Key Features of Lean Accounting (Essay Sample)

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Lean Accounting was first introduced into the United States in the 1980s, a great deal of literature has been written about lean accounting. Unfortunately, the popularity of this form of accounting may add to some of the confusion. Lean accounting evolved from a concern that the traditional accounting process was quite inadequate, in that it deterred the adoption of some of the necessary improvement to the manufacturing operations. While some of the managers actually knew that investments in the automation and the adoption of lean manufacturing practices was the right thing to do, traditional accounting was an obstacle to some of this improvement, yielding number that only supported investment when they could be justified by reduction in direct labor, with little pros ascribed to any improvement to quality ,factory throughput or flexibility.
Key Features of Lean Accounting
This form of accounting is the corner stone of a very different model of manufacturing management thus meaning an entire different business model. Lean accounting by itself has a limited, but the financial basis for the architecture and application of logistics, factory operation, quality management, market, and pricing and any other business function, Lean accounting is quite powerful. The core principle of Lean Accounting is that the Value Stream is the only appropriate cost collection entity within the organization, as opposed to the traditional accounting use of cost, profits, or department normally based on smaller, functional grouping of work activity. The core idea that is behind lean accounting is the minimization of waste, thus creating more value for customers with few resources. The value stream is the complete sequence of activities within the organization that operationally links the supply coming in with the one going out (Distribution), as well as the compete that is associated with business activities required to take a customer order from start to finish.(Foster, 1987)
Implementation Process
The five steps process to Lean Accounting
Step 1: Analyze/ value stream map each process then start asking the following questions until the point you have eliminated all wastes. Why are we doing this process? How can we eliminate all waste from this process? Map new simplified process.
Step 2: Identify the value stream; this includes all the value-added activities that go into delivering specific services and products to customers.
Step 3: Strive to simply the company chart of Accounts- this entails to eliminate all variance accounts, convert to daily inputs. This step requires a departure from the mass production era approach of functionally organize batch-and-queue production that build- up, unsatisfactory order to deliver cycle times, and excessive rework and waste. The different pieces of equipment are sequenced in a manner in which the mirror steps of the manufacturing process thus enabling the continuous one-piece flow production.(Baggeley, 2003)
Step 4: Implement value stream costing and Resource factoring-this is where the customer demands dictate the level of production. The visual controls are mainly used to triggers upstream links in the value stream to initiate the additional production.
Step 5: Feedback-this entails developing the visual metrics to display daily, yearly progress of the company’s leans continuous improvement program. It involves strive for perfection, leverages the process knowledge of frontline workers. Rather than primarily relying on the management – level to generate ideas for improvement, management views all employees as intellectual assets that are capable of improving the flow value to the customer.
Application by other Organization
The Indian manufacturing sector is striving for operational excellence. The companies are striving in order to restructure operations and adopt excellent practices in their bid to expand profits and complete effectively in the global market. The Indian manufacturer are adopting this practices in all the major fields, emphasizing mainly on the Quality improvement by adopting the TQM and aving15- 20 percent of cost. While using the captive plant in order to meet a part of their energy requirement, taking initiatives to reduce hazardous emission level by adopting alternative fuels. The Indian manufacturing companies have been increasingly restructuring operations and implementing some of the world-class practices, some of the companies include Godrej and Boyce in the specialist engineering space, Larsen and Toubro in the auto sector and other textile and pharmaceutical sectors. In addition vast pool of scientific talent assist the companies locally design and procure some of the more expensive inputs for instance, TATA Group leveraged the country’s low cost engineering skills to develop the first Indian indigenously designed, developed and produced car TATA Indica. Through the adoption of lean manufacturing practices, Indian Companies have been able to cut down the costs. For instance, Sundaram- Clayton Limited, one of Indians largest auto components manufacturers have been able to reduce 2.5-5 percent of cost and product prices by going lean. Throug...