Use Lean Accounting to Add Value to the Organization

• Published date: 01 May 2015
• DOI: http://doi.org/10.1002/jcaf.22047
• Author: Gerald K. DeBusk
• Date: 01 May 2015

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© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI 10.1002/jcaf.22047

This article was originally published in Volume 23, Number 3 of The Journal of Corporate Accounting and Finance.

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Gerald K. DeBusk

INTRODUCTION

Prior research

studies with which I

have been involved

have found that

roughly 40 percent

of the organizations

are involved in Lean

or Lean Six Sigma (a

combination of the

Lean and Six Sigma

philosophies). Organi-

zations pursuing Lean tend to be

managed differently than their

non-Lean counterparts. Changes

are made to the organizational

structure, physical layout of

facilities, and management’s

goals and objectives. Therefore,

the accounting and performance

measurement systems need to

be updated to keep pace. Man-

agement accountants who are

eager to play a role in updating

accounting and performance

measurement systems can add

value to their organization.

WHAT IS LEAN?

The term “Lean” was coined

by James Womack and Daniel

Jones in the 1990s. I define Lean

as an overarching philosophy or

system focusing on delivering

value to the customer, improving

flow of products or services, and

eliminating waste, while main-

taining respect for people. Lean

is not an effort to downsize the

organization; instead, Lean is

more concerned with exploiting

excess or wasted capacity.

Lean organizations are

organized around value streams.

The order fulfillment value

stream resembles a mini busi-

ness unit and includes all the

activities necessary to bring the

product or service from cus-

tomer order to delivery. There

can be multiple value streams

within a single business unit.

Lean organizations believe in

allowing customers to

pull goods and services

through the order ful-

fillment value stream

rather than building to

a forecast (push sys-

tem). This is accom-

plished by allowing the

customer to pull from

the next upstream

activity; let us assume

it is finished goods

inventory. The next

upstream activity from finished

goods replaces the inventory and

so forth. The process is repeated

at each preceding step within the

order fulfillment value stream.

See Exhibit 1.

Lean organizations, with

their pull systems, concentrate

on flow of products and services

through the entire order-fulfill-

ment value stream. They concen-

trate on flow through the entire

system rather than trying to opti-

mize performance in a particular

department or work center. This

approach includes dedicating

resources (people and machin-

ery) to individual value streams,

except in those cases where the

cost would be prohibitive. Value

streams often include resources

Companies pursuing Lean or Lean Six Sigma

need changes in management, from their orga-

nizational structures to performance measure-

ment. Management accountants must also change

their accounting systems to support the new

approaches to decision making and performance

measurement; they can then use Lean Accounting

to add value to their organizations.

© 2015 Wiley Periodicals, Inc.

Use Lean Accounting to Add Value

to the Organization