Practical lean accounting : a proven system for measuring and managing the lean enterprise, second edition

464 Pages·2012·3.53 MB·English

by  Grasso

Lean Methods & Implementation / Metrics & Finance
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“… a no nonsense approach to bringing continuous improvement to areas of the company not ags
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exposed many more opportunities for improvement that we never knew existed.”
—Roy St. Andre, Executive Vice President, EIS Wire & Cable Co.
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“Practical Lean Accounting is a fantastic book, and the new edition is even better. This book
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makes a huge contribution toward understanding how to measure and manage a Lean enterprise.
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The addition of many new case studies and examples after each chapter, and more tools and
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practical information on the accompanying CD, makes the second edition worth buying again
… the book is even better suited for use in university accounting courses and in corporate t
Lean accounting training programs. … destined to have a big, positive impact on supporting i
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organizations on their path to Lean management.”
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—Professor Bob Emiliani, Central Connecticut State University
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The methods and concepts presented in the bestselling first edition revolutionized the approach to the L
management and control of Lean companies. Enhanced with extensive end-of-chapter exercises and
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a CD with Lean accounting tools, the second edition of this preeminent practitioner’s guide is now
suitable for classroom use. a
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Practical Lean Accounting: A Proven System for Measuring and Managing the Lean Enterprise,

Second Edition explains exactly what it takes to transform a traditional accounting system to one that
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supports and enhances a company’s Lean efforts. Retaining the easy-to-use format that made the first
edition a bestseller, this updated edition includes c
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• A new section on the use of value stream performance measurements in
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continuous improvement
• A re-written Target Costing chapter that emphasizes a value-based approach u
to the management of the Lean value system
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• A Lean Accounting Diagnostic tool to help you assess progress and develop
a plan for implementing changes t
• Cutting-edge examples that illustrate implementation in accounting departments i
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• A CD with data from the ECI Value Stream Cost Analysis case study included in the text,
Excel templates, and end-of-chapter questions with solutions g
The book contains a wealth of tools that makes it ideal for company training sessions and advanced
undergraduate and graduate-level courses. For each major example provided, two similar problems
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are included—one for instructors to guide students through and a second for students to work through de
on their own. An additional set of problems and questions for testing purposes is also available to ic
to
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instructors on the authors’ website. on
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ISBN: 978-1-4398-1716-2
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Practical Lean
Accounting
A Proven System for Measuring
and Managing the Lean Enterprise
Second Edition

Practical Lean
Accounting
A Proven System for Measuring
and Managing the Lean Enterprise
Second Edition
Brian Maskell
Bruce Baggaley
Larry Grasso
CRC Press
Taylor & Francis Group
6000 Broken Sound Parkway NW, Suite 300
Boca Raton, FL 33487-2742
© 2011 by Brian Maskell and Bruce Baggaley
CRC Press is an imprint of Taylor & Francis Group, an Informa business
No claim to original U.S. Government works
Version Date: 20111205
International Standard Book Number-13: 978-1-4398-1717-9 (eBook - PDF)
This book contains information obtained from authentic and highly regarded sources. Reasonable efforts have been made to
publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials
or the consequences of their use. The authors and publishers have attempted to trace the copyright holders of all material repro-
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Visit the Taylor & Francis Web site at
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and the CRC Press Web site at
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This book is dedicated to our wives, Barbara Maskell, Patty Baggaley, and
Cindy Moeckel. Thank you for your love, help, and support—especially over
the last few years of travel, toil, and tension as the Lean Accounting practice
has taken shape. This book is as much your work as ours. With our love.

