BUSINESS VAULT
May 18, 2016

Lean Accounting

(hopefully explained or at least aware)

I came across an article ‘Lean Sustainability Requires a Change in culture’, well no s*&t Sherlock! But I decided to read it anyway. In reading the article I became intrigued with one comment in particular “I firmly believe that if more companies would make this transition (too lean accounting), we would be losing less business to China and other offshore suppliers.”

Now I’m not much of a financial wiz (otherwise I’d be an accountant) but thought I would highlight some of the differences between traditional vs Lean accounting. I will emphasise that I believe lean accounting is a transition based on a company’s lean maturity and should be worked on with the financial team as you progress to a lean thinking enterprise, and based on that maturity the above comment I believe would be true.

Traditional Accounting vs Lean Accounting

Lean Accounting fundamentally changes the accounting, control, and measurement processes so they motivate/support the progress to a lean enterprise and subsequently drive improvement. It provides information that is suitable for control and decision-making and creates an understanding of customer value, growth, profitability, and cash flow. The main areas on how it does this are

  • lean-focused performance measurements
  • simple summary direct costing of the value streams
  • decision-making and reporting using a box score
  • financial reports that are timely and presented in “plain language” that everyone can understand
  • radical simplification and elimination of transactional control systems by eliminating the need for them
  • driving lean changes from a deep understanding of the value created for the customers
  • eliminating traditional budgeting through monthly sales, operations, and financial planning processes.
  • value-based pricing
  • correct understanding of the financial impact of lean change

For further information (as this can be a deep subject matter) here are some follow on articles and I have also included a youtube video which Lean Accounting explained by Jean Cunningham from the Lean Summit 2011.

‘Lean Sustainability Requires a Change in culture’
http://www.industryweek.com/blog/lean-sustainability-requires-change-culture?page=1

‘Lean Accounting Defined’
http://www.leanaccountingsummit.com/LeanAccountingDefined-Target.pdf

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