Lean Accounting PDF

LEAN ACCOUNTING: A CASE STUDY OF
SELECTED ENTERPRISES IN INDIA
A Thesis
Submitted for the award of Ph.D. degree
of
Mohanlal Sukhadia University, Udaipur
in the
Faculty of Commerce
By
Vineeta Arora
Under the supervision of

Dr. G. Soral
Professor
Department of Accountancy and Statistics

Faculty of Commerce
Mohanlal Sukhadia University, Udaipur
2016
DECLARATION
I Vineeta Arora W/o Mr. Vinish Arora resident of Bharat
Roadlines, Sanderao Road, Falna (Distt.-PALI) hereby declared
that the research work incorporated in the present thesis entitled
“Lean Accounting: A Case Study of Selected Enterprises in
India” is my own work and is original. This work (in part or in
full) has not been submitted to any university for the award of a
Degree or a Diploma. I have properly acknowledged the material
collected from secondary sources wherever required. I solely own
the responsibility for the originality of the entire content.
Date: (Vineeta Arora)

CERTIFICATE
I feel great pleasure in certifying that the thesis entitled

“Lean Accounting: A Case Study of Selected Enterprises in
India” by Mrs. Vineeta Arora has been completed under my
guidance. She has completed the following requirements as per
Ph.D. regulations of the University:
(a) Course work as per the university rules

(b) Residential requirements of the university
(c) Regularly submitted six monthly progress report
(d) Presented her work in the departmental committee
(e) Published minimum of one research paper in a referred
research journal,
I recommend the submission of thesis.
Udaipur (G. Soral)

Date:
PREFACE
In today’s global market, a dynamic change is required in accounting and

manufacturing practices because the current traditional costing system is almost
obsolete with respect to indirect cost absorption. It requires huge amounts on
unnecessary work, gathering and analyzing data, producing unhelpful reports and
generating additional non-value-adding tasks. All these negative reasons related to
the shortcomings of traditional accounting, control and measurement system, there
is an urgent requirement of new accounting system that can resolve the problems
faced by the most firms due to their traditional costing system. The emerging idea
of lean accounting has materialized this task. Traditional costing system based on
mass production but lean accounting violates all the assumptions of mass
production. Whereas mass production is based on achieving economies of scale
through long production runs, lean focuses on making products one at a time. It is
the method which controls the business without the hugely wasteful, time-
consuming and misleading costing and measurement system. Lean accounting is
not just about applying lean principles to the accounting functions of an
organization, yet, it is a new method of managing a business that is built upon
lean principles and lean methods.
Lean accounting being a new and emerging concept of accounting, the

present study is aimed to find out the consequences of lean accounting especially
in Indian environment. In India, Lean Accounting is not in better position. It is in
very initial movement and adopting by some of the companies in lean
manufacturing form with the use of conventional methods of accounting like
absorption costing, standard costing, variance reporting, activity based costing and
so forth. As an organization moves from mass production to lean manufacturing,
the accounting, control, and measurement systems need to change. Lean
manufacturing and lean thinking cannot be sustained over the long term without
significant changes in these systems.
The study seeks to conduct empirical analysis of selected Indian

companies in order to explore various aspects of lean accounting. Thus, the
present research work is divided into five chapters. The first chapter Introduction
contains the general introduction of lean accounting. It discloses the meaning,
concept, evolution, principles, practices and tools of lean accounting. Thereafter,
it presents detailed comparison between lean accounting and traditional
accounting. The second chapter Review of Literature contains the review of work
already done on the subject throughout the world as well as in India. This chapter
has tried to incorporate pioneer studies along with concurrent ones. The third
chapter Lean Accounting Pathway discusses the different maturity path levels to
lean accounting. These levels are ‘getting started with lean accounting’,
‘managing by value streams’, and ‘lean enterprises’. This chapter covers the
whole path associates with lean accounting that can be followed to develop a plan
for implementing lean changes. The fourth chapter Case Study covers the actual
field work done regarding lean accounting. It inaugurates an in-depth study of the
need, diagnosis, strategy, practice, benefits and behavior of selected Indian firms
in respect of lean accounting. The fifth chapter Summary of Findings and
Suggestions contains the summary of all the chapters and findings associated with
the research work. A summarized presentation has been given for the results
obtained by all three selected enterprises. These outcomes are further analyzed
and interpreted. This chapter also includes suggestions and scope of further
research in regard to the present research work. This research work is not the last
word on the topic, but the researcher here offers a standard model that she is using
in throughout research work. There are so much innovations and changes going on
right now towards this direction.
The researcher expects that apart from being an academic landmark, the
present study will foster and inspire the community of lean thinkers and doers.
(Vineeta Arora)
ACKNOWLEDGEMENTS
Pursuing a Ph.D. is both, a painful and an enjoyable experience. It is just

like climbing a high peak, step by step, accompanied with hardships, frustrations,
bitterness, encouragement and trust. This thesis is the result of my four year long
research journey. In this journey, when I found myself enjoying the beautiful
scenery, I realized that it was a teamwork that got me there. Without the help and
encouragement of my well wishers, family, friends, colleagues and several people,
it would not be possible to complete this thesis. At the completion of my research
work I would like to thank all those people who have contributed for the study and
have made this research work possible for me.
First and the foremost, praises and thanks to God, the Almighty, for His
blessings that He has showered upon me throughout my research period to
complete the research work successfully.
Next, I would like to express my special appreciation and thanks to my

research supervisor Prof. G. Soral (Dean, University College of Commerce and
Management Studies, Udaipur) that he has become a tremendous mentor for me.
This thesis is nothing but the outcome of his invaluable guidance that I could
reach the destination of completion of this journey. I would like to thank him for
always encouraging my research work and for allowing me to grow as a research
scientist. His valuable guidance, suggestions, motivation, enthusiasm and extreme
knowledge became priceless for me that helped me in anomalous ways of my
research journey. There were days when I completely lost my confidence and
motivation, when I gave up my efforts at all; it was he, who brought me back on
track. I could not have imagined having a better advisor and mentor for me, not
only in research but in my professional life also. I have found him the Guru of
Indian heritage with immense affection for his students. I wish his precious
scolding be available to me to tell the right path in future also. Finally, I sincerely
thank him for being my inspiration.
Besides my supervisor, I would like to thank and express my gratitude to
Prof. Shurveer S. Bhanawat, Head, Department of Accountancy & Statistics,
Professor C. M. Jain, Dr. O. P. Jain, Dr. Shilpa Vardia and others for their
insightful comments and encouragement, but also for the hard questions which
incented me to widen my research from various perspectives.
A special thanks to my husband Mr. Vinish Arora, whose co-operation,

unconditional support and true friendship made this research work accomplished.
His encouragement and help made me feel confident to fulfill my desire and to
overcome every difficulty that I encountered. I remember the sleepless nights,
when he worked for my thesis formation. He has really rendered a lot of time for
me from his busy schedule. I also express thanks from the bottom of my heart to
my beloved son Yuvraj Arora for his patient and sacrifices during this endeavor.
Words cannot express that how grateful I am towards my parents late Shri
Krishan Gopal Arora and Smt. Shashi Kala Arora for being like a wall against all
the problems. Unfortunately, my father could not witness the completion and
submission of the thesis but I know he is always there with me and it is his
disguised blessing that made this task possible. I also owe my gratitude to my
parents-in-laws Shri Jagdish Prasad Arora and Smt. Pavitra Arora for all the
sacrifices that they have made on my behalf. Their prayer for me was always
sustained me thus far. More, I express my sincere thanks to my sister Ekta Arora
for her continuous love and affection, and especially my brother Er. Ankit Arora
for enlightening me the first glance of this research.
I extend my sincere thanks to Mr. Aakash Patel, Executive Director,

Waterman Industries Private Limited, Ahmedabad, Mr. Bhupesh Bhansali,
Managing Director, Bhansali Industries, Beawar, and Mr. Bakliwal, Vice
President (Engineering) and Mr. Biju P. Thomas, Energy Manager, Reliance
Chemotex Industries Limited, Udaipur for sharing their valuable time to provide
me information required for my research purpose.
No research work is accomplished without the help of the library. I

sincerely thank the library staff of University College of Commerce and
Management Studies, Central Library of Mohanlal Sukhadia University, Udaipur,
Library of Indian Institute of Management, Udaipur and Library of Rajasthan
University, Jaipur. I also thank to University Computer Centre for making their
facilities available for research scholars and Department of Accountancy and
Statistics of the University for all kind of support and facilities.
I convey my sincere thanks to Mr. D. P. Sharma, Rt. Sr. English Lecturer,

for his valuable guidance regarding improvement in quality of language of this
thesis. I also deliver thanks to my colleagues and friends Prashant, Bhupesh,
Monika and others for helping and supporting me during these difficult years.
Finally, I give my honest thanks to Archit Computers for flawless typesetting and
attractive get up of my thesis.
Besides this, several people have knowingly and unknowingly helped me in

the successful completion of this study. I sincerely thank them from the core of my
heart.
Vineeta Arora
LIST OF TABLES
Table Table Name Page
No. No.
1.1 Principles, Practices and Tools of Lean Accounting
10-11
1.2 Comparison between Lean & Traditional

20-24
Accounting
3.1 Format of Day-by-the-hour Report
109
3.2 Benefits of Cell Performance Measurements

119
3.3 Format for Calculation of Total Value Stream Cost

132
3.4 Example of a Box Score

135
3.5 Example of Box Score Using for Evaluating

136
Weekly Performance
3.6 Example of Box Score Showing Effect of Lean
138
Improvements
3.7 Using Box Score in Make or Buy decision
139
3.8 Using Box Score in Product Validation

140
3.9 Using Box Score for Evaluating New Product

141
Progress
3.10 Example of Value Stream Income Statement
143
4.1 Issue faced by the Waterman Industries Pvt. Ltd.

162
4.2 Diagnosis Report before Lean implementation

163
4.3 5S Assessment of Waterman

168
Table Table Name Page
No. No.
4.4 Cell Performance Measurements for Waterman
173-174
4.5 Value Stream Performance Measurements for

177-179
Waterman
4.6 Value Stream Income Statement of Waterman
182
4.7 Value Stream to Evaluate Value Stream

183
Performance
4.8 Benefits Achieved by Waterman
185
4.9 Waste Identified in Bhansali Industry

189
4.10 5S Methodology Applied at Bhansali Industry

194
4.11 Benefits Achieved by Bhansali Industry

197
4.12 Waste Identified in Reliance Chemotex Ltd.

202
4.13 5S Activities in Reliance Chemotex Ltd.

