Kaizen for Accounts Payable (Part 2)

In our previous blog about Kaizen we told you how the Japanese philosophy can help increase your accounts payable department efficiency through applying the main 5 Kaizen principles. In this blog we’ll explain you the concept of waste, its negative impacts on the working process, productivity and try to give you several tips on how to avoid it.

Wastes

Kaizen is based on making little changes on a regular basis: always improving productivity, safety and effectiveness while reducing waste. The concept of waste in Kaizen is defined as activity consuming resources (time, materials, money) but creating no value.

Wastes are the drivers of excess costs, delays and quality issues. The critical problem for management is not the one of knowing how to prevent a specific occurrence of waste. Instead, the critical problem is identifying the root cause of the waste and eliminating this cause.

Looking closer at a typical accounts payable department, we can identify several ordinary wastes declining the department’s performance efficiency. We can divide such wastes into the following categories: people waste, process waste, information waste and asset waste.

People waste

This kind of waste is typical not only for accounts payable department, but can be characteristic of any department work organization. The waste can be briefly described as people not performing as well as they might under better circumstances.

The first problem is interruption; people can be constantly interrupted during their work, which leads to difficulties in focusing on essential processes. Also, a lot of office workers read their emails as soon as they arrive, this cannot contribute to efficient professional performance. Poor working time management and bad work habits lead to time and money losses. You should not pay attention to each invoice or expense report once received, besides, invoice information entering duties can be transferred to special automation technologies.

People waste comes from not utilizing workers’ skills to their full potential due to little or no training, office politics or low pay. If there is neither individual nor team goal-setting, employees are working at cross-purposes and spending a lot of time correcting problems. Besides, accounts payable specialists are supposed to know the related legislation that is occasionally changed, i.e. they should always stay informed by participating in organized trainings or through self-education.

Another sort of people waste is waiting. Waiting for information, invoice approvals, directions from management, repair of broken equipment or system downtimes can eat up a lot of time. To reduce such wastes Kaizen teaches effective time and work organization through initiating the following measures: modifying corporate policies, improving working process and conducting staff trainings focused on work habits enhancement. For example, making special instructions for using office equipment in an accounts payable department can minimize its improper use and the chance for early breakage.

Process waste

Process waste occurs during conducting operations and is usually produced by neglect or unwillingness of management and staff to develop better ways for doing work. Process and people wastes are overlapping and intertwined. For example, waiting for an invoice that is entered manually, may be caused by staff’s poor working skills (human factor) and poor invoice approval process organization. Also, in case of invoice manual entering and approval poor office design can lead to delays and serious time losses.

Manual invoice entering can be replaced by the automated one that implies essential data capture with the help of the Optical Character Recognition (OCR) technology. The OCR technology not only dramatically speeds up the overall process, but also solves another problem – overprocessing, which lies in working on one item more than necessary.

After the invoice is entered, it gets checked for corresponding purchase orders and possible duplicates. In case of manual processing this can result in piles of pending invoices on a procurement specialist’s desktop, causing delays and time losses. Overdue invoices can affect the company’s reputation. Organizing automated verification against POs and for duplicates will save accounts payable staff’s time and reduce the company’s costs.

Information waste

Information waste can be described as exchanging or transferring wrong data, such as irrelevant, missing or inaccurate information. This kind of waste also refers to transferring data to people who are not a part of the procedure chain, which is possible in case of poorly organized approval process or due to the lack of accustomed rules. Unnecessary data can create confusion and slow processing. This leads to value losses because of poor, outdated, duplicated, or incomplete data, causing costly mistakes, as the corrections take a lot of time and effort.

Accounts payable software provides predefined sets of rules on invoice data processing and approval routing, which makes it possible to eliminate errors, minimize time spending and increase the accounts payable department’s efficiency. Also, automated invoice processing brings safety and accuracy to extracted data.

Asset waste

We can briefly explain the meaning of asset waste as not using material and/or property efficiently. This may refer to improper office equipment use, inefficient paper spending, absence of knowledge about office software functions, etc. Inefficient resource spending inevitably leads to both time and money losses.

Manual invoice processing in our time can be considered a good example of asset waste, as it involves spending huge amounts of paper, documents physical transportation that may result in their losses, possible mistakes and delays.

If accounts payable departments consciously reject the process automation, it means they accept slow and inefficient invoice processing. Efficient resource spending is characteristic of departments that are aimed at effective work performance and costs reduction. Accounts payable automation software helps specialists  conduct invoice processing easier, faster and safer.

Kaizen proved to be efficient many years ago. The Japanese philosophy of making little changes for the good won its popularity in the western countries, and it is still leading big and small companies forward, helping them achieve their goals. Implementing technologies and educating staff a better work organization can dramatically increase office work efficiency and positively change the whole situation.

 

If you are open for good changes and ready for improvements, the Orienge team and I will always
help you with financial information management and related processes. Feel free to contact me directly dshields@orienge.com or contact a member of the Orienge team at (917) 727-3278 or fim@orienge.com.

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