1st Edition

Accounting in the Lean Enterprise
Providing Simple, Practical, and Decision-Relevant Information




ISBN 9781420088588
Published May 13, 2013 by Productivity Press
196 Pages 21 B/W Illustrations

USD $52.95

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Book Description

Despite the obvious need for transparency, a company’s Lean results can continue to hide behind the mask of traditional accounting and dilute the benefits of a Lean implementation. When your organization opts to go Lean, you must empower your accountants with Lean tools that serve the Lean mission.

Winner of a Shingo Research and Professional Publication Award

Accounting in the Lean Enterprise: Providing Simple, Practical, and Decision-Relevant Information explains how to develop the information and financial reports that serve the needs of a Lean-minded business. It presents alternative methods of reporting, and includes a step-by-step guide for transitioning to Lean accounting methods. The book is divided into three parts:

  1. The Fundamentals of Lean as a Competitive Strategy
  2. The Nuts and Bolts of Lean Accounting
  3. Controls and Transition

Walking you through Lean tools, activities, and philosophies, it addresses some of the most often asked questions about Lean implementations. It confronts many of the fears that are the source of accountants’ resistance to change—including inventory management and valuation, GAAP compliance, and loss of control and benchmarks. Each fear is identified and resolved in a "Fear Box" inset, as the related topic is discussed.

Filled with checklists, guidelines, exercises, case studies, real-world examples, and company stories, the book provides you with the tools you will need to provide relevant, timely, and actionable information to the decision makers in your Lean environment.

Table of Contents

THE FUNDAMENTALS OF LEAN AS A COMPETITIVE STRATEGY

Principles of Strategic Lean Thinking
Brief History of Lean Production
Lean Thinking
Lean Implementation and Management
Lean Results
Discussion Questions
References

Value Stream Management
Introduction to Value Stream Management
Defining Your Value Streams
Problem Solving in Value Streams
Value Stream Performance Measures
Summary
Discussion Questions
References

THE NUTS AND BOLTS OF LEAN ACCOUNTING

Principles of Lean Accounting
Accounting as Part of a Total Lean Business Strategy
Lean Accounting vs. Accounting for Lean
Traditional Cost Accounting in Lean Environments
Lean Accounting Principles
Value Streams
Flow and Pull
Customer Value
Employee Empowerment
Continuous Improvement
Changing the Internal Accounting Reporting System
Challenges to Implementing a Lean Accounting System
Discussion Questions
References

Value Stream Costing
The Motivation
The Costing Plan
Step 1: Identify Value Stream Resources
Step 2: Design the Value Stream Statement Format
Value Stream Statement Overview
Value Stream Revenue
Value Stream Costs
Material Cost
Conversion Costs
Facilities Cost
Step 3: Standardize Collection of Weekly Data
Step 4: Compile the Value Stream Statements
Step 5: Select the Reporting Mechanism
Step 6: Test It!
Step 7: Roll Up to Facility Statement
Step 8: Obtain Feedback from All Statement Users
Summary
Discussion Questions

Inventory Management
Inventory Valuation under a Traditional Standard Costing System
Inventory Valuation Using Lean Accounting Methods
Transitioning to an Accounting for Lean System
Monitoring of Inventory Levels
Summary
Appendix 5B: A Primer on Backflush Costing
Discussion Questions
References

Capacity Management
Capacity Management—An Overview
Reporting Capacity Measures
Determining the Box Score Capacity Measures
Step 1: Collect Monthly Data by Cell for the Capacity Spreadsheet
Step 2: Calculate Productive, Nonproductive, and Available Capacity
Step 3: Determine the Bottleneck Cell
Step 4: Transfer Capacity Measures of the Bottleneck Cell to the Box Score
Step 5: Review with Management and Target Kaizen Possibilities
Step 6: Tie Lean Improvements to Changes in Capacity and Improved operational Measures
Step 7: Use Freed-Up
Capacity to Improve Financial Performance
Space Management
Summary
Discussion Questions

Product Costs and Lean Decisions
Throughput and Conversion Costs
Standard Costing Method
Throughput Method
Product Pricing Decisions
Product Mix Decisions
Special Order Decisions
Make vs. Buy Decisions
Box Score Format
Summary
Challenge
Discussion Questions

Lean Planning
An Overview of Lean Planning and the PDCA Cycle
How Lean Planning Is Different from Traditional Planning
Traditional Planning—The Annual Budget
Lean Planning—A Different Focus and Process
The Four Levels of Lean Planning
Strategic Planning
Hoshin Planning (Strategy Deployment)—Medium Term
Sales, Operations, and Financial Planning (SOFP)—Short Term
Steps in the SOFP Process
The SOFP Schedule
Weekly Planning Meetings
Summary of Lean Planning
Discussion Questions
References

