1. Lean Accounting and Productivity Measurement15
CHAPTER

2. Lean Manufacturing
OBJECTIVE 1
Lean Manufacturing is concerned with eliminating waste in manufacturing processes
Designed to maximize customer value
Characterized by
Delivering the right product
In the right quantity
With the right quality (zero defects)
At the exact time the customer needs it
At the lowest possible cost

3. 1 Lean Manufacturing Five principles of lean thinking
OBJECTIVE 1
Five principles of lean thinking
Precisely specify value by each particular product
Identify the ‘value stream’ for each
Make value flow without interruption
Let the customer pull value from the producer
Pursue perfection
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4. 1 Lean Manufacturing Value by Product
OBJECTIVE 1
Value by Product
Value is determined by the customer – at a minimum – an item or feature for which the customer is willing to pay
Customer value is the difference between realization and sacrifice
Realization – what a customer receives
Sacrifice – what a customer gives up
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5. 1 Lean Manufacturing Value Stream
OBJECTIVE 1
Value Stream
Made up of all activities – value-added and non-value added- required to bring a product group or service from its starting point to a finished product in the hands of the customer
Activities can be
Value added
Non-value added
Activities avoidable in the short run
Activities unavoidable in the short run due to current technology or production methods
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6. 1 Lean Manufacturing Waste is anything customers do not value.
OBJECTIVE 1
Waste is anything customers do not value.
Major sources of waste include:
Defective products
Overproduction of goods not needed
Inventories of goods awaiting further processing or consumption
Unnecessary processing
Unnecessary movement of people
Unnecessary transport of goods
Waiting
The design of goods and services that do not meet the needs of the customer
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7. Productive Efficiency
OBJECTIVE 3
Total productive efficiency is the point at which two conditions are satisfied:
For any mix of inputs that will produce a given output, no more of any one input is used than necessary to produce the output driven by technical relationships: referred to as technical efficiency
Given the mixes that satisfy the first condition, the least costly mix is chosen driven by relative input price relationships: referred to as allocative efficiency
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8. Productive Efficiency
OBJECTIVE 3
Productive measurement –
Is a quantitative assessment of productivity changes
Can be actual or prospective
Is forward looking
Serves as input for strategic decision making
Allows managers to compare relative benefits of different input combinations
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9. Productive Efficiency
OBJECTIVE 3
Partial Productivity Measure: Measuring productivity for one input at a time
Productivity ration = output/input
Operational Productivity Measure: Partial measure where both input and output are expressed in physical terms
Financial Productivity Measure: Partial measure where both input and output are expressed in dollars
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10. Total Productivity Measurement
OBJECTIVE 4
Profit-Linkage Rule: For the current period, calculate the cost of the inputs that would have been used in the absence of any productivity change, and compare this cost with the cost of the inputs actually used. The difference in costs is the amount by which profits changed because of productivity changes.
To compute the inputs that would have been used (PQ), use the following formula:
PQ = Current period output/ base period productivity ratio
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