Lean Accounting

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The lean accounting method was first developed and introduced by Toyota and other Japanese companies. Toyota executives claim that the famed Toyota Production System was inspired by what they learned during visits to the Ford Motor Company in the 1920s and developed by Toyota leaders such as Taiichi Ohno and consultant Shigeo Shingo after World War II. As pioneer American and European companies embraced lean manufacturing methods in the late 1980s, they discovered that lean thinking must be applied to every aspect of the company including the financial and management accounting processes.[1] In the manufacturing sector, an informal survey conducted by the Association for Manufacturing Excellence (AME) suggests that more than half of U.S. manufacturers are working to introduce lean into their businesses.[2] Adopters include The Boeing Company, Lockheed Martin, Dell Computer, Steelcase and others.[3] Lean accounting is an accounting method with a purpose to support the lean enterprises as a business strategy. Lean accounting is used for changes that a required in a company’s accounting, control measurement, measurement and management process to support lean manufacturing and lean thinking. This method of accounting measures and motivates excellent business practices in the lean enterprise. The objective of lean accounting is to eliminate waste, free up capacity, speed up the process, eliminate errors and defects, and make the process clear and understandable. Lean Accounting is to fundamentally change the accounting, control, and measurement processes so they motivate lean change and improvement, provide information that is suitable for control and decision-making, provide an understanding of customer value, correctly assess the financial impact of lean improvement, and are themselves simple, visual, and low-waste. Lean Accounting does not require the traditional management accounting methods like standard costing, activity-based costing, variance reporting, cost-plus pricing, complex transactional control systems, and untimely and confusing financial reports. These are replaced by: •lean-focused performance measurements

simple summary direct costing of the value streams
decision-making and reporting using a box score
financial reports that are timely and presented in "plain language" that everyone can understand •radical simplification and elimination of transactional control systems by eliminating the need for them •driving lean changes from a deep understanding of the value created for the customers •eliminating traditional budgeting through monthly sales, operations, and financial planning processes (SOFP) •value-based pricing

correct understanding of the financial impact of lean change[4] There are many advantages of lean accounting. The lean accounting method increases sales and provides better information for decision-making. Lean companies need tools like Value stream costing and Lean decision making. Lean accounting identifies the financial impact on lean improvements. The primary impact of waste elimination is the creation of the available capacity and this is recognized by lean accounting. Lean accounting saves money and reduces costs. Lean accounting motivates long-term lean improvement through lean focused information and measurements. These are cornerstone of visual management and control for lean production cells. As an organization becomes more mature with lean thinking and methods, they recognize that the combined methods of Lean Accounting in fact creates a Lean Management System (LMS) designed to provide the planning, the operational and financial reporting, and the motivation for change required to prosper the company's on-going lean transformation.[5] Companies making the transition from traditional manufacturing to lean manufacturing soon find that relying on their conventional accounting, control, and measurement systems can become a road-block. “There has been a ‘quiet revolution’...
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