Lean Accounting

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Essay Question 1

What are the main benefits and challenges of implementing a lean accounting system in a lean manufacturing environment? Do you anticipate interest in lean accounting will grow, the methods will change, or the concepts will fade out and be replaced with another ‘flavor of the month’? How do you perceive lean principles affecting your career? Justify your answers.

I. Lean Accounting

Lean accounting often refers to more simplified accounting practices that focuses on eliminating waste, reducing production lead time, and producing products on customer demand. But Lean accounting does not stand alone. It is enabled by lean thinking and lean production methods. And lean accounting not only needs lean manufacturing, it also facilitates lean manufacturing.1 That’s why lean accounting is always related to, but not necessarily have to be associated with lean manufacturing. Here are some specific positive reasons that lean accounting is important. 1. Reduces time, cost, and waste by eliminating wasteful transactions and systems. 2. A better way to understand costs, product costs and value stream costs. 3. Provides information for better lean decision making.

4. Identifies the potential financial benefits of lean manufacturing improvements. 5. Frees up the time for finance people to work on lean improvement. 6. Focuses the business around the value-added activities created for customers. 2

II. Benefits of Implementing a Lean Accounting System in a Lean Manufacturing Environment

According to the positive reasons that addressed above, companies can be benefited from implementing a lean accounting system in a lean manufacturing environment in several different ways. 1. Eliminate Waste

One of the most important objectives of lean improvement is to eliminate waste from the non-value-added

1. Chapter 2, “Maturity Path to Lean Accounting”, Practical Lean Accounting.

2. Chapter 1, “Why Is Lean Accounting Important?”, Practical Lean Accounting. activities and processes of the company. Companies can save costs, free up capacity and improve product quality through eliminating waste. Generally, most of the reduced waste translates into available capacity. Then, companies can make good use of the freed up capacity to generate financial benefits. If the reduced waste saves costs, companies can reinvest the saved working capital into the business and make improvements in production. 2. Better Lean Decision Making

Lean accounting methods for decision-making revolve around an understanding of the flow of production through the value streams, and the effect of these decisions on the value stream profitability and contribution. Why we need to manage the business through the value streams? It was repeatedly stressed that the primary importance in lean is the focus on the flow of the product from the customer order to its final delivery.3 We can clearly analyze the performance of the company through three parts on a box score, i.e., operational performance, capacity usage, financial performance. Then, it’s easy, clear, and quick to make decisions upon the specific information we need. Especially, the advantages are that we can change some of the information to see how they will affect the profitability and margin, like some of the exercise we did with the outsourcing decision, and the financial information is up to date, often to the current week.4 3. Time Freed up

Employees are often categorized into different value streams so that the time of employee has been freed up by lean accounting, meaning that companies produce the same level of product or services with fewer employees. And finance people do not have to spend a lot of time preparing the financial statements, because it’s simpler and straightforward, forecasting and budgeting. Another way to conclude is employees’ work efficiency has been improved. Companies will save money if labor...
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