CHAPTER 16LEAN ACCOUNTING, TARGET COSTING, AND THEBALANCED SCORECARD
QUESTIONS FOR WRITING AND DISCUSSION
Lean manufacturing is an approach de-signed to eliminate waste and maximizecustomer value. It is characterized by deli-vering the right product, in the right quantity,with the right quality (zero-defect) at the ex-act time the customer needs it and at thelowest possible cost.
The five principles of lean thinking are:
Precisely specify value by each particular product; (2) Identify the "value stream" for each product; (3) Make value flow withoutinterruption; (4) Let the customer pull valuefrom the producer; and (5) Pursue perfec-tion.
Two types of value streams are the order fulfillment value stream and the new productvalue stream.
The order fulfillment valuestream focuses on providing current prod-ucts to current customers. The new productvalue
stream focuses on developing newproducts for new customers.
A value stream may be created for everyproduct; however, it is more common togroup products that use common processesinto the same value stream. One way toidentify the value streams is to use a simpletwo-dimensional matrix, where the activi-ties/processes are listed on one dimensionand the products on a second dimension.
The key factors in being able to produce lowvolume products with great variety are lower setup times and cellular manufacturing. Re-ducing setup times and using manufacturingcells eliminates considerable wait and movetime so that cycle time is dramatically re-duced.
Demand-pull means producing only theproducts when needed and in the quantitiesneeded. Demand-pull systems re-duce/eliminate WIP and finished goods in-ventories. Inventories are the most signifi-cant source of waste in a manufacturingfirm.
Eight sources of waste are: (1) Defectiveproducts; (2)
Overproduction of goods notneeded; (3) Inventories of goods awaiting fur-ther processing or consumption; (4) Unneces-sary processing; (5) Unnecessary movementof people; (6) Unnecessary transport of goods;(7) Waiting; and, (8) The design of goods andservices that do not meet the needs of the cus-tomer.
A focused value stream is dedicated to oneproduct. It includes all the activities andsteps necessary to produce, deliver, andservice the product after it is sold. The re-sources, people, and equipment to accom-plish this are all exclusive to the valuestream, making all the costs directly tracea-ble to the product produced by the valuestream.
Facility costs are assigned using a fixed costper square foot( (total cost/total square feet).If a value stream uses less square feet, itreceives less cost. Thus, the purpose of thisassignment is to motivate value streammangers to find ways to occupy less space. As space is made available, it can be usedfor new product lines or to accommodate in-creased sales
Units shipped are used to discourage theproduction of excess inventories. It also en-courages the reduction and elimination of existing finished goods inventories. The unitcost increases if more units are producedthan sold. The unit cost decreases if areshipped than units produced.
If the products in the value stream are quitesimilar, then the average cost will approx-imate the actual unit product cost. If theproduct mix is relatively stable over time,then the average unit cost can be a goodsignal of overall changes in efficiency withinthe value stream.
Value streams often have excess capacity.In certain decisions, such as make or buy or accept or reject special orders, the changein profitability is the key factor in assessingwhich way to go. In these cases, knowledge