#Lean But Not Mean!

Article written by ROBERT T. BURRUS, JR. – INTERIM DEAN , CAMERON SCHOOL OF BUSINESS

In recent years, businesses have come under intense competitive pressure for several reasons. These reasons include globalization, recent credit crises and other economic upheavals, and the continued forward march of technology. Our research has shown that about 4 of every 10 businesses have turned to Lean and Lean Six Sigma (LSS) as they deal with today’s competitive landscape. Why? Lean and LSS provide the means to deliver more value to the customer through reduced lead times, increased quality, and greater responsiveness to customers. According to our research, about 75% of surveyed organizations say that LSS impacted both financial measures and product/service quality measures. One of our surveys of top finance executives found that LSS implementations saved the organizations more than €500,000 per full-time equivalent employee dedicated to LSS.

In today’s commentary, we will focus on Lean. Lean is very much about a complete and total paradigm shift. It is a philosophy or an overarching system that one can use to make business decisions. Those who view it as a program are, unfortunately, doomed not to gain the full advantage of Lean. Lean has these major objectives:

• Delivering value to the customer;
• Improving flow of products/services;
• Eliminating waste.

These objectives are accomplished while maintaining respect for people, including both customers and employees. Lean is NOT mean! Lean is more about value and flow than eliminating waste (which is why it is listed last). Improving process flow, flows of products, services, documents and the like often leads to cost and waste reductions, but also provides enormous value to external and internal customers.

Lean organizations use a variety of tools and methodologies to increase flow and add value. Lean businesses also tend to abandon the departmental hierarchy and organize around value streams. Equipment and personnel, wherever possible, are dedicated to the value stream. Lean organizations are more flexible because many decisions are made by value-stream teams instead of at the upper levels of management.

The management accountant, through Lean Accounting – a radically new management accounting discipline – can become an important internal business adviser as he or she provides useful information to value-stream teams. Value Stream Costing (VSC) is one of the main components of Lean Accounting. On the face of it, VSC appears to abandon traditional, accrual basis accounting and generally accepted accounting principles (GAAP). However, this is only a perception. For publicly traded companies and many others that need audited financial statements, abandoning GAAP cannot be considered. VSC does recognize that the traditional accounting reports that have been around for decades do not support the new Lean philosophy. VSC responds by giving Lean leaders what they need to manage their businesses within this new paradigm, while providing a path to reconcile back to the traditional accounting numbers.