204
4.14 Cell Performance Measurements for Reliance

209
Chemotex Ltd.
4.15 Value Stream Performance Measurements for
212-213
Reliance Chemotex
4.16 Value Stream Income Statement for Reliance
215
5.1 Summarized Results of Lean Effects in Selected

226-227
Enterprises
LIST OF FIGURES
Figure Figure Name Page
No. No.
1.1 Principles of Lean Accounting
08
3.1 Maturity Path Levels of Lean Accounting

105
3.2 Toyota Production System House

106
3.3 Value Stream Structure for Customer Order

120
3.4 Cost included in Value Stream Costing

129
3.5 Formula for Target Cost

146
3.6 Overview of Target Costing Process

147
4.1 Process Flowchart of Waterman Industries Pvt. Ltd.

161
4.2 Current Material Flow Layout of Company

165
4.3 Revised Plant Layout

166
4.4 Visual Management in Waterman

170-172
4.5 Day-by-the-hour Report using by Waterman

175
4.6 Value Stream for Customer Order for Waterman

176
4.7 Manufacturing Process Chart of Bhansali

187
4.8 Current Layout of Bhansali Industry

191
Figure Figure Name Page
No. No.
4.9 Linear Layout of the Firm
192
4.10 Use of Kanban Card at Bhansali Industry

195
4.11 Performance Measurement Report of Bhansali

196
Industry
4.12 Manufacturing Process in Reliance Chemotex Ltd.
199
4.13 Visual Management in Reliance Chemotex Ltd.

205-207
4.14 A Typical Value Stream of Product Development in

211
Reliance Chemotex
4.15 Changes in Lot Change Time
217
4.16 Reduction in Ring Traveller Change Time

218
4.17 Run Chart of Machine Cleaning Time

218
4.18 Changes in Sliver Waste and Stain Cone Reduction

219
4.19 Reduction in Roving Waste and Hard Waste

219
CONTENTS
S.No. Particulars Page No.

Preface i-ii
Acknowledgements iii-v
List of Tables vi-vii
List of Figures viii-ix
1. Introduction 1-36
2. Review of Literature 37-104
3. Lean Accounting Pathway 105-158
4. Case Study 159-222
5. Summary of Findings and Suggestions 223-234
Appendix 235-238
Bibliography 239-262
CHAPTER-1
INTRODUCTION
Outlines:
1.1 Meaning and Concept of Lean Accounting

1.2 Definitions
1.3 Evolution of Lean Approach
1.4 Need of Lean Accounting
1.5 Principles of Lean Accounting
1.6 Principles, Practices and Tools of Lean Accounting
1.7 Other tools of Lean Accounting
1.8 Comparison between Lean Accounting and Traditional
Accounting
1.9 Present Study
1.10 Conclusion
In today’s dynamic and vibrant business globe, the accounting is not like
the process that collects, collates, analyzes, interprets and communicates financial
information. Now it is defined as a lens through which decision makers can see
through the clouded business world. It is to say that accounting is an almost
mechanized process that is to be used in every realm and is now highly scalable. It
means the accounting process is now robust enough to accommodate any
unforeseen event that turns out. The challenges in the twenty first century are
colossal for the manufacturing sector in India. Manufacturers have taken to use
technology with new ideas that allow customers to satisfy with them and standing
themselves as supermarkets. It appeals to a segment of the customer of every type
and every segment has availability of new products and services. As well as,
worldwide open competition in market has raised expectation of more
heterogeneous product choices to be offered to them at high quality level, low
prices and reasonable delivery times.
Just as companies, throughout the world, are trying very hard to make their
business more responsive towards the customer-needs, both in terms of speed of
response and ability to provide innovative products. It meets the customer needs
in a way which provide for the satisfaction of target customer. This has forced to
re-think on their internal processes so that the process also meets the value
definition of the customer.1 So companies are demanding for an accounting
system which provides accurate, timely and understandable information to
increased customer values growth, profitability and cash flow.
Lean accounting is the general term used for the changes required to a
company’s accounting, control, measurement, and management processes to
support lean manufacturing and lean thinking. 2 It supports the lean culture by
motivating investment in people, providing information that is relevant and
actionable, and empowering continuous improvement at every level of the
organization. It is fully comply with generally accepted accounting principles
(GAAP), external reporting regulations and internal reporting requirements. It
uses lean tools to eliminate waste from the accounting processes while
maintaining thorough financial control. 3
This chapter tries to explore conceptual issues of lean accounting i.e.
meaning, definition, evolution, need, principles, practices and tools of lean
accounting which help the reader to understand the term lean accounting clearly.
1.1 MEANING AND CONCEPT OF LEAN ACCOUNTING
Lean accounting, in the simplified form, is a systematic approach to

eliminate waste through continuous improvement. Waste can come in three main
forms:
1. Mura (waste due to variation)

2. Muri (waste due to overburdening people, equipment or system)
3. Muda (Transportation, waiting, overproduction, over-processing, motion,
inventory, defect, and disengagement of people)
In above three, generally Muda can be classified into two types i.e. Type-1
muda and Type-2 muda. Type-1 muda includes non value added work but
necessary for the system to function. This can be reduced but not eliminated.
Type-2 muda includes non value added and unnecessary work of system. Lean
accounting first removes Type-2 muda and then works against Type-1 muda.
Furthermore, lean accounting provides accurate, timely and

understandable information that can be used by users of accounts. Lean is a
principle based operating system which can be expressed by customer value,
value stream (sequence of activities from receiving order to deliver it to
customer), flow and pull with minimum interruption, pursuit of perfection and
empowered people. Lean accounting has some aspects for generating lean i.e.
performance measurement chart, box score reporting, value stream costing, lean
decision making by transaction elimination and financial impact of lean
improvement. Finally lean is every day, every time by everyone in any type of
company where the business has been managed by value streams with
accountability for growing profitability and continuous improvement. 4
Lean accounting does not require the traditional management accounting
methods like standard costing, activity based costing, variance reporting, cost plus
pricing, complex traditional control system and untimely, confusing financial
reports. These are replaced by performance measurement chart, value stream
costing, box score, plain language financial statement, value based pricing etc.
The current state of traditional accounting system, where profit is earned by full
utilization of resources, is having large inventory, long lead time, poor delivery,
expanding orders, overhead absorption, and complex and confusing accounting
system. But the lean system is earned profit through maximize flow on pull from
customers and eliminate waste. The result is superior customer value, good
quality, good delivery, shorter lead time, organizational productivity and frequent
reporting of process measurement. Actually it transforms the traditional cost
accounting system of allocating business costs to the goods produced or service
rendered by creating measurable results for tracking the efficiency of overall
operations. These qualities make lean accounting different from traditional
accounting.
The lean thinking tries to remove large, complex, wasteful traditional

process which requires allocation and huge amount of non value adding work that
does not add value to the customer, service or product. It tries to get the right
things, to the right place, at the right time, in the right quantity to achieve the right
workflow while minimizing waste, being flexible with greater customer
satisfaction.5
1.2 DEFINITIONS
To travel around the world of the lean accounting, some definitions given
by the authors or thinkers of lean accounting are given as follow:
According to James P. Womack and Daniel T. Jones, 6 lean accounting is

doing more with less by employing lean thinking. It involves never ending efforts
to eliminate or reduce waste in design, manufacturing, distribution and customer
service processes. It has been rigorously applied to the accounting, control,
measurement, and management of business.
According to Brain Maskell and Bruce Baggaley, 7 lean accounting is a

new method of managing a business that is built upon lean principles and lean
methods. It is a control, measurement, and management method which enables
companies to make more money by identifying the potential financial benefits of
lean improvement and developing strategies to realize that profit.
According to Jean E. Cunningham,8 lean accounting is the application of

lean principles to the accounting and associated functions within the enterprise It
provides a stage that enables the accounting team to move from a traditional
system to a new high value role of consulting within other areas of the company.
According to P. E. Moody,9 The lean concept is a philosophy where non-

value-adding activities are being recognized in accounting processes as well as
other processes and eliminated in lean manufacturing systems which has three key
aspects i.e. visual management, value stream management, and continuous
improvement.
According to Sunitha K. Ravi and P. Thirumlvalavan, 10 lean accounting is

an applied thinking that is able to meet new competitive challenges by eliminating
wasteful transactions, enhancing production speed and pushing innovation which
offers the most value possible at mass production costs.
According to Mike Rother and John Shook,11 lean accounting is a simple,

direct and accurate way to create financial reports with very few transactions. It is
a tool for visualizing flow of material and information across multiple processes,
so that individual process level improvement efforts fit together as a flowing value
stream, match the organization’s objectives, and serve the requirements of
external customers.
According to Glenn Marshall,12 lean accounting is an integrated value

stream management system for accounting, controlling, measuring, and managing
a lean enterprise by focusing on value-stream performance to minimize the
consumption of resources, while creating more value for the customer.
According to Tonya Vinas,13 lean accounting is a movement supported by

manufacturers and non-manufacturers to completely restructure how accounting is
done. This is a byproduct of the lean movement which is a self-ordering, self-
explaining, self-regulating, and self-improving work where what is supposed to
happen does happen, on time, every time, day or night- because of visual
solutions.
Lean accounting is a very wide subject to explore, very deep experience to

share, and very high deliberation to achieve which starts through the customer
value and conclude with empowering people by the way of continuous
improvements.
1.3 EVOLUTION OF LEAN APPROACH
“It was not enough to chase out the cost accountants from the plants. The
problem was to chase cost accounting from my people’s minds.”
Taiichi Ohno, the father of Toyota Production System
The lean approach is not especially new. It derives from the Toyota
Production System or Just-In-Time Production. The term “Lean” firstly coined by
John Krafcik in 1988 but the evolution of lean approach is associated before 19
century when interchangeable parts had been developed by Eli Whitney as
product moved from one discrete process to the next through the logistics system
and assemble at last. In 1890, F. W. Taylor hooks up this chain with Scientific
Management by time study and standardized work.
Although there are instances of lean thinking before 19’s but the actually
work proceed by Henry Ford in 1913. He carried consistently interchangeable
parts with standard work and moving conveyance to create Flow Production. He
lined up the steps in process sequence wherever possible using special purpose
machine and assembled the components going into the vehicle within a few
minutes and delivered perfectly fitting components directly to line-side. It was
apparently lowering costs per process step, but continually increasing throughput
times and inventories and it was really required more sophisticated information
management systems.14
Therefore, in 1930, Taiichi Ohno and Shigeo Shingo revisited Ford’s

original thinking and invented the Toyota Production System (TPS) or Just-In-
Time Production at Toyota Motor Company. This system, in essence, shifted the
focus of the manufacturing engineer from individual machines and their
utilization to the flow of the product through the total process. Toyota concluded
that by right-sizing machines for the actual volume needed, introducing self-
monitoring machines to ensure quality, lining the machines up in process
sequence, pioneering quick setups so each machine could make small volumes of
many part numbers, and having each process step notify the previous step of its
current needs for materials, it would be possible to obtain low cost, high variety,
high quality, and very rapid throughput times to respond to changing customer
desires. Also, information management could be made much simpler and more
accurate.15
All of this took place between about 1949 and 1975. By the 1990’s, the
whole study phrased by “Lean Manufacturing” and it becomes the world class
manufacturing. Lean manufacturing caught the imagination of manufacturing
people in many countries. Lean implementations are now commonplace especially
in U.S. but in Indian context, it is now in growing condition.
As lean thinking keeping on to spread to every country in the world,

