Lean Operations & Accounting Flashcards
5 Core principles to represent lean production
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
What is Value (5)
- 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
7 Deadly Wastes
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
Flow (5)
- 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’
Pull (3)
- The pull system - JIT
- Make exactly what cust. wants when they want it
- reduced lead time enables responsiveness to changes in demand
Perfection (4/7)
- 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)
Mass Production vs Lean (5)
- 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
Implications for accounting (3)
1) Lose accounting
2) Lean accounting
3) A 3rd alternative
1) Lose accounting (3)
- Accounting & Lean don’t mix
- Want Lean, lost accounting (Johnson, 2006)
- Evidence Lean operations do not use financial indicators (Bateman & Seal, 2014)
2) Lean Accounting (7)
- 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)
3) A 3rd Alternative (3)
- 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)
Value Stream Costing (VSC) (2)
- 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)
Summary
- Lean Acc. still evolving, not codified in text books yet
- Further research & investigation required / ongoing
- Healthy tension between fin. & operational mngmt
3 General Principles
1) Fin. impact decisions have on total value stream profitability
2) Stop using cost allocations
3) Lean idea that eliminating waste creates time
1) Fin. impact decisions have on total value stream profitability
Value streams are profit centers, all fin. analysis should be performed at this level
2) Stop using cost allocations (4)
- 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
3) Lean idea that eliminating waste creates time (3)
- Time spent on waste now creates time
- Not creation of time but how the org. uses the time
- Increasing revenue w/out increasing costs
What Does Lean Accounting do? (5)
- Develop simple acc. system
- Supports lean manufacturing
- Timely & clear accounting information
- Planning for the co. from a lean perspective
- Strengthening internal accounting controls
Why do You Need Lean Accounting? (4)
Maskell Article
- 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.
Lean Success (6) (Maskell Article)
- 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
