Accounting in the Lean Enterprise : Providing Simple, Practical, and Decision-Relevant Information

195 Pages·2013·1.468 MB·English

by  McVay, Gloria, Kennedy, Frances, Fullerton, Rosemary

Lean Methods & Implementation / Metrics & Finance M
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“... an outstanding contribution to the Lean accounting body of work. ... It is easy Y A c c o u n t i n g
to read and understand, while comprehensively covering the entire scope of Lean •

accounting. ... I highly recommend this outstanding book!” F
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—Bill Waddell, Lean Author and Consultant L
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“... a must-have guide for all those wanting to leverage the power of Lean in their R
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organization. The authors have done a tremendous job of capturing the essence of O
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what Lean accounting is ... .” L E A N

—Jan Brosnahan, Controls Division Controller for Watlow Electric Mfg Co.
“... a long needed instructional book, closing a significant gap in the ‘why’ and in
‘how’ of applying Lean accounting as a cornerstone for a successful Lean journey.”
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—Jim Huntzinger, Founder and President of the Lean Accounting Summit
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“... provides legitimacy to what successful Lean CEO and CFOs know: we must
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move away from standard cost accounting to release the untapped human and
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financial value in our organizations!”
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—Jean Cunningham, Jean Cunningham Consulting
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“... a great learning tool for beginners, as well as a great reference book for
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the highly trained.”
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—Bill Stabler, Corporate Controller, Barry-Wehmiller, Inc.
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“... a concrete, actionable roadmap for those wanting to transform their internal G
reporting systems to support Lean manufacturing. ... In-depth examples provided

are sure to guide the Lean journeys of those willing to explore more relevant I
accounting alternatives.” N
SHELVING GUIDE (to be determined when BCC is available)
—Staci Gunnell, CMA, Financial Global Operations Manager, ThermoFisher Scientific;
Former Controller, Autoliv T
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Providing Simpl e, Practi cal, and
Accounting in the Lean Enterprise: Providing Simple, Practical, and
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Decision-Relevant Information explains how to develop the information and

financial reports that serve the needs of a Lean-minded business. It presents L Deci sion-Re leva nt Inf ormat ion
alternative methods of reporting and includes a step-by-step guide for E
transitioning to Lean accounting methods.
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The book is divided into three parts: The Fundamentals of Lean as a Competitive N
Strategy, The Nuts and Bolts of Lean Accounting, and Controls and Transition.

Walking you through Lean tools, activities, and philosophies, it addresses some E
of the most often asked questions about Lean implementations. It confronts N G LO RIA MCVAY
many of the fears that are the source of accountants’ resistance to change-
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including inventory management and valuation, GAAP compliance, and loss of
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control and benchmarks. Each fear is identified and resolved in a “Fear Box”
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nset as the related topic is discussed.
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Filled with checklists, guidelines, exercises, case studies, real-world examples,
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and company stories, the book provides you with the tools you will need to
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provide relevant, timely, and actionable information to the decision makers in
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your Lean environment.
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www.productivitypress.com

Accounting
LEAN
in
the
E n t e r p r i s e
Providing Simple, Practical, and
Deci sion-Re leva nt Inf ormat ion