leaders are adapting the tools and principles of lean in accounting. But lean
accounting is just more than it. It is management framework of a lean organization
with the use of tried and tested accounting methods in a new context that makes
lean accounting what it is today. Lean consciousness and methods are only
beginning to take root among senior managers and leaders in all sectors today.
1.4 NEED OF LEAN ACCOUNTING
Lean accounting does not require the traditional management control

accounting systems like absorption costing, standard costing, variance reporting,
activity based costing and sometimes serious problems crop up when companies
that supports lean manufacturing and use traditional methods of costing. Because
traditional costing is originated to support mass production but lean
manufacturing and other lean methods contravene the rules of mass production.
So lean accounting is important because
 It provides timely information that can be understood and used by

everyone and the information that everybody can understand, leads to
better results and decisions.
 Better decisions lead to better pricing, production, design, low inventories,
short lead-times, better customer services, and high productivity.
 Lean accounting correctly shows the potential financial benefits of lean
improvements and concentrates on the tactics required to realize the
benefits.
 Lean accounting financial and operational measurements motivate lean
thinking and push everybody ahead for “what you measure is what will be
improved”.
 It eliminates wasteful transactions from the system so that simple and
much less work is for the accountants, operational peoples, engineers,
managers, supervisors, and people supporting the customers. It helps in
adding value to the system.
 It focuses the business around the value created for the customer by
linking performance measurements to the drivers of value creation and
driving changes to maximize this value.
 It replaces traditional measurements with few and focused lean
performance measurements that motivate lean behavior at all levels of the
organization and create continuous lean improvements.
Lean accounting is lean itself. It focuses on the methods to identify the
financial impact of lean manufacturing improvements. It provides measurements
that motivate people for on-going waste elimination and engender continuous
improvement which result limitless growth and profitability that is the touchstone
of lean organizations. Finally lean accounting impacts the bottom line of the
company.
1.5 PRINCIPLES OF LEAN ACCOUNTING
The lean approach begins with a deeper understanding of how the

organization creates value for the customer and how this value is created through
the company’s value streams. The main strength of the lean approach is
systematically created conceptual architecture which supports the whole
operation, governing in an organization. This architecture, including principles,
basically crafts a platform for the value created for the customers. The five
principles of lean accounting revealed by Womack and Jones16 are shown in
Figure 1.1.
DEFINE
PERFECTION
VALUE
IDENTIFY
EMPOWERMENT VALUE
STREAMS
FLOW
AND PULL
Figure 1.1: Principles of Lean Accounting

i. DEFINE VALUE: The value should be defined in terms of a specific
product, with specific capabilities, offered at a specific price and time from
the perspective of the end customer.
ii. IDENTIFY VALUE STREAMS: This principle denotes to identify the

entire value stream for each service, product or product family and
elimination of waste. The value stream is the sequence of processes
through which a product is transformed from raw material to deliver at the
customer’s site. Identifying the value stream almost always exposes
enormous amounts of waste in the form of unnecessary steps,
backtracking, and scrap, as the throughput travels from department to
department and from company to company. Lean accounting focuses on
the total cost of the flow through the value stream without any waste and
endows with excellent cost control.
iii. FLOW AND PULL: The production process is designed to maximize the
flow of the product through value stream. It means working on each
design, order, and product continuously from beginning to end so that
there is no waiting, downtime, or waste, within or between the steps. As
flow is introduced let the customer pull i.e., to provide what the customer
wants only when the customer wants it.
iv. EMPOWERMENT OF PEOPLE: Lean accounting supports

empowerment of people. The system of measurement and control provides
each employee with the information and authority to take necessary action
at the time it is required. This process starts from the top level strategic
people and then rolled out leaders of the value stream team.
v. PURSUE PERFECTION: A lean thinking enterprise sets its sights on

perfection. The idea of total quality management is to systematically and
continuously remove the root causes of poor quality – with the ultimate
goal of achieving zero defects.
1.6 PRINCIPLES, PRACTICES AND TOOLS OF LEAN
ACCOUNTING
While there is good understanding of the problems, there is not

widespread understanding of the solutions. In September 2005, at the Lean
Accounting Summit in Detroit, a group of conference presenters got together and
decided to create a definition of lean accounting as well as succinctly document
the Principles, Practices, and Tools of lean accounting 17. Table 1.1 is showing
principles, practices, and tools of lean accounting as developed in lean accounting
Summit, 2005.
TOOLS OF LEAN
PRINCIPLES PRACTICES
ACCOUNTING
Continuously eliminate
Lean & simple  Value stream mapping
waste from the transactions
business  Kaizen
processes, reports and other
accounting  PDCA
accounting methods
 Performance
Management control & Measurement Linkage
Continuous improvement Chart
 Value stream
performance boards
 Box Scores
Accounting
processes that
support lean Cost management  Value Stream Costing
transformation  Value Stream Income
Statement
Customer & supplier value

 Target costing
and cost management
Financial reporting “Plain English” financial
statements
 Primary reporting using

Visual reporting of
visual performance
financial & non-financial
boards
performance measurements
Clear & timely

communication  Incremental cost &
Decision-making profitability analysis by
of information value stream costing
 Hoshin policy
Contd….
deployment, 5S
Planning & budgeting
 Sales, Operations,
Finance Planning
 Value Stream Cost and

capacity analysis
Impact of lean
 Current state and future
improvement
state value stream maps
Planning from  Box Score
a lean
perspective  Incremental impact of
Capital planning capital expenditure on
value stream box-
score(3P approach)
 Performance
measurement tracking
Invest in people continuous improvement,
employee training
 Profit sharing
 Transaction elimination
Internal control based on matrix
Strengthen lean operational controls  Process maps showing
internal controls
accounting
 Simple methods to value
control
inventory without the
Inventory valuation
requirement for perpetual
inventory records
Table 1.1: Principles, Practices, and Tools of Lean Accounting18

1.6.1 LEAN AND SIMPLE BUSINESS ACCOUNTING
This principle states as applying lean methods to the accounting processes

so that waste is persistently expelled. Muda (type1 and type 2) can be reduced by
practicing continuous elimination of waste from the transactions processes,
reports and accounting methods throughout the organization. This principle can be
accomplished by using the lean tools like value stream maps (current and future
state), kaizen (lean continuous improvement), and Plan-Do-Check-Act (PDCA)
problem solving approach.
1.6.1.1 Value Stream Mapping
It is the “language of Lean” which analyzes the current and the future state
for the sequence of activities generate from its beginning through to the customer.
Many companies, pursuing the lean transformations, have realized that
improvement events alone are not enough. Value Stream Mapping with its vision
and plan, analyzes the lean improvements and strengthens as well. It provides the
optimum value through complete value creation process to the customers with
minimum or reduced waste. The purpose of a value stream map is to enable us to
see the flow of materials, information, and sometimes cash, through the value
stream.19
1.6.1.2 Kaizen
The lean Company frequently works for the ultimate object of Kaizen. It is
a technique of lean management which shows continuous improvement. It seeks
to achieve small but continuous changes in processes with the intention of
improved quality and competence in a systematic manner. It is an ongoing effort
to improve products, services or processes where employees work together
proactively to achieve regular, incremental improvements in the manufacturing
process. It combines the collective talents of a company to create an engine for
continually eliminating waste form the process.20
1.6.1.3 Plan-Do-Check-Act (PDCA)
It is a scientific method whereby improvement ideas are measured and

results are verified. PDCA works for the control and continuous improvement of
processes and products. It is a four step technique which assesses current situation
and plan for future. It checks the action taken over using measures. It identifies
root cause and generates solutions. Then it examines the effectiveness of solutions
and develops new standard work to sustain improvements.21
1.6.2 ACCOUNTING PROCESSES THAT SUPPORT THE LEAN

TRANSFORMATION
Lean accounting is that process which supports lean transformation

through practicing overall management control and continuous improvement.
Control of production processes and any other processes can be achieved by using
visual performance measurement in every value stream. Lean accounting has cost
management techniques like target costing, value stream costing as well as value
stream income statement which focus on measuring and understanding the value
created especially for customers and use this information to enhance customer
relationships.
1.6.2.1 Visual Performance Measurement
The performance measurement of lean is to make sure all the processes are
exactly following the expectation of strategy goals, and value stream performance
is to initiate continuous improvement and create more benefit in the
organization.22 This tool uses visual techniques to display critical measures in the
workplace and see instantly what is going wrong on the shop floor. It can improve
feedback between performances and results.
1.6.2.2 Box Score

It is a structured summery of weekly results, scored from value stream
performance reporting. Generally, it has been used also for routine decision
making like make or buy decisions, outsourcing decisions, profitability decisions,
product rationalization and so forth. These decisions can be achieved using simple
yet powerful information that is readily available from the box score. Also, it
presents lean goals and targets which allow at every level of the lean organization
to understand the effectiveness of lean and what needs to be done to create
improvement.23
1.6.2.3 Value Stream Costing
Value stream cost is typically calculated weekly and takes account of all
the costs in the value stream. It makes no difference between direct cost and
indirect cost. All the costs within the value stream are considered direct. Costs
which are exterior of the value stream are not incorporated in the value stream
costing. It provides financial information that can be clearly understood by
everyone in the value stream.24
1.6.2.4 Target Costing
It is a system under which company has planned its product cost and profit
in advance that it wants to achieve for a new product. It is a market driven cost
which is computed before a product is produced through market research and
competitor analysis. Target costs are calculated by using a formula i.e. market
price – required profit margin = target cost. 25 Target costing is used when new
products are being designed or when the value stream team needs to understand
the changes required for increasing value for the customers.
1.6.3 CLEAR AND TIMELY COMMUNICATION OF

INFORMATION
The vision of lean accounting is to provide accurate, timely, and

understandable information to motivate the lean transformation throughout the
organization and for decision making leading to increased customer value,
growth, profitability, and cash flow. 26 “Plain English” financial statement
provides financial reports in a very simple format that can be understood by
anyone in the organization. Also visual reporting of financial and non-financial
performance measurements make “visual factory” which helps in decision making
of company.
1.6.3.1 “Plain English” financial statement
Financial statements in lean accounting prepares in the simple and plain