Measurement Selection and Alignment
Reasons for Change
Identifying Measures
Measures and Alignment
The Process
Level 1: Company Strategies and Goals
Level 2: Value Stream Goals and Measures
Level 3: Work Cell Critical Success Factors, Goals, and Measures
Measurement Challenges in Projects and Knowledge Work
Action Tracking Logs
Summary
Discussion Questions

Measurement and Lean Behavior
Impact of Traditional Measures
Attributes of a Good Measure
Technical Attributes
Behavioral Attributes
Cultural Attributes
The Assessment
Summary
Discussion Questions

CONTROLS AND TRANSITION

Leaning Accounting Processes
Eliminate or Improve?
Step 1: List All Accounting Processes and Activities
Step 2: Quantify Time and Resources
Step 3: Perform a Customer Value Analysis
Step 4: Consider the Cost and Impact of Change
Step 5: Select the Activity or Activities for Change
Step 6: Prepare an Action Plan
Summary

Transitioning to a Lean Accounting Reporting System
Preparing to Transition Your Accounting System
Steps for Making the Accounting Transition
Step 1: Identify Value Streams and Associated Costs
Step 2: Determine Appropriate Method for Valuing Inventory
Step 3: Identify the Types of Accounting Reports That Are Necessary
Step 4: Decide on Changeover Date
Step 5: Other Issues to Consider
Step 6: Review the Process
Potential Obstacles in Transitioning Your Management Accounting System
Benefits of a Lean Accounting System
Summary
Discussion Questions
Appendix A: Glossary of Lean and Lean Accounting Terminology
Reference
Appendix B: Lean Measurement Assessment Instrument
Performance Measure Assessment for the Lean Enterprise
Background
Purpose
Directions

Index

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Reviews

When the Lean accounting field coalesced at the first Lean Accounting Summit in 2005 the thought leaders realized that promoting Lean accounting concepts at the university level was critical to long term manufacturing success in the United States. Drs. Gloria McVay, Frances Kennedy, and Rosemary Fullerton have not only led that effort and emerged as leaders in the academic community; they are Lean thought leaders in their own right.

Accounting in the Lean Enterprise: Providing Simple, Practical, and Decision-Relevant Information is an outstanding contribution to the Lean accounting body of work. Written in textbook style, it is a great learning resource that will be widely used in college classrooms, as well as in the manufacturing community. It is easy to read and understand, while comprehensively covering the entire scope of Lean accounting. It is easy to see this book becoming the standard tool that CFOs and Controllers will use to train and bring their entire accounting team along for the Lean journey. I highly recommend this outstanding book!
—Bill Waddell, Lean Author and Consultant

This is a must-have guide for all those wanting to leverage the power of Lean in their organization. The authors have done a tremendous job of capturing the essence of what Lean accounting is and how companies can use it to better understand and improve their business! The book is written in an easy-to-understand manner, with great examples and explanations of the various aspects of Lean accounting. It demonstrates how Lean accounting helps all levels of employees see and understand their business through a better lens than what the traditional accounting reports and processes offer.
—Jan Brosnahan, Controls Division Controller for Watlow Electric Mfg Co.

McVay, Kennedy, and Fullerton marshal up a long needed instructional book, closing a significant gap in the ‘why’ and ‘how’ of applying Lean accounting as a cornerstone for a successful Lean journey. Accounting in the Lean Enterprise: Providing Simple, Practical, and Decision-Relevant Information should be used by companies and universities alike to bridge this informational gap and give our future accountants and leaders required knowledge on managing financial, operational, and strategic decisions for our business organizations.
—Jim Huntzinger, Founder and President of the Lean Accounting Summit

Rising out of the academic community, Accounting in the Lean Enterprise: Providing Simple, Practical, and Decision-Relevant Information provides legitimacy to what successful Lean CEO and CFO's know: we must move away from standard cost accounting to release the untapped human and financial value in our organizations!
—Jean Cunningham, Jean Cunningham Consulting

Accounting in the Lean Enterprise: Providing Simple, Practical, and Decision-Relevant Information is a great learning tool for beginners, as well as a great reference book for the highly trained. The book begins at the start of the Lean accounting journey and ends with practical examples that are applicable on a daily basis.
—Bill Stabler, Corporate Controller, Barry-Wehmiller, Inc.

Accounting in the Lean Enterprise: Providing Simple, Practical, and Decision-Relevant Information is a concrete, actionable roadmap for those wanting to transform their internal reporting systems to support Lean manufacturing. The book is written from the perspective of ‘why it matters’ and ‘how to do it.’ In-depth examples provided are sure to guide the Lean journeys of those willing to explore more relevant accounting alternatives.
—Staci Gunnell, CMA, Financial Global Operations Manager, ThermoFisher Scientific; Former Controller, Autoliv