Understanding the History behind Lean Cost

When I was attending the 2008 Lean Accounting Summit in Las Vegas, Nevada, I was speaking with Jim Huntzinger about his inspiration for starting the Lean Accounting Summit. (Lean Accounting Summit)

He told me his background in Engineering and introduced his book "Lean Cost Management" to me by handing me a copy. Wow! What an honor to receive such a gift.

This book is a great historical look at how flow is truly essential to using lean cost management. In Chapter 5, Huntzinger explains how Alexander Hamilton was one of the first to suggest a different method to applying overhead than traditional cost back in the late 1800's. Hamilton's understanding of flow in operations led him to develop a cell-like system for operations. He called them "little shops" of production.

I'm only about half-way through and look forward to Chapter 19, "How to Transform to Lean Cost Management." On of my life goals is to be an engine for growth in the Lean Accounting field by transforming traditional costing systems into lean cost management systems. I'm grateful to wise mentors in this field, willing to help me learn and apply the principles of lean thinking.

Listen to this podcast between Jim Huntzinger and Mark Graban. Inaccurate Costing with Traditional Cost

Great Case study Material

Accounting For World Class Operations
by Jerrold M. Solomon and Dr. Rosemary Fullerton

This book is certainly my preferred study guide for Accounting for Lean. Dr. Fullerton and Mr. Solomon emphasize the "why" and "how" behind the "what" of converting traditional cost systems into value stream costing.

At the Lean Accounting Summit this past August in Las Vegas, Nevada, Mr. Solomon and Dr. Fullerton presented the nuts and bolts of Accounting for Lean and the impact on financials. I was hoping they'd mention their book more, but most of their teaching material came from their book anyway.

I highly recommend going through the excellent case studies in the end of the book. They help visualize the transformation from using variances to recording simple metrics that anyone along the value stream can understand. It may be difficult to imagine just how companies are impacted by the conversion to Lean, but this book helps explain how to prepare for the ups and downs of the transfer.

Is Traditional Cost Accounting appropriate?

Although Lean is traditionally viewed as an operations or manufacturing method, it's actually a complete business philosophy. Lean functions best when it's implemented into the entire enterprise.

If your Accounting Department hasn't caught up to the Lean initiatives of the Operations Department, then you'll face huge obstacles sooner or later.

WHY TRADITIONAL COST IS NO LONGER FIT FOR TODAY'S BUSINESS

Real Numbers

Highly recommended, especially Chapter 8: Budgeting and Capital Planning and Chapter 7: The One Day Close. You will be surprised how much time recording closing entries a bit early will save you during the close.

A basic understanding of Lean is a must in really appreciating this novel of the obstacles companies face when Accounting/Finance is not involved in the Lean transformation.

What is Lean?

That's what I asked myself in September of '07 when I assisted a "Meet the Firms" Beta Alpha Psi activity at Utah State University. "Lean" seemed like the buzz word for most speakers that night, without much of an explanation on what "Lean" really is.

Low and behold, 11 months later I now find myself as an internship assistant at the Shingo Prize, under the direction of Dr. Randy Cook. (I appreciate his mentoring when he's not traveling.) Ok, to learn the basics of Lean, visit this link...lean.org.

First I read "Lean Simplified," then "Andy and Me," both by Pascal Dennis. As I continue to read "The Machine that Changed the World," and other lean books, I am grasping the powerful Business Philosophy that Lean teaches.

I am now starting off on my lean journey, focusing on the impact of lean on Accounting and Finance. I've read "Real Numbers," and am currently reading "Accounting for World Class Operations."

The purpose of this blog is to share my journey with you and learn from your insights.