCost and looking for other ways to speed up month-end closing, our client was able to cut its closing down to ONE BUSINESS DAY. Our client's corporate parent was very pleased with this, then challenged the other divisions to do likewise. Some got close, yet none ever beat our client's speed.
Why is speeding up month-end closing such a big deal? Because closing the books is a necessary task, yet one that adds little value to the company. Remember, when the books for the previous month are being closed, the accountants are looking BACKWARD. There's much more value for the accountants to look FORWARD – to fix problems, to analyze data for actionable insights, and to get onto the production floor and look for other improvement opportunities. With those EXTRA 5 business days per month per accountant, our client did all these things and more – all of which added value to the business and improved their already healthy bottom line.
Eliminating inventory shrink. Slashing the month-end closing process. Adding business value. Improving net income. Our client paid for the first benefit, and got the other benefits for virtually nothing. If I were writing a book about this, an appropriate title would be "A Series of Unexpected Benefits."
Todd L. Herman