Lean Accounting is a topic that has gained in popularity over the years for one very simple reason: traditional accounting sometimes encourages managers to make the wrong decisions. Why would this be? Traditional accounting is based on the model of mass production: building more is encouraged, without regard to whether the customer needs it or not. Traditional cost accounting systems many times encourage production managers to build product, to reduce cost. This looks good on "absorption" reports, but the important question for the lean thinker is, does this actually improve our ability to produce what is needed when it is needed for our customer? Furthermore, does this truly increase profitability and cash flow? If we undergoing a lean transformation, we need metrics and accounting systems that encourage the right behavior toward our goals. Lean accounting becomes an essential part of this transformation. Lean accounting provides managers with the right information: it answers essential questions such as:
- Are our value streams profitable?
- Are we producing what the customer needs?
- Are we leveling our workload and reducing inventory?
- Are we reducing lead-times?
- Are we improving productivity?