Cornerstones of cost management 3rd edition hansen mowen chapter 15

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LEAN ACCOUNTING AND PRODUCTIVITY MEASUREMENT

CHAPTER 15

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CHAPTER 15 OBJECTIVES

1 Describe the basic features of lean

manufacturing

2 Describe lean accounting

3 Discuss and define productive efficiency

and partial productivity measurement

4 Explain what total productivity

measurement is, and describe its

advantages

LEAN MANUFACTURING

• An approach designed to eliminate waste and

maximize customer value

• Characterized by delivering the right product,

in the right quantity, with the right quality

(zero-defect), at the exact time the customer

needs it and at the lowest possible cost

• Lean manufacturing systems allow managers

to eliminate waste, reduce costs and become

more efficient

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LEAN MANUFACTURING

• Promised benefits included such outcomes as

reduced lead times, improved quality,

improved on-time deliveries, less inventory,

less space, less human effort, lower costs,

and increased profitability

LO-1

LEAN MANUFACTURING

• Distinguished by the following 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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LEAN MANUFACTURING

Value by Product

• Value is determined by the customer—at the very

least, 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

LO-1

LEAN MANUFACTURING

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

• Order fulfillment value stream focuses on

providing current products to current customers

• New product value stream, which focuses on

developing new products for new customers

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LEAN MANUFACTURING

Value Stream

• Activities within the value stream are value-added

or non-value-added

• Non-value-added activities are the source of waste

• Activities avoidable in the short run

• Activities unavoidable in the short run due to current technology or production methods

LO-1

EXHIBIT 15.1—ORDER FULFILLMENT VALUE

STREAM

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EXHIBIT 15.2—MATRIX APPROACH TO

IDENTIFYING VALUE STREAMS

LO-1

LEAN MANUFACTURING

Value Flow

• Reduced setup/changeover times: lean

manufacturing reduces wait and move times

dramatically and allows the production of small

batches of differing products

• Cellular manufacturing: manufacturing cells

contain all the operations in close proximity that

are needed to produce a family of products

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EXHIBIT 15.3—GARN’S CURRENT DEPARTMENTAL

LAYOUT: MODEL A ALUMINUM WHEEL

PRODUCTION

LO-1

EXHIBIT 15.4—GARN’S PROPOSED MANUFACTURING CELL (MODEL A)

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LEAN MANUFACTURING

Pull Value

• Lean Manufacturing uses a demand pull system

• The objective of lean manufacturing is to

eliminate waste by producing a product only

when it is needed and only in the quantities

demanded by customers

• Demand pulls products through the manufacturing

process

LO-1

LEAN MANUFACTURING

Pursue Perfection

• Waste: consumes resources without adding value

• Major sources of waste

• Defective products

• Inventories of goods awaiting further processing or

consumption

• Unnecessary transport of goods

• Waiting

• The design of goods and services that do not meet the

needs of the customer

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LEAN MANUFACTURING

Pursue Perfection

• Employee empowerment: vital for identifying

and eliminating all forms of waste

• In a lean environment, increasing the degree of

participation increases productivity and overall cost

efficiency

LO-1

LEAN MANUFACTURING

Pursue Perfection

• Total quality control: lean manufacturing

cannot be implemented without a commitment to

total quality control (TQC)

• TQC is essentially a never-ending quest for perfect

quality: the striving for a defect-free product design

and manufacturing process

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© 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use

LEAN MANUFACTURING

Pursue Perfection

• Inventories: lowered by cellular manufacturing,

low setup times, JIT purchasing, and a

demand-pull system

• Activity-based management: process value

analysis searches for the root causes of the

wasteful activities and then, over time, eliminates these activities

LO-1

LEAN ACCOUNTING

Focused Value Streams and

Traceability of Overhead Costs

• Costing systems use three methods to assign

costs to individual products

• Direct tracing

• Driver tracing

• Allocation

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EXHIBIT 15.5—VALUE-STREAM COSTS

LO-2

LEAN ACCOUNTING

Value-Stream Costing

• Product Costing: Single-Product (Focused) Value

Stream

• Because of multitask assignments, cross-training,

and redeployment of other support personnel, most

support costs are exclusive to a focused value

stream and are thus assigned to a product using

direct tracing

• Provide simple and accurate product costing

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LEAN ACCOUNTING

Value-Stream Costing

• Product Costing: Multiple-Product Value Stream

• Value streams are formed around products with

common processes

• With multiple products, product costs for value

streams are calculated using an actual average cost.

Value-stream product cost = Total value-stream cost of

period/Units shipped in period

LO-2

EXHIBIT 15.6—STEEL WHEEL

VALUE-STREAM COSTS: MODELS C AND D

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LEAN ACCOUNTING

Value-Stream Reporting

• Costs are collected and reported by value stream

• To avoid distorting the current week’s performance, inventory reductions are reported separately form

the value-stream contributions

LO-2

EXHIBIT 15.7—GARN AUTOPARTS PROFIT

AND LOSS STATEMENT

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LEAN ACCOUNTING

Performance Measurement

• Lean control system uses a Box Scorecard that

compares operational, capacity, and financial

metrics with prior week performances and with a

future desired state

• Lean control approach uses a mixture of financial

and nonfinancial measures for the value stream

LO-2

EXHIBIT 15.8—ABS VALUE-STREAM BOX

SCORECARD

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PRODUCTIVE EFFICIENCY

• Productivity is concerned with producing output

efficiently, and it specifically addresses the

relationship of output and the inputs used to

produce the output

LO-3

PRODUCTIVE EFFICIENCY

• Total productive efficiency is the point at which

two conditions are satisfied

• Technical efficiency: 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

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EXHIBIT 15.9—IMPROVING TECHNICAL

EFFICIENCY

LO-3

EXHIBIT 15.10—IMPROVING ALLOCATIVE

EFFICIENCY

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PRODUCTIVE EFFICIENCY

Partial Productivity Measurement

Defined

• Productive measurement is a quantitative

assessment of productivity changes

• Can be actual or prospective

• Actual productivity measurement allows managers to assess, monitor, and control changes

• Prospective measurement allows managers to compare relative benefits of different input combinations,

choosing the inputs and input mix that provide the greatest benefit

LO-3