English format which is easily understandable. In other words, a major change in
the lean conversion is to move away from a standard-cost based profit and loss
statement to one that is prepared using “Plain English”. The Profit and Loss with
variances that don’t explain what has happened with the business but, instead,
lean accounting offers financial reports that allow the readers of the financial
statements to make meaningful conclusions and decisions about the state of the
business.27
1.6.3.2 Visual Management
Visual management is a cornerstone of lean management. Lean accounting

requires visual presentation of both financial and non-financial measurements.
This technique uses visual signal of work to be done, instead, written instructions
or text for communication. It communicates information quickly, clearly and
widely.28 It helps to sustain continuous improvement in lean enterprises which
serve to support ongoing strategy development and implementation, facilitate
performance measurement and review, enable people engagement, improve
internal and external communication, enhance collaboration and integration,
support the development of a continuous improvement culture and foster
innovation. 29
1.6.4 PLANNING AND BUDGETING FROM A LEAN

PERSPECTIVE
Lean planning starts with Hoshin Policy Deployment and runs through to
the monthly Sales, Operations, and Financial Planning (SOPF) process leading to
an integrated game plan for the organization. These plans are all made at a value
stream level and use lean accounting information. 30 The impact of this lean
improvement can be shown through value stream cost and capacity analysis, and
also current & future state value stream maps. Finally it invests in people through
continuous improvement participation, employee satisfaction, and profit sharing.
1.6.4.1 Hoshin Policy Deployment
Hoshin Policy Deployment (also called Hashin Kanri) is a method for

ensuring that the strategic goals of a company drive in progress and action at
every level within the company. It eliminates the waste that comes from
inconsistent direction and poor communication. It aligns company goals with the
plans of top management and work performed by employees to ensure that
everyone is pulling in the same direction at the same time. 31 Hoshin policy
deployment starts with the company’s business strategy. It decides what should be
done in the next coming year. The top level Hoshin plan has a handful of break-
through changes required to support the business strategy together with the
measurement to monitor the achievements, and the resources needed to complete
the plan. This top level Hoshin plan is then rolled out to the first-level executives,
their first-level managers, and down to the value streams. 32
1.6.4.2 - 5S
5S is a system to reduce waste and optimize productivity through

maintaining an orderly workplace and using visual cues to achieve more
consistent operational results. Implementation of this method "cleans up" and
organizes the workplace basically in its existing configuration. 33 5S is Sort, Set In,
Shine, Standardize, and Sustain. It is a tool to eliminate waste from a poorly
organized work area. According to it, firstly sort the area. It means to eliminate
that which is not needed. Secondly, organize the remaining items or set them in
order. Make the work are shine i.e. clean and inspect work area everyday then
write standards for above. Finally, keep it sustain and regularly apply the
standards.
1.6.4.3 Sales, Operations & Financial Planning (SOFP)
Sales, Operations and Financial Planning (SOFP) is an important part of a

lean enterprise. It is monthly planning process which is created to coordinate sales
and marketing process with the new product development process and other value
adding process within the company so that the customers’ demands can be fully
satisfied and the company’s strategic and financial objective can be met. The
SOFP process may be short term or long term which is updated and refined
according to the needs of customer and the market changes. It continuously “leans
out” and improves the company’s processes, and puts the company’s strategy into
action month-by-month.34
1.6.4.4: 3P
Production Preparation Process (3P) is a disciplined method for designing

or redesigning production process. Generally it is used for building new facilities,
upgrading or changing equipment, changes in demand etc. The 3P team is
required to develop several solutions to the problem. Often they are forced to
“think outside the box”. 3P also requires the team to evaluate each alternative
using an extensive checklist of lean attributes, most of which are non-financial.
The financial impact of each alternative is presented on a box score as a part of
the decision process.35
1.6.5 STRENTHEN INTERNAL ACCOUNTING CONTROLS
Companies that are using the lean accounting have better understanding of
information rather than a traditional accounting company. It generates some better
information when proper internal accounting control is there. Accounting control
is always important and it is essential that the Lean Accounting improves these
controls and never makes it weak.
1.6.5.1 Transaction Elimination Matrix

Transaction Elimination Matrix shows an action plan for elimination of
transactions. It is just a simple table which enables the lean accounting team how
to changes are made and how to eliminate transactions at each stage of the lean
maturity path. Once a company undergoes with the lean accounting methods,
there are lots of wasteful transaction that must be gradually eliminated by the
transaction elimination matrix which ensure that the lean accounting changes are
made prudently.
1.6.5.2 SOX Risk
Sarbanes Oxley or SOX is a United States federal law which monitors

companies’ compliance to generally accepted accounting principles in relation to
internal financial control and accuracy of external reporting. When process maps
are drawn, the SOX risks are included and colour-coded, and any changes
required to mitigate and test these risks are built into the improvement project or
kaizen event.36
Lean accounting is a continuous process where a standard approach for

accounting, control and measurement has been designed by an agreed body of
knowledge. If these principals, practices and tools implemented at various stages
on the journey to the lean transformation, with the proper manner, the outcomes
would meet company’s needs and maintain adherence to GAAP and external
reporting requirements and regulation.
1.7 OTHER TOOLS OF LEAN ACCOUNTING
1.7.1 Bottleneck Analysis
It identifies which part of the manufacturing process limits the overall

throughput and improves the performance of the part of the process. It improves
throughput time by strengthening the weakest link in the manufacturing process. 37
1.7.2 Gemba
Gemba (the real place) is a philosophy that reminds the top level
management to get out the offices and spend their time on the plant floor- the
place where real action occurs. It promotes a deep and thorough understanding of
real world manufacturing issues by first hand observation and by talking with
plant floor employees.38
1.7.3 Jidoka
It is a Japanese term for autonomation. It is just to design equipment to

partially automate the manufacturing process and to automatically stop when
defects are identified. After Jidoka, workers can frequently keep an eye on
multiple stations which trim down the labour costs and many quality issues can be
detected without delay which improves quality.
1.7.4 Just-In-Time
JIT supports to produce goods based on customer demand. It works on

pulling the customer demand first and manufactures the product just in time
instead of pushing goods through production based on projected demand. It is a
highly effective tool of lean in reducing inventory levels. It improves cash flow
and reduces space requirements also.
1.7.5 Kanban
Kanban is a method of regulating the flow of goods both within the factory
and with outside suppliers and customers. Based on automatic replenishment
through signal cards that indicate when more goods are needed. It eliminates
waste of inventory and overproduction. 39
1.7.6 Overall Equipment Effectiveness (OEE)
It is the framework for measuring productivity loss for a given

manufacturing process. In this, three categories of loss are tracked i.e. down time,
slow cycles, and rejects. It provides a benchmark or baseline to track progress in
eliminating waste from a manufacturing process. 100% OEE means perfect
production that produces only good parts, as fast as possible. 40
1.7.7 Takt Time
It is the pace of production i.e. how much time must take to produce a unit.
It gives an idea to align production with customer demand.
These are some tools of lean accounting which work in the direction of
continuous improvement with the ultimate goal of empowering peoples and move
towards perfection.
1.8 COMPARISON BETWEEN LEAN ACCOUNTING AND

TRADITIONAL COST ACCOUNTING
Traditional accounting refers to the manufacturing principles which focused

on producing the product for achieving economies of scale through long
production runs. It is also governed by the thick volumes of regulations presided
over by auditors and regulators. But, lean accounting focuses on making product
one at time. Actually, traditional systems are not the wrong way to work, but it is
designed to support mass production. Lean accounting violates the assumption of
mass production. It eliminates the need of high inventory transactions, large
batched and producing unhelpful reports. This is the main difference between lean
and traditional approach. Table 1.2 shows some more variations regarding lean
and traditional cost accounting.
S. LEAN ACCOUNTING TRADITIONAL COST
No. ACCOUNTING
1. Lean accounting is quick, simple, Traditional accounting systems are

and timely. It provides accurate large, complex, wasteful processes
information for decision making. which require large amount of non-
value adding work.
2. It is clear and easy to understand It is difficult for people to understand

through “Plain English financial because of complex financial
statement”. accounting system.
S. TRADITIONAL COST
No. LEAN ACCOUNTING ACCOUNTING Contd….
3. It supports value stream For decision making, it supports

measurements and box score for standard variance reports which
decision making. undermine lean endeavors.
4. For product costing, it supports a It supports a departmental view of

value stream approach that production
associate with whole process of a
product.
5. It enables value stream financial It narrows the focus of financial
control and improvement. control and improvement.
6. It enables value based pricing. It enables cost based pricing.
7. It supports weekly value stream It supports annual income statement.

income statement. More frequent
income statements give better
understanding and control.
Contd…
8. It has full revenues and costs It has narrow focus on the cost side
without allocations. of the ledger, not on revenue or
value.
9. It offers more control through It creates multi-page reports with
visual management. opaque accounting jargon.
10. Lean accounting provides Traditional cost accounting has

effective controls because of weaker controls, due to the monthly
timeliness and completeness. cycle, historical orientation and
narrow focus.
11. It focuses accountability and Accountability for the whole process
responsibility on the value stream is lacking in this system.
manager.
12. It produces easy and quick reports In this system, reports are quick and
which integrate easily with box easy to produce, but only after the
scores that show operational and posting table and standard costs have
capacity information alongside the been established. Reports are based
financials. on often huge numbers of accounting
transactions.
13. It is based on maximizing value It is based on minimizing individual
stream throughput. product cost.
14. It seeks to maximize flow through It focuses on standard costs and
the value stream. variances.
15. It is linked directly to strategic It seeks to maximize labour
goals and leads to self-motivated efficiency and machine utilization.
strategic achievement.
16. In this system, companies rely on This system, companies either have a
an integrated system of financial focus or an operational
operational measures, financial focus. If they have both, traditional
results, capacity and flow companies have baffling balanced
information. score cards or other complex
reporting.
Contd…
17. It motivates single-piece flow, It motivates larges batches, high
low inventory and on-time inventories and long lead times. It
delivery. It is designed for flow. designed for mass production.
18. It has few measurements which It has been produced complex reports
are timely and visually displayed. by accounting department and
designed for senior managers.
19. Local measurements designed to Reports are designed to measure and

control the process and clearly control people. People try to hide
identify process problems. problems.
20. Measurements are gathered by the Measurements come from the ERP
value stream team members. They (Enterprise Resource Planning)
motivate lean improvements and system and are feared by the people.
strategic achievement.
21. It supports empowered operations It supports command-and-control
and accounting people. management.
22. Lean accounting methods Traditional management methods

encourage teamwork and and evaluations reward narrow
cooperative achievement of value achievement of personal or
stream goals. departmental targets. They enforce
barriers to teamwork.
23. Lean reports are timely, clear, Detailed reporting, monthly roll-ups,
concise, and do not require department allocations, and meetings
lengthy meetings to explain “what waste operations people’s time
does this mean?”. It says “what without contributing useful
should we do?” information.
24. In this system, managers and In this system, managers and
accountants are at the gemba. accountants work in the back office.
25. Value stream financial analysis Any decisions based on standard
shows the true financial impact of product costs are unreal and
the decision. misleading.
Contd…
S. LEAN ACCOUNTING TRADITIONAL COST
No. ACCOUNTING
26. Outsourcing decisions are taken Outsourcing decisions are based on

based on the impact on the value lowest cost compared to standard
stream. It takes account of costs.
financial, operational and capacity
impact.
27. Pricing or order taking decisions Pricing or orders taking decisions are
are based on the value created for based on cost plus margins.
the customer.
28. Routine decisions are made by Decisions are made by managers

people at the lowest possible level using their skills and experience.
of the organization using
standardized work and templates.
29. Most decisions are made using the Most decisions are made using
revenues, costs, and profitability standard costs of products or
of the value stream as a whole. services.
30. Lean accounting leads to better These methods provide incorrect

pricing and better decisions that in information about the financial
turn lead to higher profitability impact of decisions, often leading to
and cash flow, balanced poor pricing, taking the wrong
production, and design for orders, rejecting the wrong orders,
manufacturability. making the wrong improvements,
designing products wrongly and
buying the wrong equipment.
Table 1.2: Comparison between Lean & Traditional Cost Accounting41,42,43,44

