Financial Models and Tools for Managing Lean Manufacturing: 1st Edition (Hardback) book cover

Financial Models and Tools for Managing Lean Manufacturing

1st Edition

By David Meade

Auerbach Publications

197 pages | 40 B/W Illus.

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Hardback: 9780849391859
pub: 2006-08-15
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pub: 2006-08-15
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The effect Lean Manufacturing programs have on profit and loss statements during the early months of their implementation often causes them to be viewed as failures. The length of time it will take traditional financial reports to reflect lean manufacturing improvements depends upon how poorly the operation was doing in terms of inventory management prior to the initiation of the lean effort. As yet, no one has put forth a set of methods for dealing with the finances and financial reporting issues dynamically during the implementation of lean practices, until now.

Financial Models and Tools for Managing Lean Manufacturing provides an understanding of the impact that traditional accounting practices have on operational improvement programs. The book shows managers of supply chains how to prepare for and present the impact of Lean Manufacturing to top management and stakeholders. To illustrate the impact of lean manufacturing on the income statement, the authors present a multi-month, Excel™ and Pro-Model™ based manufacturing operation environment that incorporates actual sales, sales forecasts, and production results. Their text gives supply chain managers the financial skills they need to successfully manage Lean Manufacturing and its impacts.

In short, the book explains how existing accounting practices have a tendency to report the results of operational improvement programs in a negative light. Other books have identified this issue but have not attempted to quantify the impact to a firm’s profit and loss nor have they shown the impact over a series of reporting periods. As a consequence, although Lean Manufacturing practices are being adopted at an ever-increasing rate, they have not been eagerly embraced by manufacturers and supply chain managers. Identifying the effects of past poor manufacturing practices that are being cleaned up by the operational improvements brought by the lean program, the book arms you with the knowledge you need to defend the lean program through the months when income statements indicate a decline in profitability.

Table of Contents


Historical Background of the Problem

Objectives of the Study

Important Questions for the Study

Importance of this Study


Impact of Management Accounting Methods on Lean Implementation

Management Accounting

Transition in Focus from Internal to External

Difficulties Presented by the Current forms of Financial Reporting

Just-in-Time (JIT) and Lean Manufacturing Practices

Related Studies and Missing Elements

Problems with Previous Studies

Contributions of this Study


Multi-Period Simulation Model of a Factory with Lean Manufacturing

Experimental Design, Statistical Hypothesis, and Data Analysis

Experimental Design

Proposed Hypotheses

Data Analysis

Methods Diagrams

Experimental Factors

Generation of a Random Sales Demand

Inventory Policy

Management Accounting Method

Detailed Description of Data Generation Process

Simulation Model Design

Simulated Factory Parameters

Model Manufacturing Operations

Production Planning Tool

Calculation of the Coming Month Production Schedule

Tracking On-Hand Inventories

Calculation of Income Statements by Accounting Method

Model Execution – Data Generation

Technical Issues with the Simulation Model


Analytical Findings from Lean Manufacturing Factory Operation

Raw Data and Descriptive Statistics

Test of Hypotheses

Results by Performance Measure and Period

Gross Profit

Net Profit

Sensitivity to Sales Variability

Service Level

Sensitivity Analysis


Conclusions and Implications of Lean Manufacturing Factory Operation

Summary of Research Findings

Comparison to Previous Studies

Implications for Practice


Suggestions for Future Research

Expansion of Time Horizon

Expansion of the Number of Inventory Reduction Policies

Modeled per Dataset

Customer Service Level Measures

Reduction in Reporting Cycle

Expansion of Income Statements

Use of Distribution Other than Normal

Further Development of the Order-Activity Product Costing Method


Impact of the Pareto Distribution on Product Cost Calculations


Definition of Problem

Research Questions




Conclusions and Implications of This Research



About the Series

Supply Chain Integration Modeling, Optimization and Application

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Subject Categories

BISAC Subject Codes/Headings:
BUSINESS & ECONOMICS / Quality Control
BUSINESS & ECONOMICS / Industries / Manufacturing Industries
BUSINESS & ECONOMICS / Purchasing & Buying