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.
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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 cost is reduced, as labor cost is usually the highest expense in the companies. The freed up time not only saves cost, but also can be devoted to lean improvements to pursue the goal of continuous improvement. In addition, companies can use the available time to cross-train employees and create them more skilled.
3. Chapter 7, “Managing by Value Stream”, Practical Lean Accounting.
4. SMA (2) _Lean Accounting, Decision Making, P23.
III. Challenges of Implementing a Lean Accounting System in a Lean Manufacturing Environment
Although there are more benefits from the implementation of lean accounting, the challenges do exist. There are always two sides to a thing. And we can’t avoid some challenges during the implementation process.
1. Senior Management Initiative
This is the most critical part when implementing lean accounting in a lean manufacturing environment. Lean implementation across the company will not be successful if senior management is not fully committed. The same situation in Who’s Counting?, the company won’t achieve anything if the executives are not fully supportive. And there will be conflicts between different departments, because they are not on the same boat.
2. Short-term Profitability
Companies may find out that there is no short-term financial improvement after implementing...