1st Edition

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

    196 Pages 21 B/W Illustrations
    by Productivity Press

    196 Pages
    by Productivity Press

    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.


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

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


    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

    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
    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
    Appendix 5B: A Primer on Backflush Costing
    Discussion Questions

    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
    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
    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

    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
    Discussion Questions

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


    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

    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
    Discussion Questions
    Appendix A: Glossary of Lean and Lean Accounting Terminology
    Appendix B: Lean Measurement Assessment Instrument
    Performance Measure Assessment for the Lean Enterprise



    Gloria McVay, Frances Kennedy, Rosemary Fullerton

    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