1.9 PRESENT STUDY
Based on descriptive study, an empirical analysis of certain companies in

order to explore various aspects of the lean accounting is conducted. Various
features of the study are presented hereunder:
1.9.1 Objectives:
The purpose of the present study is to contribute an understanding of the

requirement of lean accounting in Indian perspective. The underlying research has
following objectives:
(a) To undertake a thorough review of literature available on lean

accounting.
(b) To conduct an in depth study of lean accounting concept and

philosophy.
(c) To compare the results of traditional accounting system versus lean

accounting.
(d) To identify MUDA (a Japanese term) i.e.
a. The activities which produce mistakes and require rectification.

b. The processes which produce products/services no one wants.
c. The processes which are no longer relevant e.g. filling up
manual register while computer data exists.
d. The movements of employees which does not serve any
purpose.
e. The products/services which do not satisfy the needs of the
customer.
(e) To put forth suggestions for eliminate MUDA to move to
perfection.
(d) To drive lean solution based on lean principal for the problem
facing in traditional volume based costing.
1.9.2 Methodology:
The proposed methodology of research would go along the following lines:
a. Data Source: For present research work, primary as well as secondary data
have been used for covering all the aspects of lean accounting. A
comprehensive and extensive procedure is adopted for collecting data.
 Collection of secondary data – In this first phase of data collection, various

aspects regarding lean accounting has been identified through various
sources like books, articles, webinars, online training, expert’s
suggestions, and libraries as well. The sources of information have been
appropriately acknowledged which includes Central Library of Mohanlal
Sukhadia University, Udaipur, Library of University College of
Commerce and Management Studies, Udaipur, Library of IIM, Udaipur,
Central Library of University of Rajasthan, Jaipur and various internet
tools. Covering the information regarding sample companies, annual
report as well actual forms and operating documents currently being used
has been utilized as secondary data. Case studies and the latest information
have directly been collected through the e-mails to lean accounting groups
and consultancy firms in India and outside India i.e. BMA lean accounting
firm, lean Accounting Super Group and Add Value consultancy firm.
 Collection of primary data – In this second phase, the information has
been collected directly from the informant companies through
questionnaires, survey, observation and interview.
b. Sample Selection: The sample has been selected on judgmental basis. Three
different manufacturing companies are selected as sample which produces
different products in their field with traditional system of costing.
Final list of units surveyed is as follow –
i. Waterman Industries Pvt. Ltd., Ahmadabad, Gujarat.

ii. Bhansali Industries, Beawar, Rajasthan
iii. Reliance Chemotex Industries Ltd., Udaipur, Rajasthan
Beside the above, through e-mail and internet search for the lean
accounting has been approached throughout the India.
c. Data Analysis: Data analysis is based on primary and secondary collection of

data as well as other information regarding the lean system practice. After
applying lean methodology in selected companies which was using
conventional methods of accounting before, results have been tabulated. And
the results are compared against traditional practices. Thus impact of lean
shall be assessed and suggestions for better practices shall be made.
1.9.3 Major Hypothesis:
Lean accounting is better result oriented than traditional accounting

system.
1.9.4 Profile of Selected Companies:
A brief profile of each Indian company selected for study is given as

under-
1.9.4.1 WATERMAN INDUSTRIES PVT. LIMITED, AHMEDABAD
Waterman Industries Pvt. Ltd. Ahmedabad, Gujarat, INDIA is a leading

manufacturer and exporter of water handling pumps with registered trade
mark and brand name of "WATERMAN". The company has a consistent
growth since its inception in year 1973. Mr. Bharat Bhai Patel is the Managing
Director of company. It is an ISO 9001-2008 accredited company from TUV
NORD, Germany. Waterman manufacturing more than 3000 Varieties of
water handling pumps like Stainless steel Submersible pumps, cast Iron
Submersible Pumps, Submersible Motors, Horizontal and Vertical Open-well
Submersible pumps, Centrifugal pumps, Domestic pumps and Industrial
pumps etc. In addition to the manufacturing of pumps for the Indian market,
waterman also exporting water handling pumps in number of countries over
the globe. Waterman is increasingly a service partner and provides complete
hydraulic systems for water supply and drainage. As of today, Waterman
Industries Pvt. Ltd is having turnover of Rs. 35 crore (approx USD 7.7 M)
annually, with 14 Stock Points and 675 dealers all over the country.
1.9.4.2 BHANSALI INDUSTRIES, BEAWAR
Bhansali Industries, Beawar, Rajasthan, India established in the year 1990,

is a well- known firm which deals as the foremost Manufacturer, Exporter and
Supplier of different types of Cotton. The firm headed by the Director Mr.
Ratan Lal Bhansali. The firm has a robust infrastructure which is equipped with
all types of essential amenities. The manufacturing unit is spread across an area
of 22000 square feet. It is equipped with modern machines such as: Kier,
Hydro Extractor, Blowroom line, Carding, Rolling, Automatic Packing
Machine, Bleaching plant (Fully Automatic, Sophisticated, Imported) for
preparing highly hygienic and unmatched quality of product. The firm has a
strong team which is comprised of industrious professionals i.e. Raw Cotton
Procuring Agents, Sales and Marketing Representatives, Processors, Quality
Analysts. These professionals have great experience in their fields. Moreover,
company trains their professionals on regular basis to keep them at par with the
competition. At least 26 to 50 direct/indirect employees work for maximum
customer satisfaction in worldwide market Supply.
1.9.4.3 RELIANCE CHEMOTEX INDUSTRIES LTD., UDAIPUR
Reliance Chemotex Industries Ltd., an export house recognized by the

government of India, is a synthetic spinning unit set up in 1977 at Udaipur,
Rajasthan. It has maintained steady growth since that time under the
leadership of Mr. Shanker Shroff as Chairman and Mr. Sanjiv Shroff as
Managing Director. At present, the plant has 53,280 spindles with state of the
art machinery from the blow room to spinning and finishing. All yarn is
autoconed, spliced, electronically cleared and TFO twisted. The company has
its own HT/HP fiber-dyeing plant. It also has its own independent captive
power generation plant. Reliance Chemotex Industries Ltd. has a versatile
product mix of fiber-dyed and blended yarns of polyester, viscose, and acrylic.
Production of good quality ring spun, fiber -dyed 100% viscose and 100%
polyester yarn is the specialty of the company. Reliance Chemotex Industries
Ltd. produces approximately 15000 tons of yarn yearly of which 77% is
exported. The annual turnover is approximately Rs. 200 crores (US$ 45
million).
1.9.5 Limitations of the study
The overall objective of this research is to explore the role of lean

accounting in Indian perspective but there are some limitations. Due to these
certain limitations encountered while doing research, patience and determination
was the need of the hour. These limitations are-
a. This study is based on judgmental basis and there might be no

applicability of the lean accounting in India right now. So this research is a
step ahead work from the limited literature availed.
b. It is a little complicated work to collect primary data from the selected
companies because of the nature of work. The authority is not easily
considered to give any accounting information as well as other information
related to procedure and policies.
c. There are lots of tools, methods and practices are available for lean
accounting but this research work is limited with the methodology that is
convenient for the projected firm.
d. The informants could not give enough time to the researcher while
conducting the research work. This has not only wasted considerable
amount of time in collecting data, but also has affected the main research
work.
e. Sometimes, companies are not seriously involved in proposal of
researcher, whether in applying immediately or to follow in near or long
future. It may affect the researcher results in long period of time.
Despite of these above mentioned problems and limitations, every effort

has been made to maintain the quality of work and ensure research output of
satisfactory level.
1.10 CONCLUSION
Lean accounting itself lean. It can create world class organization through
Total Lean Management. This chapter gives a basic introduction to lean
accounting by answering the questions that what is lean accounting, why it is
important for a company, what are its principles and tools, how it is originated and
why it is better than traditional accounting.
In India, lean accounting is not in better position. It is in very initial

movement and adopting by some of the companies in lean manufacturing form
with the use of conventional methods of accounting like absorption costing,
standard costing, variance reporting, activity based costing and so forth. As an
organization moves from mass production to lean manufacturing, the accounting,
control, and measurement systems need to change. Lean manufacturing and lean
thinking cannot be sustained over the long term without significant changes in
these systems. Traditional accounting systems are based on the rules and
principles of mass production, and the lean thinking violates these rules.
Traditional accounting systems actively undermine a company’s journey towards
a lean enterprise because they motive non-lean behavior at all levels of the
organization.45
To overcome these issues, there is great need in India to implement the

methods known collectively as lean accounting which is based on established and
recognized accounting practice. Lean accounting is simple and easily
accomplished by everyone within the organization and supplies business control
procedure cored in the lean thinking.
Lean accounting is very wide concept to use. It is still work in progress. Its
principles, practices and tools have been implemented in a wide range of
companies at various stages on the journey to the lean transformation. This
chapter explores the potential of the lean accounting from the view point of
maximize flow and minimize waste in an organization. Also, it highlights a
proven system for measuring and managing the lean enterprise.
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CHAPTER–2
REVIEW OF LITERATURE
Outlines:
2.1 Conceptual review of Lean Accounting
2.2 Case Studies
2.3 Criticism of Lean Accounting
2.4 Research Gaps Identified
2.5 Conclusion
There are many angles through which a literature review can be
approached. The literature review is like a bridge between the study already done
and the present study to be done. Every research needs to be connected with the
work already done to disclose appropriate theoretical structure of the present
study. Therefore, before proceeding towards analysis of impact of lean accounting
and traditional cost accounting, a sight has been put for the work already done in
this area. This will facilitate to reveal various concepts relating to the study and
the potential relationship between them. It exercises to analyze the area of the
research, which has been resolved in the study and also justifies the proposed
methodology. It will allow identifying the research gap so as to engender new
original ideas and avoid duplicating results of other researchers. Ultimately it will
help to refine and refocus on the study.
This chapter includes the review of research work done on various aspects
of lean accounting highlighting its objectives, methodology and findings. Lean
accounting is one of the most popular areas of research. So the review of literature
has mentioned below shows a number of studies, in India and abroad that have
been conducted to identify the concept of lean accounting and its impact on the
organization. While going through the available literature for lean accounting, it
has been found that not much work has been done on the said topic in India so an
effort has been made to identify research gap especially in context of India.
Therefore, the available researches are classified into three categories according to
their focus on the study namely conceptual review of lean accounting, case
studies, and criticisms of lean accounting.
2.1 CONCEPTUAL REVIEW OF LEAN ACCOUNTING
This category of reviews includes those studies which have the objectives
of exploring the introduction of lean accounting, its behavior for the organization
and comparison with other costing methods. A brief review of researches done by
various researchers is presented below in reverse chronological order:
 Bargerstock and Shi (2015)1 examines irregularity in lean accounting
theory and practice related to the use of standard costing in a
manufacturing enterprises of United States that utilizes Toyota-style
process improvement techniques. As lean accounting literature suggests,
when lean manufacturing is properly implemented in the company,
standard costing becomes another form of waste that must be eliminated or
reduced. Because variance analysis in standard costing has been replaced
by work cell matrix in the lean accounting, it is to be considered as
outstanding method for operational control. This article looks inside the
possible reasons for dichotomy including lack of lean accounting
knowledge and also deeply attachment with the standard costing and ERP
systems.
 Elsukova (2015)2 states that in the conditions of cut-throat competition,

