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Accounting for a Lean Supply Chain

Lean accounting and a lean supply chain together can ensure that everyone is aligned to reach the maximum, long-range goals and benefits of lean thinking.

In the “Benefits of Lean Accounting in a Lean Manufacturing Company,” author Dan Anthony discusses the  major differences between traditional and lean accounting, starting with a quote from Taiichi Ohno stating  that “costs do not exist to be calculated; costs exist to be reduced.” This really gets to the core of the difference between traditional and lean accounting: traditional accounting focuses primarily on the cost of goods sold, whereas lean accounting focuses on the value stream from customers to suppliers.

Lean accounting looks at cost reports on a daily basis, as opposed to after the fact in weekly or month-end reports as is common in traditional accounting; it views capacity as an asset instead of just idle time, and sees inventory as a liability and not an asset.

The lean accounting process itself frees up the time of the financial people by eliminating a great number of transactions, reports, reconciliations and meetings so that they can be less like “bean counters” and more like consultants, providing timely, detailed, focused reports as to costs at any step in customer fulfillment.

When using traditional accounting methods, companies try to break down expenses by determining the cost of each unit produced, then create their financials based on that through standard costing. In lean accounting, it is more “real time,” so you look at what you have sold and what it cost you to estimate your profitability continually.

This can have a huge impact on the manufacturing and supply chain processes in a company. If you think about it, one of the main goals of lean is to identify and eliminate waste and non-value added processes, but traditional accounting systems really have no ability to measure waste and inefficiency (and don’t think in terms of value streams). As consultants, lean accountants can readily see the impact on profits of expediting shipments and quarter-end “push” to meet quotas and targets. Yet for the most part, today’s executives are primarily driven by financial reports, which don’t really do a good job of modeling the supply chain.   

So simple and timely information focused on value streams helps empower people at all levels of the organization and can foster a lean culture focused on customer value. Together, lean accounting and a lean supply chain can make sure that everyone is “rowing in the same direction” to reach the maximum, long-range goals and benefits of lean thinking.

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