Accounting for Lean Fall Manufacturing: Another 2005 Missed Opportunity? B Y K AY C A R N E S , P H . D . , C PA ,
SCOTT HEDIN, PH.D.
COMPANIES ARE IMPLEMENTING LEAN ACCOUNTING TECHNIQUES, YET THE
MANAGEMENT ACCOUNTING LITERATURE AND CURRICULA LAG BEHIND IN THEIR COVERAGE OF THESE TOPICS. THE MANAGEMENT ACCOUNTING FIELD FACES A SEVERE CHALLENGE TO CATCH UP OR RISKS LEAVING GRADUATES UNPREPARED FOR THEIR CAREERS.
EXECUTIVE SUMMARY While much has been written in the operations management and engineering fields about the benefits and processes involved in lean manufacturing, very little has been written by accountants about the specifics of adapting accounting systems to better serve lean operations. An evaluation of management and cost accounting texts revealed continued heavy emphasis on traditional absorption cost accounting with only spotty coverage of the accounting techniques needed for lean manufacturing. We propose some reasons for the lack of accounting contributions by practicing accountants and educators, concluding that the career of management accounting faces severe challenges and that university accounting programs do a poor job of preparing graduates for careers in management.
n recent years, many companies have significantly changed their production strategies. To meet increasing competitive pressures, these companies have moved from producing large batches of uniform product to creating individual products or small batches modified to the demands of individual customers. To be successful in this shift of emphasis, firms have adopted a set of processes called lean manufacturing, a term that seems to have arisen from the work of Eiji Toyado and Taiichi Ohno of Toyota Motor Company.1 Over the past two decades, many companies have implemented lean manufacturing techniques, including concepts such as just in time, the Theory of Constraints, Six Sigma and other quality measures, value-stream management, activity-based management, and target costing.
Changing traditional mass-production thinking to lean thinking requires changes in the ways companies control, measure, and account for their processes. Some companies, when trying to shift to lean manufacturing, discover that their standard cost accounting systems create problems for their lean programs. They often find that the emphasis of traditional standard costing on labor efficiency and utilization promotes nonlean behavior such as manufacturing large batches, building high inventories, hiding waste, and focusing on financial rather than operational performance measures. The new lean environment, however, needs local performance measures that are timely, understandable to those on the shop floor, and, often, nonfinancial. Historically, measures of accounting and control have fallen within the domain of management and cost
M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY
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accountants. Yet a review of recent accounting literature finds little that addresses the mutual interests of management or cost accountants and those managing operations. While the nexus between lean manufacturing and cost accounting appears to be an area ripe with opportunities for accounting researchers, far more attention to the issue has been paid by those in engineering and information technology. In fact, what has been written in accounting journals often reports a lack of progress by accountants in the adoption of new techniques. Accountants seem to have left the field primarily to engineers and software providers. In the following sections, we provide brief histories and descriptions of lean manufacturing and management accounting and describe the divide between traditional accounting and current operational practices. We also propose some possible reasons for the failure of both practicing accountants and accounting academics to rise to the challenge. W H AT I S L E A N M A N U FA C T U R I N...
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