Though Financial Supply Chain Management has been around for a few years in client interactions, it doesn’t appear that everyone is using it consistently. There seem to be two predominant uses for the phrase FSCM. In the consulting and software industries, the common definition related to supply chain management of financial activities has a focus on reducing working capital or, more generally, optimizing the financial activities associated with supply chain management.  

In the accounting and finance realm—near and dear to most IMA members’ hearts—the aforementioned definition may apply. The alternate definition (and more common one in accounting and finance) relates to an informational “supply chain” associated with record-to-report and the upstream activities generating source data used within record-to-report. This use of FSCM may be better termed the Financial Reporting Supply Chain or Financial Information Supply Chain Management (FISCM) for clarity.  

Regardless of which interpretation of FSCM you use, a common theme that links both perspectives is the need to improve the financial operating processes with the goal of reducing processing time (labor costs and working capital levels), improve quality to reduce and eliminate rework (improved data integrity), and/or drive down the related out-of-pocket costs (paper, office equipment, computers). This theme has long been explored in the operations groups within most companies, but the finance back-office teams have been slower to pick up operational improvements. This lack may have occurred partly because of the perceived smaller benefit associated with reducing accounting and finance costs compared to production costs.  

As accounting and finance organizations grow and develop with their related business units, a misalignment can occur between the expectations of accounting and finance and their ability to deliver results that meet business-partner expectations. This misalignment often results from an organizational change, such as new senior leadership or business transactions (acquisitions or divestitures). The change creates a gap between the maturity of the abilities of accounting and finance and those of the larger organization.  

To improve accounting and finance performance and address the gap between performance and expectations, we can borrow an underutilized tool set from Lean manufacturing. Accounting operations aren’t manufacturing operations, but there are more similarities than many people acknowledge. These similarities begin with the desired outcomes of lower-cost operations to process the items received (widgets or data) and to produce the goods or services delivered (widgets or information for production and accounting teams, respectively).  

Once the similarity is acknowledged, an organization can begin planning. Some key considerations include determining the scope (What functional areas will be involved?), schedule (What is the sense of urgency? When does it need to be completed?), budget (What, if any, funds are available to support the effort?), and resources that will be required for a successful Lean improvement effort (consider involvement from internal accounting staff and external consultants or experts).  

For those unfamiliar with Lean manufacturing and its principles, two books can help: The Machine That Changed the World by James P. Womack, Daniel T. Jones, and Daniel Roos and Lean Thinking by James P. Womack and Daniel T. Jones. They cover the thought process of Lean and consolidate Lean principles into five key points:  

  1. Specify the value desired by the customer (Customer Determined Value)
  2. Identify the value stream for each product that provides that value, and challenge all of the wasted steps (generally nine out of 10) necessary to provide it (Value Stream).
  3. Make the product flow continuously through the remaining value-added steps (Flow).
  4. Introduce pull between all steps where continuous flow is possible (Pull).
  5. Manage toward perfection so that the number of steps and the amount of time and information needed to serve the customer continually fall (Optimization).


Whether considering Financial Supply Chain Management, Financial Reporting Supply Chain Management, or Financial Information Supply Chain Management, I hope one thing is clear:  

Opportunities for improvement abound. Future articles will include topics such as technology’s role in performance improvement, automation effectiveness, and the convergence of technology and process change. All these rest on the presumption of sound business processes. Striving to develop or enhance a culture that embraces Lean manufacturing applied in the accounting and finance areas of business is challenging. Combining these with technology can also be challenging, but the personal and professional rewards are numerous!


SIDEBAR: 5 Key Lean Principles

  1. Customer Determined Value: An approach to identify and analyze process activities to determine which activities the customer would directly pay for or are required for regulatory compliance.
  1. Value Stream: A type of process mapping, value stream mapping captures the basic process steps and additional information helpful to effectively develop a future-state process. The additional information includes multiple factors. The most common are value-added (processing) time and nonvalue-added (lead) time.
  1. Flow: Processing an item with flow may be described best as a combination of resource allocation, load balancing, and batch elimination. The purpose of flow is to focus on the item being processed (e.g., invoice, check, report), not on the people in the organizational unit and on keeping them busy (not necessarily with value-added activities).
  1. Pull: Pulling the results rather than pushing batches of production through the organization is the focus of pull. By pushing, inventory is created, and, subsequently, effort is used to create some items that may be wasted. (Do produced reports ever go unread in your organization?) Pull, dependent on flow, provides the necessary product (report and/or information) on demand.
  1. Optimization: Optimization is all about continued use of the previous four steps. As the prior four steps are used, the process changes and creates more opportunities for additional improvements. It’s a power-positive catch-22.


Source: The Machine That Changed the World by James P. Womack, Daniel T. Jones, and Daniel Roos and Lean Thinking: Banish Waste and Create Wealth in Your Corporation by James P. Womack and Daniel T. Jones.

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