September 1998 Issue

The CPA In Industry

ARTHUR ANDERSEN MAKES "BEST PRACTICES" EASIER

By John Talbott

espite the protests of my former students who work at the Honda Accord Plant in Marysville, Ohio, I believe that the Toyota Plant in Georgetown, Kentucky, is probably the most efficient American manufacturing plant I have either visited or worked in. This plant has won more international awards than any other American plant, and, as a result, I make periodic pilgrimages to scenic Georgetown to determine the latest continuous improvement ideas incorporated into their production processes.

During one such visit, I found myself sitting next to a person who I discovered was a GM spy (she assured me that Toyota knew she was there) who spent much of her time traversing the United States stealing best practices from other companies.

I have long been a fan of best practices, as I lack creativity and believe it is futile to try to reinvent the wheel. By borrowing best practices from various basketball coaches, for example, I have led several youth champions in my area. Perhaps the seminal industry champion of best practices, however, is GE's Jack Welch. In the late 1980s, GE formalized best practices by asking successful companies "What's the secret of your success?"

The answers that GE received were remarkably similar. Successful companies emphasized managing processes, outhustled their competitors in introducing new products, and treated their suppliers as partners.

Most companies, of course, lack the resources of GE and may have some justification for not knowing the best practices of other companies. Arthur Andersen, however, has provided an inexpensive vehicle for companies to enhance their own operations through their 1998 book Best Practices and their web site (www.arthurandersen.com/bestpractices) dealing with best practices.

The Book

In the early 1990s, Arthur Andersen began creating a process classification system that allowed it to study the best practices of companies worldwide. The classification system that emerged was based on the following similar processes:

* Understanding markets and customers

* Designing products and services

* Marketing and selling those products and services

* Producing what customers need and want

* Delivering products and services

* Serving customers

The book breaks business practices into universal processes and gives real-world examples of companies which excel in these areas. The result is a book that is not only informative and interesting, but is also an instructional manual. At the end of each chapter are suggestions and questions that should be addressed before attempting to implement a best practice solution. Companies can use this as a guide in their own research.

The book also stresses that the thrust of the best practice approach is that ideas for improving business processes can be generated anywhere. The ideas may come from other departments in the same company, other companies in the same industry, or other companies in a completely different industry. For example, Mobil studied the Penske pit crew to improve times on oil changes and tune-ups.

The Web Site

Global Best Practices Knowledge Space is an expansive database administered and researched by Arthur Andersen Worldwide (AA). The database was created to aid AA employees doing research. It can be accessed on the internet by external users in a restricted form (www.arthurandersen.com/bestpractices) and by internal AA members in its complete capacity (www.kspacearthurandersen. com). AA has developed a series of lists where they have compiled their choices of companies that lead an industry in a given area, such as the payroll function.

An excellent best practices example is an AA client, Airline X, who was losing millions of dollars a year because the process planes used when taxiing and loading/unloading took excessive time and manpower to accomplish. AA began researching the issue and determined that they could use a system similar to the Indianapolis 500 Motor Speedway pit stops. This strategy was implemented at a major Georgia airport, and Airline X saved millions of dollars a year.

Best Practices Knowledge Space is broken down into many small topics related to business in general and accounting specifically. When employees are on a particular engagement that requires research in areas such as accounts payable, accounts receivable, purchasing, cost reduction or inventory management, the database can be accessed simply by inserting a CD into a computer. The data are continuously updated to provide maximum benefit to the user.

Many of the articles in the best practices database are recommendations to solve common and recurring problems. For example, the database points out that not only is inventory expensive to carry, it is expensive to handle. Every time an employee touches a product, its cost increases. This phenomenon is increasingly relevant when the employee is putting inventory into storage. A technique used to combat this expense is known as cross-docking. Cross-docking is the process whereby a supplier's truck meets back to back with a customer's truck, which then delivers the product to the end-user. This eliminates the warehouse function altogether and significantly reduces the cost of inventory. *

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