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6 Reasons Why Manufacturers Should Embrace ‘Lean’ Accounting

Posted by Frank Geric on Dec 20, 2018 10:40:00 AM
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Most American manufacturers are embracing lean manufacturing philosophies to one 6 reasons lean accounting manufacturingdegree or another. Some organizations do it to improve operationally while others are forced into it by their customers. From improved on-time deliveries to reduced costs, implementing lean practices can yield tremendous results.

While many associate lean with the shop floor and systems like Kanban with just-in-time deliveries to the line, lean should impact every part of an organization, including accounting.  If you haven’t implemented lean in your accounting functions, here are 6 reasons why you should:

  1. Lean Accounting Supports an Organization’s Overarching Objectives – Lean is about continuously pursuing the elimination of waste and focusing on value as derived by your customers (both internal and external.) Organizations that focus on implementing lean in a particular area or part of the business, rather than holistically, tend to simply move wasteful practices from one area to another, rather than eliminating it.
  2. Lean Demands Efficiency – To eliminate waste, manufacturers must look carefully at their policies, practices and procedures. Steps in a process that do not add value must be eliminated. Embracing these practices can help you improve operationally and do more with less.
  3. Lean Manufacturing Requires Support – In order to implement lean practices such as pay-on-use and purchasing lesser amounts more frequently, accounting departments must be able to accommodate increases in volume and activity. This can only be achieved through increased efficiency and accounting processes.
  4. Lean Leads to Innovation – The process of critically evaluating every facet of your business processes invariably leads to new and better ways of doing things. The biggest deterrent to process improvement is the phrase: “We’ve always done it that way.” Exercises such as Value Stream Mapping will lead to figuring out “a better to do it.”
  5. Traditional Accounting Metrics may Run Contrary to Lean – Some traditional manufacturing accounting metrics may be contrary to lean. For example, traditional accounting places emphasis on per unit cost. The best way to decrease per unit cost is to produce larger runs of each product. However this runs contrary to “pull demand” which is an essential component of lean. Metrics such as Overhead Absorption rate can drive organizations to increase production to reduce overhead (per unit) but runs contrary to lean best practices.
  6. Streamlined Reporting – Just as the metrics you need to follow for lean accounting vary from traditional accounting, reporting should also be simplified. Reporting should be streamlined to only contain information that gives end-users the greatest utility and value when evaluating organizational health and efficiency. 

However, lean accounting isn’t ideal for every situation.  For example, organizations that are required to follow Generally Accepted Accounting Principles (GAAP), such as publicly traded companies, may not be able to use some lean reporting techniques because of regulatory compliance issues.  But for many manufacturers, lean accounting makes good financial and operational sense.

Remember that lean isn’t just a technique or method - it’s a mindset to relentlessly seek and eliminate waste and improve efficiency. Implementing a lean philosophy in your accounting department can dramatically simplify financial reporting and drive down accounting related costs.

For more information about whether lean accounting might be right for your organization, contact your Zinner accounting professional.

Topics: leadership, accounting, manufacturing

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