there is a great need of new accounting and costing system which can give
the accurate information to stay in the market. Two methods of
management accounting have been considered in this article i.e. the lean
accounting and the throughput accounting. Because the traditional cost
accounting does not match with the requirement of current market, this
article offers an integrated approach of lean and throughput accounting
and its usage in commercial enterprises. Throughput accounting focuses
on the satisfaction of consumers’ demand and lean accounting creates
value in lean enterprises through continuous improvement. This LA+TA
approach will allow engendering information about costs and results of a
modern enterprise are more effective than applying each method
separately.
 Sharma and Chikhalikar (2015)3 implement lean manufacturing in an

engine manufacturing unit and obtain that optimum performance of
Assembly line and Testing Line can be achieved with involvement of
proper Material and Manpower Management System. According to the
authors, lean manufacturing is a performance based process that is being
used in manufacturing organization to increase competitive advantage. The
major challenge faced in implementation of lean manufacturing is to create
a culture that builds and sustains long-term commitment from top
management to the entire workforce. The best practices in lean approach
are to be effective with driving waste out of the manufacturing process.
 Katko (2014)4 in the webinar ‘Creating Lean Flow in the Accounting

Department’ has presented how to create flow of lean in accounting
department, the most complex part of the organization. He explains that
the current status of accounting department is internal focused. There is no
visibility and individuality, people works on their own. So the issue is,
there is lack of the understanding of lean. Generally, accounting
department uses traditional measures and traditional management which
focuses on GAAP and prudence. The author reveals the benefits of flow in
accounting i.e. improved performance, customer satisfaction and
continuous improvement. And this could be achieved by the proper
application of principles of lean accounting i.e. increase customer value,
make flow and pull in production process, try for perfection and
empowered people. For creating flow in the accounting department, the
author explains the flow time. The flow time is determined by the queue of
work in the process. As larger the queue, longer the flow time. So manage
the queue by limiting the work in process. At the end, the author wraps up
with some suggestions i.e. prioritizes demand, small batch size, single
piece flow, and manage variability.
 Martinez (2014)5 reveals that the lean is a novel and radically successful
approach for manufacturing development by Toyota. To provide a mean of
accounting with value-addition to the customer, the concept of lean
accounting has been developed. This concept of accounting includes value
stream, pull, perfection and continuous improvement. The author
compares the lean and the traditional accounting and finally concludes that
the lean accounting is a philosophy effectuated through accounting
policies and procedures. The primary objective of lean is to maximize the
value to the customer through development and active use of metrics and
benchmarks which are easy to understand and periodically monitor by the
lean team.
 Maskell (2014)6 presents in the webinar that the traditional accounting

system has some problems in its reporting and providing information. It
does not give timely information that everybody can understand. It always
needs an accountant to manage transactions and to make it explain.
Traditional accounting is anti-lean. In lean thinking, value stream
accounting is used to look the impact of lean as a whole. It is just a simple
summary and direct costing of the value streams. All costs and revenues,
in the value streams, are treated as direct. There are little and no allocation
of cost. Plain English financial statement used in lean accounting is also
clear, simple, understandable and actionable. Finally, value stream
accounting solves the problem of product costing. It gives timely
information that everybody can understand and use immediately. It
motivates everybody from continuous lean improvement. It provides better
decisions leading to better revenues, costs, cash and profits. It maximizes
the benefits of kaizen and other lean improvements. It has simple and
much less work. So lean accounting makes financial information useful for
humans, not just for accountants.
 Maskell (2014)7 in the webinar ‘Not Just a Map; Value Streams are How
You Run a Lean Business’ presents the problem of traditional accounting.
Traditional accounting’s departmental organizational structure is designed
to optimize departmental performance and creates artificial barriers in an
organization. But lean companies create processes that rapidly flow value
to the customers. The departmental structure of lean is about flow and pull,
and second is continuous improvement. This can be achieved through end-
to-end perfectness in the value streams. Third one is the empowerment of
employees that can be obtained from cooperation within the value stream
team. Fourth and last is customer value that is sequence of process steps
that create value for the customer. This customer value comes from a
single line of sight to the customer. The presenter includes here, all actions
in the value stream required to create exceptional value for the customers
and all other activities required to support the transformation of the order
into delivery a finished product. The benefit of a value stream organization
is the whole flow consists in one value stream team. This team focuses on
creating customer value, manages flow and eliminates waste and finally
makes lots of money. So really value streams are not just a map, it is about
how to run a business.
 Maskell (2014)8 explores four points to increase profits of the firm i.e.
manage spending to reduce cost, manage profitability using hurdle rate,
lean decision making to improve profitability and at last, target costing.
The author favours the Value Stream Accounting to identify and to solve
spending problems with Plan-Do-Check-Act process. First of all, assess
the current situation using actual spending, identify root causes of
spending, change operating behavior, develop new standard work and
reduce costs and increase profits. The presenter uses a hurdle rate which is
the minimum required return on sales, to manage the profitability of value
stream. Finally, the webinar embosses target costing on the surface of the
lean accounting. Target costing is a cross functional improvement
methodology which works on market price less desired profit. So the
target cost less actual cost becomes the cost gap for any type of value
stream. It eliminates waste, and increases value which is helpful to
maintain the value stream profitability.
 Maskell (2014)9 shares his views on the lean accounting in his blog ‘It
Fits; Day-by-the-Hour for Long Lead-Time Products’. He posts that every
company which has adopted lean manufacturing, generally uses Day-by-
the-Hour charts. It shows the work must be completed each hour of the
workday on a visual board which is located within the cell or process. The
Day-by-the-Hour report controls the process and offset immediate
problems. It drives long term improvement projects and solves problems
permanently as it is the vital part of lean accounting. But what can be done
if the processes take many hours or days to complete? The author tries to
answer this question by telling a tale of two companies. In the first
company, as a result of using the Day-by-the-Hour report to control the
process, their output has reached 22 batches per week for over one year.
This output has been achieved by the close attention on Day-by-the-Hour
report. As same in the second company, the production capacity of the
value stream has doubled without any significant investment in the
company. So at last, the author suggests in his blog that applying Day-by-
the-Hour report to all companies can make the lean story successful.
 Pandya and Shah (2014)10 elucidate that the lean is a wide concept and can
be implemented in all types of different organizations like automotive,
piece of clothing, electronics, ceramic objects etc. The lean mainly
includes involvement of people which tries to reduce waste and improves
quality. The authors have analyzed here different types of wastes in a
Diesel Locomotive Plant Light Machine Shop and implement the lean
programme to identify different factors which are associated with process
and its effects on performance of the process. Finally it concludes that lean
manufacturing concept improves quality and increases production rate in
every type of organization. It reduces waste of all kinds and increases
productivity.
 Chopra (2013)11 talks about development of lean accounting in the world

as well as in India also. The author explains different sections of a lean
production system like lean manufacturing, Total Quality Management,
IT- Solutions, Virtual Integration, lean Supply Chain, Outsourcing, Just In
Time and Flexible Manufacturing. The author highlights the benefits of
lean initiatives and advocates eliminating as many of non- valuing adding
activities as possible. This paper discusses about the cost information and
various business decisions like pricing decision, investment decision,
make or buy decision, outsourced decision etc. The author has concluded
that without accurate and relevant cost information, executives and
managers will either be “flying bind” or even worse, to be look at the
world through distorted glass.
 Dan and Judith (2013)12 explore the theoretical link between the lean
companies and the non-lean companies. They narrate that the companies
which adopt lean manufacturing and lean accounting ultimately achieve
better profitability and cash flows in comparison to similarly situated
companies that didn’t adopt lean manufacturing and lean accounting. The
methodology of this paper is random survey. The collected data have been
analyzed through Wilcoxon Signed-Ranks and Matched Pairs tests. The
finding of the study is that lean companies are better result oriented than
non-lean companies in terms of Returns on Net Operating Assets (RNOA),
Returns on Total Assets (ROA), operating cash flows, cash adequacy
ratios, profit margin ratio and financing assets ratios. The existing study
imparts a starting point for future research on the financial performance of
lean companies. The present study stuffs a hole in the academic literature.
This study measures RNOA, which does not mystify operating and
financing activities. Additionally, this study utilizes a line of attack that
provides sensible assurance of the identification of both lean companies
and non-lean companies from publicly available data.
 Kahier (2013)13 investigates that the lean practices must be adopted in the
everyday activities by the finance staff and the management staff both.
The author explains that lean helps the accounting and the finance
organization to identify the value which they provide to the customers. It
focuses on the process that delivers value and tries to eliminate wasteful
activities. The lean has remarkable benefits in the finance and accounting
dome. It helps the organization to make its concentration on what’s truly
important by delivering timely and accurate financial information. It helps
to carry out processes with more stability, consistency, and with
significant quality. Lean also helps to know about tasks that consume time
and resources but do not add value. Once the improvements are taken
place, lean provides a pattern for managers to maintain high performance
and continuously increase the organizational value for finance and
accounting department. Finally, the author highlights the essential
ingredients of a complete lean manufacturing process.
 Katko (2013)14 explains in the book ‘The Lean CFO: Architect of the Lean
Management System’ that the lean thinking has a new lean management
accounting system which builds up with the four aspects i.e. economic of
lean, manage the spending not the cost, move to the decision and tear
down the standard costing. The presenter shows the economics of lean
with the concept of demand and supply. In any company, there is the
demand for delivering exact customer value and also there is the supply of
resources as to maintain productivity and demand rate. It means how much
the value stream ship and how much the value stream actually spent, is the
basis of managing the spending. The presenter shows that standard costing
is rooted in decision making processes of companies but it conflicts with
the economics of lean. So moving to the right decision through delivering
value to the customers, improve productivity and making flow in the
manufacturing process. Now, at last, the webinar concentrates on tear
down standard costing. The traditional uses of standard costing is
inventory valuation, profitability analysis and operating performance but
in lean management accounting, there is no need to value inventory
because it works on JIT and Standard WIP.
 Katko (2013)15 describes a pathway that begins with elimination of

