Lean Accounting 1
Lean Accounting and Value Streams
Thomas Brothers
MBAD 6131 – Management Accounting
Dr. Nabil Elias
April 23rd, 2008
Lean Accounting 2
Lean Accounting and Value Streams
With the emergence of lean manufacturing and related princples like just-in-time, kaizen, and continuous flow production, there has come a need for an accounting method that better reflects and measures these new manufacturing methods. More and more, companies are turning away from the traditional mass production philosophy that dominated the 20th Century in order to gain a competitive edge in cost and market responsiveness. This shift has also brought to light the inherit shortcomings of traditional accounting and measurement systems. These traditional systems motivate people to focus on efficiencies which build large inventories and on wasteful transactions that are unnecessary. They also use a standard cost system that provides a misleading allocation of cost which leads to wrong decisions on issues, such as mark/buy, profitability of a sales order, and rationalization of products or customers (Maskell & Baggaley, 2004, p.2). In contrast, Lean Accounting and its direct cost approach, provides better information to decision makers which leads to improved revenue and profitability of the company. Lean Accounting motivates long-term improvement, not isolated efficiencies, and addresses customer value creation instead of just cost reduction. Also, and maybe more importantly, Lean Accounting is more consistent with assumptions underlying the changes of the new manufacturing methods. This paper will analyze how Lean concepts and its measurement system, Lean Accounting, can improve the overall value of a business by more accurately distributing costs which improve pricing models and profitability.
As touched on above, Lean Manufacturing is a radical change from the traditional mass production, batch size process. In order to see the true impact...