6e Ch16.ppt

COST MANAGEMENT Accounting & Control Hansen▪Mowen▪Guan

Chapter 16 Lean Accounting COPYRIGHT © 2009 South-Western Publishing, a division of Cengage Learning. Cengage Learning and South-Western are trademarks used herein under license.

1

Study Objectives 1. Describe the basic features of lean manufacturing. 2. Explain the basics of lean accounting. 3. Describe features and characteristics costing for multiple products.

2

Lean Manufacturing • An operating approach designed to eliminate waste and maximize customer value. • Characterized by delivering – The right product… – In the right quantity… – With the right quality (zero-defect)… – At the exact time the customer needs it… – At the lowest possible cost. 3

Lean Manufacturing • Principles of Lean Thinking: – Precisely specify value by each particular product. – Identify the “value stream.” – Make value flow without interruption. – Let the customer pull value from the producer. – Pursue perfection.

4

Lean Manufacturing Value by Product • Value is determined by the customer • The value of a product to customer is the difference between realization and sacrifice – Realization is what a customer receives. – Sacrifice is what the customer gives up for the basic and special product features, quality, brand name, and reputation. 5

Lean Manufacturing Value Stream (con’t) • The value stream is made up of all activities, both value-added and nonvalue-added, required to bring a product group or service from its starting point to a finished product in the hands of the customer.

6

Lean Manufacturing Value Stream (con’t) • Non-value-added activities are the source of waste – Activities avoidable in the short run – Activities unavoidable in the short run due to current technology or production methods.

• Types of value streams – Order fulfillment – New product value stream – Sales and marketing value stream 7

Lean Manufacturing Identifying value streams • Two-dimensional matrix – Activities/processes on one dimension – Products on the second dimension

8

Lean Manufacturing Value flow • Reduced setup/changeover times – Reduces waste due to move time and wait time – Enables production of smaller batches in greater variety

• Cellular manufacturing – Chosen over departmental structure because it reduces lead time, decreases product cost, improves quality, and increases on-time delivery – Cells contain all the operations in close proximity that are needed to produce a family of products

9

Lean Manufacturing Pull Value • Lean manufacturing uses a demand-pull system, where the production is triggered by the customer order • Eliminates waste by producing a product only when it is needed and only in the quantities demanded by customers – No production takes place until a signal from a succeeding process indicates a need to produce. 10

Lean Manufacturing Pull Value (con’t) • Customer demand extends back through the value chain • Affects how a manufacturer deals with suppliers – JIT purchasing requires suppliers to deliver parts and materials just in time to be used in production – Supply of parts must be linked to production, which is linked to demand. 11

Lean Manufacturing Pull Value (con’t) • JIT purchasing exploits supplier linkages – Negotiate long-term contracts with a few chosen suppliers located as close to the production facility as possible – Establish more extensive supplier involvement

• Vendor selection – Not on the basis of price alone – The quality of the component, the ability to deliver as needed, and the commitment to JIT purchasing are vital considerations – Establish a partners-in-profits relationship with 12 suppliers

Lean Manufacturing Pursue Perfection • Identify and eliminate sources of waste • Employee empowerment • Total quality control • Inventory management • Activity-based management

13

Lean Accounting • Accounting practice should closely follow changes in the operation of a business • Traditional cost management systems may not work well in the lean environment. Changes in structural and procedural activities for lean manufacturing change – Product-costing – Operational control 14

Lean Accounting Traceability of Overhead Costs • In a lean environment, many overhead costs assigned to products using either driver tracing or allocation are now directly traceable to products. • Increasing directly traceable costs yields increased accuracy of product costing

15

Lean Accounting Value Stream Reporting • Costs are collected and reported by value stream. • Each value stream is treated as a standalone business unit. • The income statement should reflect the profit/loss by each value stream. 16

Lean Accounting Decision Making • Using the average product cost for a value stream means that the individual product costs are not known • A fully specified and accurate product cost is not needed for many decisions • Drawbacks – The analysis fails to consider the indirect costs – Many of the decisions that focus on analysis of profitability of value streams are short-term in nature 17

Lean Accounting Performance Measurement • Box Scorecard – Compares operational, capacity, and financial metrics with prior week performances and with a future desired state – Trends over time and the expectation of achieving some desired state in the near future are the means used to motivate constant performance improvement.

• Lean control uses a mixture of financial and nonfinancial measures for the value stream 18

Lean Accounting Implementation • Value stream maps – Visualize the sources of waste in a manufacturing facility – Helps the company to design better production procedures to eliminate such wastes

19

Lean Accounting Implementation (con’t) • Service Sector – The root cause of wastes in service companies resides in the functionally organized batch-and-queue processes – Using a pull approach to determining the level of output with customer demand is equally applicable to service businesses

20

COST MANAGEMENT Accounting & Control Hansen▪Mowen▪Guan

End Chapter 16

COPYRIGHT © 2009 South-Western Publishing, a division of Cengage Learning. Cengage Learning and South-Western are trademarks used herein under license.

21