State importance of Lean accounting.
Answers
Lean manufacturing guru Taiichi Ohno once said, “Costs do not exist to be calculated. Costs exist to be reduced.” A lean manufacturing company vigorously attacks waste in all its forms, which in turn, reduces the cost of goods sold. But lean accounting experts believe that accounting itself can be lean, and that it can contribute to profit, rather than simply calculate it.Functions
Author and lean accounting pioneer Jean Cunningham describes several functions of lean accounting, on her website and in her three books on the subject, "Lean Accounting," "Real Numbers" and "Easier, Simpler, Faster." These functions include eliminating non-value-add processes in accounting and reporting; providing a clearer understanding of profit against product lines; and realigning accounting’s role away from transactions and into consulting. The accounting group provides insights as to how the company can be more lean and functional.
In addition, lean accounting adheres to the same generally accepted accounting principles and regulatory requirements, including Sarbanes-Oxley rules, of traditional accounting methods.
Features
Traditional cost accounting targets the cost of goods sold, or COGS. It factors everything into those costs, including overhead -- for example, advertising and the cost of running a company cafeteria. Lean accounting instead uses value stream costing. The value stream is the direct flow from suppliers through to customers. So, lean accounting provides a targeted picture of every step in customer fulfillment.
Lean accounting is more “real-time,” generating cost reports on a daily basis, rather than historic week- or month-end reports.
Lean accounting recognizes available capacity as an asset, not a liability; traditional cost accounting simply sees idle production lines.
Traditional accounting sees inventory as an asset, whereas lean accounting views it as a liability; it must be stored, maintained, insured.
Benefits
Lean consultants agree that lean accounting is less complex and less costly than traditional accounting. Accounts are able “to eliminate thousands and thousands of transactions and the reports, reconciliations and meetings that go with them,” writes lean accounting consultant and author Brian Maskell, in his white paper "What Is Lean Accounting?"
With the accounting department acting as consultants -- instead of bean counters -- they can provide detailed, focused reports on the rising and falling costs of any step in customer fulfillment. They can for example recognize the impact to profit of expedited shipping, and help to eliminate it. Accounting participates, alongside all other employees, in the kaizen events that help the organization eliminate waste.
Cunningham writes on her website that lean accounting favors "plain English financial statements," which are available throughout the enterprise; so a production worker can recognize the impact of her work, and participate in improving its costs.