LEAN ACCOUNTING: BEST PRACTICES FOR SUSTAINABLE INTEGRATION
"Costs do not exist to be calculated. Costs exist to be reduced.” – Taiichi Ohno, father of the Toyota Production System
Lean Accounting-It is simply the application of lean principles to the accounting and associated functions within the enterprise. The idea is simple, but the application is not obvious within the framework of traditional accounting systems.
Lean Accounting was born in the early 90’s through the experiences of Jean Cunningham at Lantech, Orry Fiume at Wiremold, and Mark DeLuzio at Danaher. It was frowned on mightily by financial professionals from the start and is by many to this day. Change in long-established systems is difficult to visualize and harder yet to take the first step towards implementation.
•It identifies and eliminates non-value add waste in the accounting process and IS reporting processes
•It improves visual reporting on product lines
•It adheres to all GAAP recommendations.
•It does not impede Sarbanes-Oxley rules.
•It realigns accounting activities to a consulting role rather than a transaction role.
Lean manufacturing creates a mandate to challenge traditional cost accounting. Lean accounting is the natural result, and Jean Cunningham Consulting provides a proven alternative to traditional cost accounting. When the finance department adopts lean principles, it provides a stage that enables the accounting team to move from a transaction focus to a new high visibility role of consulting within other areas of the company.
There are great short and long term advantages to creating a culture of total involvement that can revolutionize the role of your accounting team and its ability to impact your company’s future success.
LEAN ACCOUNTING SEMANTICS
Lean accounting has two distinct areas that may be applied at different times on your lean journey.
"Lean for Accounting" = Applying lean tools (5S, process or value stream mapping, kaizens, etc.) to streamline the processes within the accounting and finance functions to minimize the consumption of resources and eliminating waste.
"Accounting for Lean" = Modifying traditional financial statements and reports to provide "Plain English Financial Statements" throughout the enterprise.
While there is a distinct differentiation between these two areas, the broader term "lean accounting" is often applied to both interchangeably.
Lean is about reducing the time line between receiving an order or initiating a project, delivering the right product or service at the right time to the right quality, and collecting the cash. Thus, the work is by Value Stream and flow to the pull of the customer. Waste is everything that impedes the flow of value-adding work and, consequently, increases the time to delivery. In order to determine how effectively we are reducing this timeline we, therefore, need to be able to measure the flow, and the impediments to that flow. This is the primary purpose of lean accounting.
Lean manufacturing was developed by Toyota and other Japanese companies. Toyota executives claimed that the famed Toyota Production System was inspired by what they learned during visits to the Ford Motor Company in the 1920's 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 1980's they discovered that lean thinking must be applied to every aspect of the company including the financial and management accounting processes.
There are two main thrusts for Lean Accounting. The first is the application of lean methods to the company's accounting, control, and measurement processes. This is no different than applying lean methods to any other processes. The objective is to eliminate waste, free up capacity, speed up the process, eliminate errors & defects,...
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