LEAN ACCOUNTING

Traditional Accounting Considered as Anti-Lean

Traditional measurement

• Large, complex, huge amounts of non-value work, leads to high inventory level

• Don’t have good way to identify lean improvements in company, rather often show that bad things happening when implementing lean change

Financial ReportVery few people understand reports from accounting system, yet decision to be made on it

Standard Costing Leads to poor decision making

Vision for Lean Accounting

Measurement

- Provide accurate, timely and understandable information to motivate lean transformation

- Support lean culture by motivating investment in people, and empowering continuous improvement at every level of organization

- Use lean tools to eliminate waste from accounting process

Financial Report - Fully comply with GAAP - Simple, people can understand

Value Stream Costing

- Increase customer value, growth, profitability and cash flow

Lean Accounting Principles, Practices, and Tools

• Lean & Simple Business Accounting • Accounting Processes that support the Lean transformation • Clear & timely communication of information • Planning from a lean prospective • Strengthen internal accounting control

Lean & Simple Business Accounting

• The tools of lean must be rigorously applied to our accounting, control and measurement process so that waste is relentlessly driven out

• Tools used : - value stream maps - kaizen - PDCA (Plan-Do-Check-Act)

Accounting Process that Supports Lean Transformation

• Lean accounting focus on measuring and understanding the value created for customers, and uses this information to enhance customer relationships, product design, product pricing and lean improvement

• Tools used : - Performance measurement - Continuous improvement - Value stream costing - Target costing

Clear & Timely Communication of Information

• Lean accounting provides financial reports that are readily understandable to anyone, i.e. in plain english and easy to use

• Tools used : - Visual management - Box Score for decision making

Planning & Budgeting from Lean Prospective

Hoshin Policy Deployment • From Hoshin Kanri ! a method for ensuring that strategic goals of company are

communicated throughout the company and drive progress and action at every level of the company (from top management to shop floor)

• People required to achieve the results and very much involved in the planning and goal-setting for their own areas of responsibility

Sales, Operations, and Financial Planning (SOFP) • A formal & rigorous planning process completed for each value stream • The financial planning outcome of SOFP is to update budgets each month and

thereby largely eliminates the wasteful annual budgeting choreography most companies engage in

Investment in People Successful lean organisations radically change their culture to make the training, involvement, and empowerment of their people of paramount importance

Planning & Budgeting from Lean Prospective

Financial Impact of Lean Improvement • Lean accounting tools are used to understand how the changes taking place in the

value stream will affect the operational performance, the financial performance, and also how the capacity usage changes within the value stream

• One of the most difficult changes when beginning process of lean transformation is to stop thinking about production improvements in terms of short-term cost reductions (this will limit the progress company can make with lean manufacturing and other lean initiatives)

• Change our question from “How large a cost will we save?” into “How can we use our newly created capacity to increase customer value and make more money?”

Capital Planning • When approaching a major decision relating to the purchase of capital

equipment, a lean organisation will perform a 3P (Production - Preparation - Process)

Strengthen Internal Accounting Control

• It is essential that Lean Accounting enhance the accounting controls, and doesn’t weaken them

• A primary tool to ensure that Lean Accounting changes are made prudently is the Transaction Elimination Matrix

• Using Transaction Elimination Matrix we can determine what Lean methods must be in place to enable us to eliminate traditional, transaction-based process, without jeopardising financial (or operational) control

• Lean manufacturing always leads to substantial inventory reductions —> inventories are low and in good control, thus inventories valuation become much less complex

Conclusion : ➤ Lean Accounting is itself lean, low-waste,, and visual, and frees up finance and

accounting people’s time; so they can become actively involved in lean change instead of being merely “bean counters”

➤ Companies using Lean Accounting have better information for decision making, have simple and timely reports that are clearly understood by everyone in the company