Lean Accounting

Lean Accounting Summit

About this article: The following article, What’s Lean Accounting All About?, appeared in the Association for Manufacturing Excellence’s Target Magazine in its first issue of 2006. The work, written by Brian Maskell and Bruce Baggaley, is a culmination of an entire groups’ collaborative efforts stemming from the inaugural Lean Accounting Summit in September 2005. For more information about the Lean Accounting Summit, visit… www.leanaccountingsummit.com

Lean Accounting: What's It All About?

Brian H. Maskell and Bruce L. Baggaley

hat is Lean Accounting?" is an oft-asked question. Everybody working seriously to implement lean thinking in their company eventually bumps up against their accounting systems. It soon becomes clear that traditional accounting systems are actively anti-lean: • They are large, complex, wasteful processes requiring huge amounts of non-value work. • They provide measurements and reports like labor efficiency and overhead absorption that motivate large batch production and high inventory levels. • They have no good way to identify the financial impact of the lean improvements taking place throughout the company. On the contrary, the financial reports will often show that bad things are happening when very good lean change is being made. • Very few people in the company understand the reports that emanate from the accounting systems, and yet they are used to make important and far-reaching decisions. • They use standard product costs which are misleading when making decisions related to quoting, profitability, sourcing, make/buy, product rationalization, and so forth. Almost all companies imple-

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menting lean accounting are making poor decisions: turning down highly profitable work, out-sourcing products or components that should be made in house, manufacturing overseas products that can be competitively manufactured here at home, etc. While there is good understanding of the problems, there is not...