The language of the article is easy to understand and would appeal to a wide audience. Anyone responsible for implementing lean methods within their organisation may find it useful. It would also benefit those who have already started to implement lean methods as the benefits of lean accounting are not always immediately apparent. Some prior accounting knowledge could be advantageous as a basic understanding of traditional absorption costing techniques and GAAP (Generally Accepted Accounting Principles) is assumed.
The article is well written and researched; it has a good structure with charts and tables supporting the assertions contained within. These are presented as 'Exhibits' and over the course of the 15 page article there are nine exhibits. Adequate references are provided.
Questions asked include, Is Lean manufacturing another fad? Why do accounting methods need to change? What are the primary methods of Lean Accounting?
Comprehensive answers to these questions are provided with exhibits supporting the answers given. The exhibits will be discussed in greater detail, as they cover main focal points within the article.
Exhibit one is a table outlining 'seven deadly wastes' to substantiate the statement that "Lean improvement always results in the elimination of waste". The exhibit illustrates where waste primarily occurs in manufacturing environments (overproduction, waiting, transportation, extra processing, inventory, waste of motion and defects)
Exhibit two describes products being manufactured in a lean value stream. The table shows how employing traditional costing methods and cost drivers such as labour hours is not viable in a lean environment as other factors determine product costs. This is supported with a lengthy description to show how this works when costs are allocated to products. Value streams are discussed which could benefit anyone who is new to Lean Accounting.
Exhibits 3 and 4 are examples of income statements, the exhibits contain the same information but exhibit 3 is a traditional income statement and exhibit 4 shows a lean income statement.
The authors demonstrate that lean income statements are easier to understand, particularly for non-financial managers, and that they establish a clearer view of where improvements can be made. The authors argue that lean income statements comply with GAAP and external regulations, while eliminating complex reporting systems.
The next 4 exhibits are concerned with primary methods of lean accounting and their relevance in manufacturing environments. Exhibit 5 is a chart with visual management feeding down to value stream management and continuous improvement. The objective of this is to ensure that everyone is working towards the same lean goals. This is supported by Exhibits 6, 7 and 8 which show cell measurement boards, value stream performance measurements and a box score example. These are described extensively to explain their value to organisations.
The final exhibit shows the lean decision making process and demonstrates how decisions such as 'make or buy' are made in lean environments. It is argued that value stream costing provides a more accurate foundation on which to base important decisions and that this is an effective way to control costs.
The second article reviewed is:
Has lean management gone too far by defining its own accounting?
The complete article can be found online at http://www.information-management.com/news/10001739-1.html and it was written in July 2008.
The author of this article is Gary Cokins who is the founder of advisory firm Analytics Based Performance Measurement LLC. He is recognised globally as an author, speaker and expert in advanced cost management and performance improvement systems and was a principal consultant with SAS.
The language of the article is informal and easy to read, although prior accounting knowledge may be required to understand some parts. The author assumes an understanding in key lean accounting areas including value streams and just in time stock methods. This article could appeal to someone contemplating implementing lean methods within their organisation.
The article is supported by two references. No diagrams, charts or tables are provided within the six page article.
The author opens by stating that Lean Accounting is causing conflict in the accounting community. The main reasons for this conflict are the tendency of lean accounting to ignore product costs, the lack of regard for the principle of causality and the inability to make strategic decisions using lean accounting.
Questions asked within the article include what is lean management? How does one calculate accounting for lean costs? And what caused interest in accounting for lean? Short answers are provided to these questions and although some of the main concepts of lean accounting are discussed, such as continuous improvement and just-in-time stock control, there is little explanation of what these are. The author mentions tools utilised by employees such as fishbone charts, Pareto diagrams and scattergrams, but no examples of these are presented, which assumes that the reader has prior business knowledge.
The article states that lean accounting does not support strategic decision making or strategy formulation, for example make versus buy decisions, and that indirect expenses are disregarded - an issue already resolved by traditional activity based costing (ABC). It is implied that the simplicity of lean accounting may appeal to people, but that these are not the same people who are responsible for strategic decisions and overall costing decisions may be flawed as a result.
"How will the debate end?" is the final question raised in the article and a few scenarios are provided with the general sentiment being that some changes should be made, but lean accounting does not provide a complete answer. The article seems to favour traditional ABC methods and states that criticisms from advocates of lean management are 'misplaced' as ABC has 'already resolved the problem'.
Conclusion:
The first article is extremely pro- lean accounting. The title of the article implies that lean accounting is needed in today's competitive business world. There are no criticisms of lean accounting except that it can take time for organisations to reap the rewards, but this is counteracted by stating that the benefits outweigh this initial obstacle.
The article is very convincing and thoroughly researched with adequate exhibits validating all claims made.
The second article presents a negative impression of lean accounting. The title of the article asks 'has lean management has gone too far by defining its own accounting?' and the views within the article continue in the same vein. The article is not badly written and is easy to read but it does not offer much to substantiate or validate statements contained within. There are no examples of lean accounting failures within an organisation, or any examples of how it may fail. Some points raised seemed valid initially (e.g. the make or buy decision making process) but the first article offers convincing examples showing how this could work in 'real life'.
The author concedes that accounting techniques should be challenged and briefly suggests implementing two systems, but concludes this could be confusing. If one of the benefits of lean accounting is simplicity, it could be argued that two potentially confusing, parallel systems, is not a viable option.