standard costs. The author describes a simple way to get rid of standard
costing on behalf of lots of variances in standard costing. Because of
calculating standards, reporting actual costs, analyzing variances and
sitting in meetings, make the standard costing complex. On the other hand,
in the lean companies, pull system reduces these types of variances which
are calculating in standard costing method. The author takes an example of
inventory to explain this. According to GAAP inventory must be valued at
its original cost but in the standard costing, it values on the standard cost
which is actually approximated. But in lean practices, cost is capitalized at
a macro level rather than product by product. At the end, the author says
about the standard costing variances that this is all purely waste in the
accounting procedure and it must be eliminated from the company where
lean practices are going on. How fast? It depends on effective and quick
entry of the lean accounting in the company. If the company truly commits
to establishing flow and all other lean principles and tools, inventory will
radically over time. And the lean CFO can escort the way.
 Lohana (2013)16 explains that the lean accounting is actually the milestone
of completely different model of manufacturing management system. Lean
accounting is originally emerged to make factory operations, marketing
and pricing decisions, quality management, application of logistics and
other critical business functions easy. Lean accounting requires less
capital, space, time, material, and human effort to produce products and
services with fewer defects to precise customer desires compared with
traditional modern management system. Finally, the author concludes that
the lean accounting is at early stage of its maturity. It is possible that it will
gain wider acceptance by those companies who are implementing lean
manufacturing. But it has a great challenge that the most of the
accountants take their basic education in traditional costing method and
they are familiar with this, so they may find to change with lean
accounting difficult to implement.
 Maskell and Baggaley (2013)17 provide a roadmap to finance managers in

companies seeking to transform their organizations into lean enterprises.
The book raises questions such as what sorts of performance measures can
be used in place of the current measures that seem to work against the lean
improvements, how the financial benefits of the lean efforts could be
understood. In many cases this book is not answering these questions but it
provides a proven path for the lean enterprises. According to this book, the
concept of the lean accounting is not new, because the financial
accounting measurement and management methods described in this book
have been in use for many years, but this usage are largely outside the
realm of discrete manufacturing. In the book, the authors have tried to
present, in very practical terms, the methods of the modern lean
accounting. This book offers the lessons that the authors learned about
how to manage and control the lean company. It includes some proven
methods with enough detail so that finance people and lean thinkers can
implement lean themselves. At the end, the authors brief the lean
accounting as management framework of a lean organization.
 Rupprecht et al. (2013)18 reveal that lean is something different approach

with doing more with less time, space, people, inventory and money. It is
an idea which based on maximum customer satisfaction, minimum price,
high level of productivity, better quality, simple process, less stock, fewer
defects, people empowerment etc. Inspite of these qualities, it has some
challenges like very high degree of standardization of processes and
materials are required. It relies on exact delivery time and frequencies
from suppliers. Lean strategy is universally regarded as management
technique instead of production technique. To survive with the challenges
on global competitiveness, in current time, lean is better technique to attain
global market if it performs through proficient planning and effectual
management. According to this paper, the most significant benefit of lean
accounting is its ability to get everyone working as a team towards the
goal of company. And actually, this benefit makes improved work
environment in the company and empowering people to improve their
work action especially for customer value.
 Waffaa and Hanafi (2013)19 have noted that the lean manufacturing system
has been widely accepted by lots of organizations in the world in early
1990s. At the same time, traditional accounting practices were going on
side to properly assess the operational improvements and therefore new
cost management technique is urgently required to support the newly
implemented lean manufacturing system. This paper points out the
drawbacks of traditional accounting methods used in the organizations that
adopt lean manufacturing and presents a costing method that can be
worked with the lean manufacturing processes. Value Stream Costing
(VSC) method is intended to cast light on the operational improvements
where product cost can be calculated by the formula that total value stream
inputs (costs) dividing by total number of unit produced. This method can
be provided a bridge between operational views and financial views of the
lean, which enhances the transfer of information from ground level to top
level.
 Abdelmoneim (2012)20 indicates that many organizations are

implementing the lean manufacturing right now but most organizations are
still deploying traditional cost accounting control system instead of lean
accounting. While organizations are moving from traditional
manufacturing practices, they still fall back on their historical approaches
of accounting, control and measurement. Even a group of bodies of
knowledge has advocated for applying lean accounting where a company
adopts the lean manufacturing. There is a need to examine why lean
manufacturing units may not continue to utilize standard accounting and
traditional practices. In this research, the author shows Anthony Giddens’s
structuration theory to explain how lean accounting can be used as a social
system to create changes in the organization practices and also highlights
the conceptual and theoretical scaffold for implementation of lean
accounting. The paper discusses about the deploying theory of constraints
and structuration to explore conceptual and practical model of lean
accounting. It explains why mainstream lean organizations may continue
to deploy or discard traditional accounting systems. At the end, the author
gives future research direction considering the way of improving lean
accounting systems to provide better decision making for improved
organizational practices of manufacturing.
 Cunningham (2012)21 explores the theoretical link between lean

accounting and decision making. She says that 50% of executive decisions
are made on intuition. It is based on irrelevant or incomplete information.
In this paper, Jean Cunningham uses three case studies to illustrate how
lean accounting can improve the decisions. Because of the conflict arising
between lean accounting and standard costing in this manufacturing world,
there is very difficult time to take the best decision. This is the time for
any company to look at the more fixed cost that is directed to a specific
product line which included employees’ salaries and related benefits. So,
at the end, the author suggests, make sure about the information and
numbers that are truly relevant with the product or structural decisions. Be
prepared to put additional time and effort to overcome the misleading
financial indicators and finally make the correct decision.
 Maskell (2012)22 examines the product cost by illustrating the value

stream in accordance to the lean principles. It could be done by
implementing the lean cost management system in a company. The
methodology of the lean accounting is simple and have 4 objectives, i.e. 1)
to provide accurate, timely, and understandable information to motivate
lean transformation throughout the organization, 2) to make decisions
leading to increase customer value, growth, profitability, and cash flow, 3)
to use lean tools to eliminate waste from the accounting processes while
maintaining thorough financial control, fully comply with GAAP, external
reporting regulations, and internal reporting requirements, and 4) to
support the lean culture by motivating investment in people, providing
information that is relevant, actionable and empowers continuous
improvement at every level of the organization. There is nothing within
the body of knowledge called “lean accounting”. Finally the author
concludes that traditional absorption costing, standard costing and also
activity based costing have a huge amount of work to maintain. These all
uses vast numbers of transactions and don’t provide useful information for
decision-making or improvement. But in lean accounting, every
transaction is cleared as a required process for manufacturing so the cost
calculating by it, is more effective and accurate instead of others.
 Monroy et al. (2012)22 have tried to compare three accounting designs for
the organization. According to the authors, choosing an appropriate
accounting system for manufacturing process has become a great
challenge for managers. In this paper, the authors contribute a short
overview on background and definition of three accounting process i.e.
Activity Based Costing (ABC), Time-Driven Activity Based Costing (TD-
ABC), and lean accounting. The comparison is based on three aspects like
decision making, operational control and improvement. The breakdown in
this paper discloses how decisions have been made over the value stream
in the companies using lean accounting while decisions under the Activity
Based Costing taken at particular product level. And finally TD-ABC
covers both product and process levels for decision making. In addition,
this paper shows the significance of nonfinancial measures for operational
control in the lean accounting and Time Driven-Activity Based Costing
methods whereas Activity Based Costing depends mostly on financial
measures in this context.
 Salam (2012)23 presents the idea of target costing for new products, which
is one of the props of lean accounting. In traditional costing of products,
the desired profit is added to the cost entailed to build up the product. But
target costing put its concentration on generating value for the customer by
setting the price of the product based on the cost in the market. However, a
number of methods exist for establishing target costs, the exactness of
such methods are critical. In this thesis, a variety of target cost models are
elaborated and compared with other methods in terms of their accuracy.
The models are based on parametric models, neural networks and data
envelopment analysis. The models are then applied to forecast the cost of
commodities at a major Canadian aerospace company. In this thesis, three
different models are developed to estimate target cost, which is applied to
the main landing gear at Bombardier, the third largest company of aircraft
manufacturer and commercial supply. In order to develop target cost, some
cost drivers are identified and finally the necessary steps have been
followed to demonstrate the rigor in obtaining the right cost drivers. The
most limiting factor of this study is credibility of selection of right cost
drivers.
 Williams (2012)25 argues that the lean accounting is simply a different way
of looking at the numbers. If company follows the lean manufacturing, it
should adopt the accounting method which follows the same concept.
Lean accounting is better concept for these organizations. Generally,
traditional accounting and concepts do not support lean manufacturing
efforts. The idea at the back of the lean accounting is to optimize lean
performance by providing more significant information for decision
making. The author describes the principles of lean accounting in a very
simple way. He identifies the first principle as customer value that a
customer willing to pay. Second is value stream i.e. what steps are
required to deliver customer value. Flow as how the value streams can be
organized to flow seamlessly from beginning to end. Fourth is, pull, that is
how the value stream can respond to an upstream customer. And at last,
perfection, as how the organization can improve a little bit every day.
Finally, with lean accounting organization itself and its value streams
include everything that contributes to create value for a customer. At the
last, the author is talking about Visual Scorecard Approach which has been
provided by the decision maker in the lean accounting with the exact
measures in terms of operations, capacity, financial results and customer
engagement.
 Anvari et al. (2011)26 in the article ‘A Study on Total Quality Management

and Lean Manufacturing: Through Lean Thinking Approach’ summarize
that the lean approach has originally arisen from the Toyoto Production
System and the most useful tool of it is Total Quality Management. It has
found in Japanese automotive industry, but its development mostly carried
out by western countries. The objective of this study is to make a
comparative analysis of Total Quality Management and Lean
Manufacturing with the emphasis of lean approach. The authors
thoroughly classify the related literature of different studies in this paper.
They also investigate the literature and conclusively review and its
methodology. The outcomes of this research disclose that Total Quality
Management and Lean Manufacturing have much in common. Based on
the lean strategies, Total Quality Management, parallel to various
improvement approaches, can be a tool to hold up and produce synergy for
a more cut throat market among companies.
 Fullerton and Wempe (2011)27 investigate that non financial

