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Lean Accounting

Lean Management and traditional overhead accounting are simply not compatible.

In fact, Lean Management and any type of accounting system, including activity-based costing, that allocates fixed costs have a very difficult cohabitation. Any system that includes the arbitrary allocation of fixed costs, even through a supposed 'fair' method, is encouraging economies of scale - the more you produce, the less the unit cost (and this to the detriment of other products or services who themselves could be working wonders reducing their own real costs). Overproduction, one of the seven basics wastes of the Lean Management system, is a common result of economies of scale.

In Lean Management, the cost accounting system has to encourage lean processes and the implementation of flow which, when taken to the extreme, enables us to manufacture just the one unit of the product the customer ordered today. Not the Economic Order Quantity the Finance department agreed to at the beginning of the budgeting year.

A Lean Costing system treats all costs as direct costs allocated to clearly-identified value streams. Information is easily and cost-effectively gathered, is immediately available for real-time decision-making, and is at a level of detail needed by the business, and no more.

In fact, the accounting, control and measurement methods can themselves be 'leaned'. Transaction information may simply be replaced by operational control and visual management. Financial reports can be so clear and straightforward, including 'real' numbers, that everyone can understand them.

Lean Business France can support the evolution of your cost accounting system to one more adapted to your Lean environment. For further information, please contact us at contact@leanbusiness.fr.

 

 

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