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A lean accounting system for manufacturing companies : establishing flow enables simple, cost effective manufacturing: Lean cost management / by James R. Huntzinger.

by Huntzinger, James R.

Managerial accounting

Costs, Industrial

Production management

Manufacturing processes

Activity-based costing

Industrial efficiency

419 leaves : ill. ; 29 cm.

Advisor: Joseph Papp.

Committee member(s): Carol Mannino, Michael Ostrenga.

Introduction -- Accounting: where we are and where we must go -- Why traditional accounting methods fail -- Toyota's success: profit beyond measure -- Execution -- Alexander Hamilton Church: his cost management system -- The focus factory -- Church and excess capacity -- The physical operation -- Lean measurements: measuring the business -- Designing for the lean enterprise: right-designing -- Lean creates lean cost management -- Teamwork -- System evolution -- Transactions and lean -- Lean: like a gear train -- Where is ABC? -- Production factors: Church's method applied -- A summary of thought: lean cost management -- Conclusion.

A major objective of a business can be stated as securing profits both in the present and the future. The manner in which a business accomplishes this is to provide customer satisfaction, furnish reliable products and services at a reasonable price and cost, and quality and features consistent with or exceeding the customer's expectations. Today's accounting systems are inadquate to provide information required to meet and support these objectives.

Accounting has been a business staple for as long as most can recall. But this has not always been the case in business, particularly in manufacturing. Present managerial and cost accounting methods do not provide the information actually needed in operations. They most definitely do not supply a lean manufacturer with information needed to properly manage flow operations. The purpose of this paper is to discuss the failure of traditional cost and managerial accounting methods using both current and historical context; develop the importance of the relationship between the physical

lean enterprise and accounting (or in the terms of this paper, cost management); and present specific methods and how and why they function effectively for a lean enterprise.

This thesis presents an overview of flow manufacturing or lean manufacturing along with an overview of why current managerial accounting methods fail and from where they evolved. Also, a review of performance measures will be presented. They are an important part of operations and also a significant reason management accounting techniques came into common use, particularly standards and overhead allocation. These overviews will create a context to better explain the methods that have been developed to support a lean operation with the information it needs to operate more successfully.

This paper will prove that traditional cost and managerial accounting does not fulfill the needs of a lean firm and that three main criteria must be established to develop and execute an effective cost management system for the lean enterprise. First is the absolute need to design, implement, and establish flow manufacturing as a business practice and method of operation with emphasis on understanding what is behind the "right-design" of a lean system. Second, as Alexander Hamilton Church developed, is the direct and accurate application of costs to products and product lines. This application is also associated with the current concepts and methods of value streams or focus factories, and understanding the direct incidence of costs.

The third criterion, which unfortunately was not available to Church, is the basic personal computer and spreadsheet software -- both are broadly available, simple to use, and very inexpensive.

A model factory will be constructed to illustrate an operational example to which the new lean accounting methods will be applied. The operation factory model will be a small engine manufacturer which machines and assembles small air-cooled single cylinder engines for commercial and industrial use. Crankshaft machining will also be "zoomed-in" on to illustrate physical flow operations to which critical understanding of how the costing methods will be applied must be visualized. The key to achieving lean cost accounting (or cost management) through understanding the physical operation is discussed and will be absolutely essential to applying the costing techniques presented and discussed throughout this paper.

Although repetitive manufacturers are also the focus of this paper the writer believes that the methods, ideas, and procedures presented in this paper can be applied across many different types of manufacturing scenatios although they are not discussed in the context of this paper.

With the development and implementation of focus factories, value streams, and cellular manufacturing, direct and accurate cost associations are simple and substantially fewer in number. This philosophy and method developed and discussed in this paper is a combination of Coase's Theory of Transactions and Dennis Butt's analogy of the Toyota Production System being a system of gear trains. The method developed to achieve this takes an updated version of Church's philosophy and methods and applies it to the philosophy and systems of a lean manufacturing environment. In accomplishing this method both Coase's Theory and Butt's analogy become a reality within the focus factory and value stream environment.

This paper will travel through past, present and future to prove what changes must take place and what design foundations are required to understand and implement both the techniques and principles required to have an effective cost management system for the lean manufacturing enterprise : right-designing the system, properly executing the system, and continually improving the system.

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