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Journey to a Perfect Plant 6 – Operations, Accounting, & Business Procedures

The project was to implement a fully integrated Enterprise Resource Planning (ERP) system. We were replacing what the existing system which was primarily a batch accounting system which had need modified to produce some inventory and production cost reports, mostly on a monthly basis. Not very good from the production / operations aspect, but it was what we had.


As was expected, we had to prove that the purchased ERP system balanced to the home grown accounting system, before the accounting department would sign off that the “numbers” out of the ERP system were correct and acceptable.


This was supposed to be easy. We ensured that the starting balances were identical, that the same consumption and receiving figures were sent to accounting as used in the new system, and yet for some items we could not get the same ending balance. Each material that was issued & received was recorded correctly in the new ERP system, and since we had not change the old system, the assumption was that the old system was still correct and the new system was in error. We finally followed every piece of paper though the production process and identified what was done with the data. It turned out that when production opened a container of raw material they sent a tag to accounting. When accounting received the tag, they immediately issued the whole container quantity to production in their accounting system. If this was done at the beginning of the month the actual material issued was very close to the full container and the two systems matched, if the container was opened at the end of the month, the full container was issued in the accounting system, but only the amount actually used was issued in the new ERP system. Of course the two systems were not in balance.


We had thought that the same procedure was being carried out in both systems, and in general, they were, goods issues were being recorded. Again the devil was in the details. Understanding the processes in the systems being replace or being interface to became part of the initial phase of all projects from that point on.


This same facility had a significant consignment inventory associated with its package materials. There was an automated feeder line that stretched from the consignment warehouse across the roof of the plant into the production area. Different packaging materials were sent down these lines depending on what was scheduled to be produced. At the end of every month we need to pay for the materials used. Each month we took a physical inventory of the consignment material in the warehouse, and spent a number hours calculating the quantity of the material still stuck in the feeder lines so that we could give an accurate inventory account to our vender.  After watching this for several months it occurred to us to ask if we had ever returned any of the material in the feeder lines, and even if it were possible to empty the lines without significant effort. The answer was no. Why, we asked, if we could never get the material back to the vendor, why are we counting it, couldn’t we just accept ownership of what was in the line and avoid the time and effort of doing the monthly calculation? After we got past we have always done it that way, there was no reason to keep doing this. Accounting thought it was a good idea, and the production staff got to go home earlier after the physical count.


Opportunities for improvement are everywhere, and every little bit helps to realize the perfect plant. Nothing is too small. By challenging the accepted procedures, we were able to save 2 hours of overtime wages for 3 people each month, not much perhaps, but the original procedure had been in place since the plant had been opened.


In another case we discovered a report that was being sent by production to accounting at accountings request. Since we were implementing an integrated system we wanted all departments to be satisfied. We needed to ensure that we could duplicate what had been requested. The report was a 3 part preprinted form that was filled in every shift, every day. One copy was filed by the operations supervisor, one copy filed by the plant manager’s assistant, the third and final copy was sent to account for their use. When we visited accounting we found that the only thing they did was to file too. Apparently seven years prior they needed the information for a study they were carrying out. The study was completed, the person who was doing the study had left the company, yet the procedure was still carried out. No one had ever asked why, or questioned what the benefit was for doing this. Needless to say we stopped this data collection.


Look out for these orphan procedures during your journey; I am sure that you will find many of them. Once a procedure is in place they are performed until they are stopped, even if they no longer have any value.


Do not over look small changes to existing business procedures in your journey to the perfect plant. Not everything is solved with a new system.

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  • Desirability of adopting standards in Perfect Plants

    One of our plants was situated adjacent to a highway.
    While travelling on the highway,one has to take a right turn to proceed towards the plant.
    At the turning point, on the left side, a name board for the plant was put up.
    Over a period of time weeds have grown and covered the board.
    One day I was on my audit trip.
    I started the audit from the turning point!
    The weed growth was the first point.

    Next was the condition of the road.It was about a kilometer long and trucks transported all raw materials on this road.
    The road had pot holes, and during rain it would become slushy too.
    Coal,limestone,lump iron ore,manganese used to be moved on this road from a nearby sea-port.
    Due to the condition of the road spillage of these material used to take place.
    The spilled material used to be collected by labourers engaged for this purpose.

    Thirdly, I looked at the buildings.
    Upon one of the buildings, the name of the plant was painted in red.It had faded.Needed repainting.

    And the findings went on endlessly!

    We used to call it Non-Conformity – Category I, Category II , Category III, Observations.
    Another category of findings was Note-worthy Efforts.

    What was the purpose of the audit?
    To find out how well aligned was the practice with the policies and pronouncements.

    What really enables an auditor to see what others donot see is the value system held in mind.
    Cleanliness is a value.
    When we check what we notice against the value, we see the non-conformity!

    Any Vision statement, Mission statement ,Policy statement, Objectives statement are expressions of values proposed to be upheld.
    We know that these get implemented through projects, procedures,work instructions,use of forms,dialogues,discussions and so on.
    One important aspect all these instrumentalities is that they all are revisable to incorporate changes as warranted by the context a plant finds itself in.
    There is a misconception about standard and documented statements that they are rigid and not changeable.
    When this misunderstanding is cleared and the flexibilities of the system elements are operationalised, change keeps on happening and one’s aim of continuous improvement becomes an happening thing!

    In my 5 years of coordinating implemention of  the management systems, I had this one job of managing revisions to policies and procedures and the related documentation, and that made me realize that a process for change could be designed into the system itself.

    The other day I was travelling on Chennai-Kolkata highway. Workers were cleaning the median and painting it black and white.
    I saw how the upholding of a value provides employment to so many persons also.
    The value probably is embedded in a standard for high ways.
    It is the adherence to the standard that enables us to adhere to the values to its appropriate level!

    When we establish a system, it could be populated with many such standards.
    Adherence to standards sometimes is viewed as curb on creativity. But it actually urges one to see new pastures instead of inventing the wheel.

    The Sullivan Principles, The Cox Round Table, The Equator Principles, The Responsible Care and so many more are efforts at management to adhere to values.
    The various standards by international bodies and national bodies are the pathway.

    Sometimes people overdo for a value.
    Sometime they underdo for the value.
    They swing between extremes.
    Adopting a standard ensures that one accomplishes at the appropriate level!

    The Perfect Plant as a vision would enable a company to incorporate so many values. In fact Perfection is itself a great value.
    When one promotes it, other things would fall in line and expected results would be the out come.
    Adoption of standards, wherever it is existing, would one way of achieving the Vision of Perfect Plant, I feel!
    And wherever a standard is non-existent, to develop a standard, revisable of course, thereby ensuring continuos improvement.

    In this connection it is apt to recall what is quoted by Capthorne Macdonald in one of his writings, here:

    “Values are at the heart of the matter. Nobelist Roger Sperry put it bluntly: “Human value priorities…stand out as the most strategically powerful causal control now shaping world events.  More than any other causal system with which science now concerns itself, it is variables in human value systems that will determine the future.”