Lean manufacturing is a business management tool that focuses on reducing waste from production processes. Lean accounting is an offshoot of lean manufacturing that seeks to eliminate waste from a company’s capital resources by applying lean manufacturing principles to the company’s financial functions.
According to Bob Emiliani’s book, “Better Thinking, Better Results,” lean manufacturing is typically attributed to the Toyota Production System of Japan in the 1920s. Emiliani also notes that U.S. and European companies began adapting lean manufacturing principles to financial operations in the 1980s.
Lean accounting transforms the traditional cost accounting function of allocating business costs to produced goods or services by creating measurable results for tracking the efficiency of overall operations. Lean accounting does this by reviewing all aspects of a company’s operations, trying to limit the inefficient production processes that do not add value to the company.
Two principles exist in the lean accounting business function: measure and motivate. The measure principle allows accountants to review specific business functions and determine how well they achieve the stated goals of the company. Business functions such as resource procurement, hiring practices and the equipment used to produce goods or services are just a few functions lean accounting attempts to measure. Lean accounting also seeks to expose what company managers and employees are doing right in the company and improve this behavior through motivating employees to duplicate these actions.
Implementing a lean accounting process often means that companies must transform the thought process used by their management accountants. Rather than just accounting for the cost or expenditures of the company, management accountants must now look at each function and determine if improvements can be made to improve these normal business processes. Training accountants to think proactively may take copious amounts of time and effort depending on the accountant’s previous education and experience in the accounting environment.
Companies implementing a lean accounting process in their business operations may be able to significantly reduce business costs. Reducing these costs can improve the gross profit of the company and allow managers to find new opportunities for growing the business through extra business profits. Growing and expanding the business may also allow the company to increase their market share in the economic environment and push competitors out of the industry or sector.
Using a public accounting firm or professional certified public accountant (CPA) trained in the aspects of lean accounting can help a company transform its traditional cost-accounting functions. Accounting firms and CPAs may also provide an objective opinion regarding other improvements the company can make to increase the profitability of its operations.