Financial Models and Tools for Managing Lean Manufacturing  book cover
1st Edition

Financial Models and Tools for Managing Lean Manufacturing

ISBN 9780849391859
Published August 15, 2006 by Auerbach Publications
197 Pages 40 B/W Illustrations

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Book Description

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

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