Lean Operations & Accounting

Question 1

5 Core principles to represent lean production

Answer 1

1) Specify value desired by customer
2) Identify value stream for the products providing cust. value & challenge all wasted steps
3) Product flow continuously
4) Introduce pull between all steps
5) Manage towards perfection, no. of steps & time & time needed constantly falls

Question 2

What is Value (5)

Answer 2

• Any activity essential to delivering service / product
• Defined by the customer
• Aim of improvements NOT to get bad product to market quickly
• Producers want to keep making what they’re making
• Value often made over no. of org’s. > supply chain management

Question 3

7 Deadly Wastes

Answer 3

1) Excessive Motion - chasing approval / info
2) Waiting Time - approvals
3) Over-Engineering Products - poorly defined cust. req.
4) Unnecessary Process Time
5) Defects - fail to meet cust. req.
6) Excessive Resources - redundant activities
7) Unnecessary Handoff - verification loops

Question 4

Flow (5)

Answer 4

• Continuous flow & best serving the customer
• line up steps, continuous movement, no wasted motion, no interruptions / batches / queues
• Product need focus
• Reduce changeover times / physically rearrange
• Move from ‘batch & queue’ to ‘single piece flow’

Question 5

Pull (3)

Answer 5

• The pull system - JIT
• Make exactly what cust. wants when they want it
• reduced lead time enables responsiveness to changes in demand

Question 6

Perfection (4/7)

Answer 6

• Complete elimination of waste
• Improvements based on clear view of value stream & how flow to cust.
• Batches & inventory hide defects > removed
• Steady continuous improvements
  > target defects
  > measures improvements (throughput, waste, inv.)
  > Plan, do, check, cycle (TQM)

Question 7

Mass Production vs Lean (5)

Answer 7

• Lowest cost/unit vs meeting cust. demands
• High vol production vs mirror value stream
• (Large) Batch & queue vs single piece flow
• Forecasts ‘push’ system vs cust. orders ‘pull’ system
• Intense supervision vs empowered workers

Question 8

Implications for accounting (3)

Answer 8

1) Lose accounting
2) Lean accounting
3) A 3rd alternative

Question 9

1) Lose accounting (3)

Answer 9

• Accounting & Lean don’t mix
• Want Lean, lost accounting (Johnson, 2006)
• Evidence Lean operations do not use financial indicators (Bateman & Seal, 2014)

Question 10

2) Lean Accounting (7)

Answer 10

• How reported fin. info supports Lean mngmt system
• Applying Lean thinking & cust. focus to accounting system
• Lean tailored accounting info
• Avoid traditional drawbacks > standard/absorption costing (motivate non-lean behaviour)
• Develops a better way to show fin. improvements (Maskell & Kennedy, 2007)
• Proposes better costing method (Fullerton et al, 2010)
• More relevant acc. info for decision making (Maskell & Baggaley, 2004)

Question 11

3) A 3rd Alternative (3)

Answer 11

• Question ability of traditional acc. systems to work with new innovations (e.g. Lean)
• Failing to adopt ‘Lean tailored’ acc system can impede process of lean mngmt implementation (Ahlstrom & Korlsson, 1995)
• Most Lean org. continue using standard costing (Rao & Bargerstock, 2011)

Question 12

Value Stream Costing (VSC) (2)

Answer 12

• Eliminate most wasteful transactions associated w/ production control, materials & product costing
• Eliminates need for standard costing & OH allocations, creates simple & effective cost acc. method (Maskell & Baggaley, 2004)

Question 13

Summary

Answer 13

• Lean Acc. still evolving, not codified in text books yet
• Further research & investigation required / ongoing
• Healthy tension between fin. & operational mngmt

Question 14

3 General Principles

Answer 14

1) Fin. impact decisions have on total value stream profitability
2) Stop using cost allocations
3) Lean idea that eliminating waste creates time

Question 15

1) Fin. impact decisions have on total value stream profitability

Answer 15

Value streams are profit centers, all fin. analysis should be performed at this level

Question 16

2) Stop using cost allocations (4)

Answer 16

• Level of subjectivity - others make fixed cost variable by linking it to units or services produced
• Rates making costs look like decreasing when not actually changing
• Understand relationships between op. performance, capacity & costs
• True root cause analysis on cost behaviour & operational solutions > achieve desired cost behavious

Question 17

3) Lean idea that eliminating waste creates time (3)

Answer 17

• Time spent on waste now creates time
• Not creation of time but how the org. uses the time
• Increasing revenue w/out increasing costs

Question 18

What Does Lean Accounting do? (5)

Answer 18

• Develop simple acc. system
• Supports lean manufacturing
• Timely & clear accounting information
• Planning for the co. from a lean perspective
• Strengthening internal accounting controls

Question 19

Why do You Need Lean Accounting? (4)

Maskell Article

Answer 19

• Lean multifaceted bus. strategy, primary focus on employees & learning
• ‘Lean thinking’ not ‘doing Lean’
• Creating cust. value will result in revenue growth
• Lean tools & techniques creates flow & eliminates waste resulting in improved cost mngmt.

Question 20

Lean Success (6)
(Maskell Article)

Answer 20

• Develop efficient & effective accounting function to complement its fin. acc. system > knowledge base for effective decision making re future
• Lean accounting makes relevant info available to decision makers on a timely basis.
• Employees & time most important asset > emp. learn how to use org. time better to delver cust. value in LT
• Continuous improvement - maximising VA activities
• Flow of money not externally-reported financials > all functions perform fin. analysis, helps LT growth
• Functions learn impact of their fin. decisions, based on corr. between Lean op. performance, resource capacity & fin. numbers