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Lean Accounting
Lean Accounting is the general term used for the changes required to a company’s
accounting, control, measurement, and management processes to support lean manufacturing and
lean thinking (Maskell). Lean is part of a school of thought that involves eliminating waste from
manufacturing companies and producing only to meet consumer demand. Like standard cost
accounting, lean accounting deals with the way that production costs and performance is
accounted for. Lean manufacturing is an approach designed to achieve the shortest possible
production cycle by eliminating wastes. This goal is based on three basic concepts: flow, pull,
and continuous improvement.
The idea of flow is that manufacturing processes should operate as a continuous flow
with as few interruptions as possible. Companies implement the idea of flow by visual
management. Visual management ensures that managers physically implement changes in
production to ensure the quickest and most efficient movement of products. Often this
management requires rearranging production lines so that products do not sit idle on the
production floor for any amount of time. The concept of pull is that manufacturing should occur
in response to actual demand, not predictions about inventory. Simply, products are only
produced when an order is received. Continuous improvement supports the idea that there should
be a constant effort to reduce waste and increase productivity (Woods). The central idea of being
lean is ensuring that wastes of any type are being eliminated from all parts of a company.
One of lean manufacturing’s main differences compared to standard manufacturing is that
the lean approach only produces products when an order is placed for them. This approach
reduces inventory, which in turn, reduces costs and frees up physical space that can be used in
other ways. Maria Elena Stopher from the National Institute of Standards and Technology
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(NIST) at the U.S. Department of Commerce stated, “’Inventory is not an asset. You have
handling costs, it takes up floor space and reduces cash flow’” (Kroll). This statement and lean
thought process directly clashes with the standard accounting definition that inventory is an
asset, and many companies are struggling to understand how to implement lean practices since it
goes against what they have been taught. At first, when a company chooses to implement lean
practices and its inventory is reduced by 80%, it seems as though they have lost profit. Assets are
reduced and stockholders’ equity goes down. What is actually a benefit is often seen as a
negative. (Woods). Advocates of lean practices stress that managers must have a plan for how to
use the newly available capacity to their advantage and financial gain.
The goal of lean accounting is to reduce waste in all aspects of a company. Lean
accounting recognizes that the primary impact of waste elimination is the creation of available