Accounting
LEAN
in
the
E n t e r p r i s e
Providing Simple, Practical, and
Deci sion-Re leva nt Inf ormat ion
GLORIA MCVAY
FRANCES KENNEDY
ROSEMARY FULLERTON
Boca Raton London New York
CRC Press is an imprint of the
Taylor & Francis Group, an informa business
A PRODUCTIV ITY PRESS BOOK
CRC Press
Taylor & Francis Group
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Boca Raton, FL 33487-2742
© 2013 by Gloria McVay, Frances Kennedy, and Rosemary Fullerton.
CRC Press is an imprint of Taylor & Francis Group, an Informa business
No claim to original U.S. Government works
Version Date: 20130424
International Standard Book Number-13: 978-1-4200-8859-5 (eBook - PDF)
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Contents
Foreword .................................................................................................................ix
SeCtion i F UnDAMentALS oF LeAn AS A CoMPetitiVe StRAteGY
1 Principles of Strategic Lean Thinking ...............................................3
Brief History of Lean Production ......................................................................4
Lean Thinking ....................................................................................................5
Lean Implementation and Management ............................................................7
Lean Results .......................................................................................................9
Discussion Questions ........................................................................................11
References .........................................................................................................11
2 Value Stream Management ...............................................................13
Introduction to Value Stream Management .....................................................13
Defining Your Value Streams............................................................................14
Problem Solving in Value Streams ....................................................................16
Value Stream Performance Measures ..............................................................20
Summary ..........................................................................................................21
Discussion Questions .......................................................................................22
References ........................................................................................................22
SeCtion ii nUtS AnD BoLtS oF LeAn ACCoUntinG
3 Principles of Lean Accounting ......................................................... 25
Accounting as Part of a Total Lean Business Strategy ....................................25
Lean Accounting vs. Accounting for Lean .......................................................26
Traditional Cost Accounting in Lean Environments .......................................27
Lean Accounting Principles .............................................................................30
Changing the Internal Accounting Reporting System .....................................34
Challenges to Implementing a Lean Accounting System ................................38
Discussion Questions .......................................................................................40
References ........................................................................................................40
v
vi  ◾  Contents
4 Value Stream Costing .......................................................................41
Motivation .........................................................................................................42
Costing Plan .....................................................................................................43
Summary ..........................................................................................................57
Discussion Questions .......................................................................................58
5 Inventory Management ....................................................................59
Inventory Valuation under a Traditional Standard Costing System ................60
Inventory Valuation Using Lean Accounting Methods .....................................61
Transitioning to an Accounting for Lean System ............................................65
Monitoring of Inventory Levels .......................................................................66
Summary ..........................................................................................................68
Appendix: Primer on Backflush Costing .........................................................68
Discussion Questions .......................................................................................70
Reference ..........................................................................................................70
6 Capacity Management ...................................................................... 71
Capacity Management—An Overview ............................................................72
Capacity Measures ............................................................................................72
Box Score Capacity Measures ..........................................................................73
Space Management ..........................................................................................81
Summary ..........................................................................................................82
Discussion Questions .......................................................................................82
7 Product Costs and Lean Decisions ...................................................83
Throughput and Conversion Costs ..................................................................83
Standard Costing Method ................................................................................84
Throughput Method .........................................................................................84
Product Pricing Decisions ................................................................................89
Product Mix Decisions .....................................................................................90
Special Order Decisions ...................................................................................91
Make vs. Buy Decisions ...................................................................................93
Box Score Format .............................................................................................94
Summary ..........................................................................................................94
Challenge ..........................................................................................................95
Discussion Questions .......................................................................................96
8 Lean Planning ..................................................................................97
Lean Planning and the PDCA Cycle ................................................................98
Lean Planning vs. Traditional Planning .........................................................100
Four Levels of Lean Planning .........................................................................103
Summary of Lean Planning ............................................................................109
Discussion Questions ......................................................................................109
References .......................................................................................................109
Contents  ◾  vii
9 Measurement Selection and Alignment ..........................................111
Reasons for Change ........................................................................................112
Measurement Selection ...................................................................................113
Measures and Alignment ................................................................................115
Measurement Challenges ................................................................................119
Summary .........................................................................................................121
Discussion Questions ......................................................................................123
10 Measurement and Lean Behavior .................................................. 125
Impact of Traditional Measures .....................................................................126
Attributes of a Good Measure .......................................................................128
Assessment .....................................................................................................130
Summary ........................................................................................................136
Discussion Questions ......................................................................................137
Reference .........................................................................................................137
SeCtion iii C ontRoLS AnD tRAnSition
11 Leaning Accounting Processes .......................................................141
Eliminate or Improve? .....................................................................................141
Summary .........................................................................................................150
Discussion Questions ......................................................................................151
12 Transitioning to a Lean Accounting Reporting System ..................153
Preparing to Transition Your Accounting System ..........................................154
Steps for Making the Accounting Transition ..................................................155
Potential Obstacles in Transitioning Your Management Accounting System...162
Benefits of a Lean Accounting System ...........................................................164
Summary .........................................................................................................165
Discussion Questions ......................................................................................166
Appendix A: Glossary of Lean and Lean Accounting Terminology..........169
Appendix B: Lean Measurement Assessment Instrument .....................173
About the Authors ................................................................................ 183