Financial Transparency – Is it important?

Steve Fonseca asks an interesting question on The Whiteboard.

Are lean companies really transparent with their customers and suppliers as to cost/profits. Is this a lean principle or not, or to what extent?

I am going to offer an opinion, then perhaps other readers can chip in.

First, there is no real definition of what is, or is not a “lean principle.”
Second, there are infinite shades of the term “financial transparency.”
Thus, there is no definitive answer to the question.

So, in my view, I don’t really see a correlation. Nor do I see a significantly greater degree of openness as a prerequisite to success with infusing a culture of continuous improvement.

Toyota is publicly traded, and as such, is really restricted by insider trading laws on how much financial information they can share with customers / suppliers short of sharing it with everyone.

Anyone else? What have you seen out there? Does a degree of financial transparency, above and beyond what is normal in business relationships, offer a significant competitive advantage, or drive continuous improvement faster?

4 thoughts on “Financial Transparency – Is it important?

  1. My personal view on this topic is that there is a definite benefit in sharing financial information such as costs with the suppliers and customers if we are to work together in partnership to becoming a “lean machine”. It follows the principle that one cannot improve what one cannot measure.
    For example, if the customer chooses to “look” lean and dump the inventories at the supplier’s site, how is that lean? Ultimately, a point is reached where the supplier cannot afford to keep what the customer demands and it may go under. Thus, the customer is in jeopardy too.
    What we achieved in my company was to convince the customer to reduce the inventories on our site by two thirds showing our unreasonable costs in doing so. Of course, we knew we would not jeopardize the deliveries and we proved that by hard numbers of our machine availability.
    When one looks at the way Toyota builds partnership with their supplier base (for life you’d think), it might be the way to go.
    I’m not sure that everything is shared though as I am not a high level executive.

  2. Interesting example, Gabriela. I’d like to look at the “shifting inventory” thing a bit.

    When you worked with the customer to reduce inventory on your site, *where did it go?* Did it go back to the customer’s site?

    Why was the inventory necessary in the first place?

    Inventory is there for two broad reasons. Either there is just more than necessary; or it is carefully placed to buffer known irregularities in either the consuming or the supplying process.

  3. Sorry for the delay.
    You see, the inventory was not necessary. It was the customer’s typical requirement when the contract was awarded (something like a rule of thumb). So, after that, it simply vanished, it was not transferred. We just learned to keep less WIP and FG, while the customer also reduced their inventories on their site. It was about building confidence that the “sky will not fall”. Two years later it’s still happening.

  4. I don’t think that financial transparency is part of lean practice. It can help to get there but is not a requirement.

    In our plant, we figured that sharing cost of some “waste” like bad quality help us to get the full involvement of our employee. They visualize more easily the reason of all our effort to reduce it and motivate them to work toward same goal.

    As for the profit, I don’t think there is any added value to share it. As far as I’m concern, it will only give employee a good reason to ask for a raise.

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