Lean Accounting: What’s It All About

Lean Accounting: What’s It All About

Add Value or Get Out of the Way

In the article, “Lean Accounting: What’s It All About,” a case study in the application of a revolutionary accounting practice, Lean Accounting, is examined at the manufacturing plant Midwest Industrial Products (MIP), which was suffering from an excessive inventory, unwarranted waste, angry customers and poor financial results.

Lean accounting, at its most fundamental, is a practice to count what matters to the success of the business. Rather than focusing on variance data to track or project operational performance and to determine desirable inventory levels, Lean Accounting crunches the numbers from the viewpoint of the customer, looking to keep costs down and satisfaction high by eliminating waste, reducing overhead (inventory) and improving production performance.

As illustrated in the article, achieving Lean Accounting is a major undertaking for a company, usually requiring a complete departure from its traditional manufacturing practices, resulting in an overhaul of both its self-perception and its processes. Implementation is a five-step procedure which begins with an introspective look to Define Value as perceived by the customer. Next, the organization will Identify the Value Stream, which requires further review of how customers perceive the company and its products as employees determine the value-added activities that comprise its delivery of products and services to customers. The third step entails Making the Value Stream Flow, which streamlines functions and brings processes and workers together into cells as opposed to the widespread line processes familiar to mass production. In the fourth step, Implement a Pull System, the production level is restructured so that products are manufactured based on customer demand, not on pre-defined inventory levels, utilizing streamlined processes which can employ the use of visual cues to initiate or to sustain production and...