Contents
Preface to the First Edition ............................................................ xix
Preface to the 2011 Edition—The Journey Continues … ..............xxiii
Acknowledgments ..........................................................................xxv
Introduction ................................................................................ xxvii
1 Why Is Lean Accounting Important? ...........................................1
How Standard Costing Can Drive Wrong Behavior ..................................3
We Need to Show the Financial Impact of Lean Improvements ..............5
We Need a Better Way to Understand Product Costs ...............................6
We Need New Kinds of Lean Performance Measurements ......................9
We Need to Eliminate Waste from Accounting Processes and Systems ....10
We Need Better Ways of Making Decisions ............................................11
We Need to Focus Our Business around Customer Value ......................12
Summary ...................................................................................................12
2 Maturity Path to Lean Accounting .............................................15
The Maturity Path .....................................................................................16
Maturity Path—Stage 1......................................................................17
Maturity Path—Stage 2......................................................................20
Is Lean Accounting a Series of Methods and Tools? ................22
Maturity Path—Stage 3......................................................................23
Getting Started with Lean Accounting .....................................................25
Summary ...................................................................................................26
3 Cell Performance Measurements ...............................................29
What’s Wrong with Traditional Measurements? .......................................29
What’s Right with Lean Cell Measurements? ............................................30
BMA Inc. Performance Measurement Starter Set .....................................31
Day-by-the-Hour Report ...........................................................................31
vii
viii  ◾  Contents
The Primary Reason the Cell Team Neglects the Day-by-the-
Hour Report .......................................................................................35
Why by the Hour? .............................................................................35
Our Cells Only Make a Few Products Each Hour and the Cycle
Times Vary Considerably ..................................................................36
Alternative Measurements .................................................................37
First-Time-Through Report ........................................................................38
How Do I Measure First Time Through? ..........................................39
How Is the Data Collected?...............................................................40
How Do I Report FTT? .....................................................................40
What Is the Number One Reason for the FTT to Fail? ....................40
Alternative Measurements to FTT .....................................................41
WIP-to-SWIP Report .................................................................................41
How Is the Report Calculated? .........................................................42
How Is the Data Gathered? ...............................................................42
How Do I Report WIP-to-SWIP? ......................................................43
Alternative Measurements to WIP-to-SWIP ......................................44
Operational Equipment Effectiveness ......................................................44
How Do I Measure OEE? ..................................................................45
How Do We Gather the Data? ..........................................................46
How Do We Report OEE? .................................................................47
Is OEE Used for Other Things? .........................................................47
Alternative Measurements to OEE ....................................................48
Other Support Measurements in the Cell ................................................48
Cross-Training Chart ..........................................................................49
Five S .................................................................................................49
Safety .................................................................................................50
Absenteeism.......................................................................................50
Setup Times .......................................................................................50
Presenting the Information .......................................................................52
Making the Cell Performance Measurements Work ................................53
Nonproduction Cells and Departments ...................................................55
How Does This Relate to Accounting and Control? .........................57
Summary ...................................................................................................57
4 Financial Benefits of Lean Manufacturing .................................61
The Problem ..............................................................................................61
Creating the Box Score .............................................................................63
Operational ........................................................................................63
Contents  ◾  ix
Financial Information in the Box Score ...........................................67
Using the Box Score in Planning ......................................................70
The ECI Current State .......................................................................70
ECI Future State .................................................................................72
Managing Capacity ....................................................................................77
What We Mean by Resource Capacity ..............................................78
Analyzing the Capacity Freed Up .....................................................79
Making Money from Lean Manufacturing ................................................83
Alternative 1: Eliminate the Resources .............................................83
Alternative 2: Grow the Business .....................................................84
Summary ...................................................................................................88
5 Eliminating Wasteful Transactions ............................................91
What Must Be in Place? ............................................................................94
Cell Transactions .......................................................................................95
Labor Tracking ..........................................................................................98
Material Costs ..........................................................................................100
Inventory Tracking ..................................................................................101
Summary .................................................................................................102
6 Lean Financial Accounting .......................................................103
A New Perspective on Internal Accounting Control ..............................103
Eliminating Waste from the Financial Accounting Processes ................105
Accounts Payable Process ...............................................................106
Accounts Receivable Process ..........................................................108
The General Ledger and Month-End Closing Process ...................109
Using Lean Tools to Create Change .......................................................111
Value Stream Maps and Process Maps ...........................................112
Step One: Assign an Improvement Team ...............................113
Step Two: Start with the Customer .........................................113
Step Three: Identify the Tasks within the Process .................113
Step Four: Gather the Data .....................................................113
Step Five: Analyze the Data ....................................................114
Kaizen—Lean Continuous Improvement .......................................116
Step One: Establish the Team .................................................117
Step Two: Develop Performance Measurements ....................117
Step Three: Develop Future State Process Maps ....................117
Step Four: Implement the Future State ...................................119
Step Five: Repeat the Process ..................................................120
Summary .................................................................................................122