1st Edition

Financial Models and Tools for Managing Lean Manufacturing

By David Meade Copyright 2007
    220 Pages 40 B/W Illustrations
    by Auerbach Publications

    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.

    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


    David Meade