manufacturing performance measures impact the lean manufacturing
financial performance relationship. For the purpose of the study a
structural equation model is being estimated by taking a sample of 121
U.S. manufacturing firms. In addition to examine direct cost effects, the
study investigates whether non financial manufacturing performance
measure mediates or moderates the lean manufacturing financial
performance relationship. The authors have concluded the results by
providing substantial evidence that utilization of non financial
measurement performance measures mediates the relationship between
lean manufacturing and financial performance. The most limiting factor of
the study is selection of non random sample and its small sample size,
relative to the structural equation model. This is the first known study that
adopts a SEM framework to examine: 1) how NFMP measurement affects
the relationship between lean production and profitability; 2) Is there any
direct relationship between NFMP measurement and firm performance;
and 3) the impact of lean manufacturing on externally audited firm
performance. The managers who have adopted the lean manufacturing
without using supportive non financial manufacturing performance
measures may experience disappointing financial results.
 McKenna (2011)28 explores the issue that most of the companies have
adopted the lean manufacturing during the decade of 90’s but they did not
implement lean accounting practices in a lean manufacturing environment.
Generally, lean accounting focuses on two goals i.e. eliminating waste
through continuous improvement and converting financial statements in
plain English statement so that the flow of transaction becomes like a
river. The main difference between traditional and lean accounting is that
traditional statement treats the amount which spends on inventory as fixed
but lean accounting considers these costs as variable by assessing the true
costs of labor and overhead on a case by case basis. It uses value stream
maps, which can give a clear picture of the company to its owners and
executives. While lean accounting provides accurate, easy-to-understand
views of finances in lean manufacturing environment, hurdles to
acceptance of the lean accounting methods remain same. Even though,
because of statuary and GAAP requirements, traditional accounting
practices are still required in the business world.
 Murugavel (2011)29 enumerates that the lean is something different

approach with doing more with less time, space, people, inventory and
money. It is an idea which based on maximum customer satisfaction,
minimum prices, high level of productivity, better quality, simple process,
less stock, fewer defects, people empowerment etc. Inspite of these
qualities, it has some challenges. It requires very high degree of
standardization of processes and materials, it relies on exact delivery time
and frequencies from suppliers, it relies on high quality stock because as
ideally the process involves, much more extensive quality control and just-
in-time production are required and at last expensiveness of lean as it starts
up with very high cost. So the lean strategy is universally regarded as
management technique instead of production technique but it has so many
challenges to comply with this cut throat global market. To survive with
the challenges in global competitiveness, in current time, lean is better
technique to attain global market if it performs through proficient planning
and effectual management.
 Aitken (2010)30 is providing an overview of the increasingly popular lean

improvement philosophy. The author has 22 year of experience with lean
manufacturing and JIT programmes. In this paper, he covers the basic
principles, myths and realities regarding the lean approach. The paper also
deliberates how process replication can balance and enable lean within
industries with vibrant demand. Its objective is to endow with a useful
point of reference for managers at the doorstep of launching a new lean
programme, especially, those from service or public sectors. This article
highlights the recently popular lean improvement philosophy considering
how such principles can be effectively translated from a manufacturing
organization to non-manufacturing sectors like administration, financial,
health and policing services. This article also intends to eliminate any
element of mystery surrounding lean. The author has tried to provide a
useful comment on some of the key aspects of lean when a company is
planning to take lean initiative. He discusses the different critical success
factors of lean in dept that should be incorporated into the thinking behind
lean programme planning.
 Arbulo-Lopez and Fortuny-Santos (2010)31 narrate in the article ‘An

accounting system to support process improvements: Transition to lean
accounting’ that traditional costing system has fail to properly assess the
operational improvements so there is a great need of a new cost
accounting method. In this paper, the authors show the state of the art in
costing techniques used in companies that adopt lean manufacturing
practices and also present an additional costing method based on Activity-
Based Costing, i.e. Time-Driven Activity Based Costing. This method
tries to assess the operational improvements achieved in companies that
are just started the lean journey. This article also examines this new
approach apply in the context of a manufacturing company.
 Darlington and Mackle (2010)32 have tried to answer the three questions,
these are, how much saving is getting from the lean activities? Why is the
lean implementation not showing through on the bottom line? Should the
lean programme continue if company is not convinced with its financial
performance? In fact, traditional accounting systems are based on
especially standard costing method that frequently provides misleading
information leading to poor decision-making. The authors have mentioned
that in the lean accounting, there are a lot of activities as well as lots of
tools and techniques that are well intended to do nothing for fundamental
capacity of business. Rather than, it builds up a complex system of
transactions and allocations of cost in related activity. There are some
efforts should be made to maintain flow in the production so that capacity
and materials are being converted into product. Further, the authors
suggest ‘Flow Accounting’. It is purely a new way of looking at financial
dimension that will tell the real cash outcomes of operating a lean system
and allow supervising performance developments in order to concentrate
improvement activities where a company gets the greatest financial
influence.
 Fullerton, Kennedy and Widener (2010)33 argue that lean thinking is

rapidly increased as the dominant paradigm in manufacturing. In this paper
the authors work on congruence model of organizational design by
illustrating the importance of lean accounting to look more in depth on the
role of value stream costing. For the purpose of this research, the data of
244 U.S. companies have been selected on random basis where lean
accounting practices exist. The authors use structural equation model to
examine the role of value stream costing in the lean environment. This
paper hypothesizes about the support of top management to the lean
manufacturing practices and found top management support is associated
with lean manufacturing environment and value stream costing. Value
stream costing is also associated with employee empowerment and the use
of visual performance measures. The paper has also found that the
existence of alternative model confirms the importance of value stream
costing as a critical element in the lean environment. It supports the final
outcome in the lean process, rather than an intermediate step. At the end
the study, the author provides an example on the internal alignment of a
firm’s manufacturing, accounting and control environments in the lean
atmosphere.
 Haskin (2010)34 focuses his attention on teaching special decisions in a
lean accounting environment. The author explains that most of the
accounting text books are continuously using standard overhead
absorption model which is not accurately reflect the benefits of lean
oriented organizations. It may distort the impact of changes. The
developments input by lean accounting should be exposed to the
accounting students after a brief introduction of basic cost and
management accounting courses. This paper develops a model for the
accountant or accounting students in regards to such decision as special
order and make or buy decisions in the lean oriented company which uses
value stream costing. The use of these models in cost and management
accounting classes will be a boon to the future cost and management
accountants or students. This paper recommends a limited solution to the
lack of disclosure of lean accounting. The examples illustrated in this
paper would be very useful learning aids. Students would get benefit not
only from their improved understanding of special decisions but would
also gain a greater knowledge of cost projects, direct costing and the
application of value stream costing.
 Ifechukwude and Spencer (2010)35 take a holistic look at the existing facts
about the human resource optimization in Lean Production Systems. What
is the perfect ratio of human resource in every activity? What would be the
combination of skilled and unskilled worker? What is suitable human
resource to a lean company? These questions are the most asked questions
in lean environment which must be credibly answered. Every lean
organization needs an extensive, incessant, intelligent and self reinforced
human resource. Human resource in the company is the true eyes of
quality, quantity and original face of the lean. Therefore lean finally talks
about empowering people with the quality of well built, skilled, efficient,
effective, united, strategic autonomous, fully focused and motivation. The
effective combination of human resource and automation show a lean
revolution in the aspect of human resource. The findings from the study
will positively make lean production an appropriate world class production
system with a factual human face. The results of the study also develop the
already existing body of knowledge in production.
 Labedz, Gray and Thompson (2010)36 explore the impact of lean

production system in a government facility. It is generally governed
through accounting practices which recognize for production saving but
informally promotes its lean efforts through paying the attention on
“innovative” accounting. The authors state three propositions relating to
customers effects of the lean implementation and its financial approaches.
For the purpose of research, four hypotheses have been generated relating
to unexpected effects of lean measure as a facility’s workload varies and
test the hypotheses by creating a system dynamics equation. The study has
found that minor effects on customer behavior and labor rate variances are
filling the gaps in the literature related to government productivity
improvements and also enlarging the knowledge of lean in labor saving,
employment effects and work demand. The research also investigates a
scaffold for examining the dynamics of competitiveness of military
facilities seeking to obtain commercial contracts. Generally, lean stands
for less time, money, space and also manpower but in the commercial
context, need of frequently adding new work to absorb lean-freed business
resources including workers, have been identified as a remedy.
 Lakshminarasimha and Vivek Krishna (2010)37 provide an introduction to

lean concepts and discuss the impact of target costing on lean. In the
current competitive advantage for the organized sector in India, lean is the
need of the age and for this essential requirement, many companies of
India is going to ‘Lean’. So the utility of target costing is to aid the
companies which are going to be lean in a more focused way. Suggestions
and indicators for further study are designated here, which would go a long
way in convenient sustained execution of lean practices. Some
modifications and improvement are required in costing methods. Also the
lean procedures and practices are discussed in this article. A research has
also been conducted to study the practices of “Lean and Target Costing” in
India and they have found that to gain competitive advantage in the global
market, combined lean and target costing could be a better way to achieve.
 Laura (2010)38 mentions that lean accounting is a revolution now, which is

unstoppable in the global context. The author gets aware about of knowing
the use of concepts of lean and understands their essence before starting
the journey of lean and transforms the traditional accounting into lean
accounting. In this article, the author intends to explain and evaluate the
terms of the lean accounting and emphasizes the importance of lean
approach in process of transforming traditional into lean approach. This
paper defines lean accounting and reviews the lean costing methods and in
the last, highlights the benefits of using the lean accounting methods and
the prospective obstructions to their implementation. Lean accounting is
right now globally accepted concept which is now work in progress. It is
in early stages of global business world, but unfortunately, as a new
method, lean accounting is often facing the problem of recognition from
international forum like IASC, FASB and others. But after all these
limitations, accounting professionals seek ways to improve the concept of
lean and develop a plan for implementing it with comply of statutory
bodies.
 Waddell (2010)39 expresses that lean accounting has been developed from
a concept that traditional accounting methods were inadequate and a
restriction to the adoption of some of the crucial excellence to
manufacturing operations. He mentions that lean accounting is a
completely different model of manufacturing management because lean is
a technique where quality management, marketing and pricing, operational
decisions, factory operations and decisive business functions becomes
extraordinary powerful. In this article Bill explains that Lean Accounting
P/L statements can be created with comply of GAAP with a simple
addition of a line at the bottom reflecting the transfer of expenses to the
balance sheet in the form of inventory. The advancement of lean
accounting is transformation of traditional management into functional
organizational structure and traditional accounting into Value Streams and
Lean Accounting. While the transition is taking place, there would be
shared people, shared resources, additional time and space and a degree of
allocation of the expenses to the Value Streams. Finally the next five years
will play the leadership role of accounting in the manufacturing
transformation to excellence where lean has come into attention and more
and more accounting proficient are clinching the challenge and grasping
the chance to serve a greater role than simply acting as the record keeper.
 Wiinberg (2010)40 points out a case study approach to seize the benefits of
lean in his thesis ‘Benefit Realisation from Lean’. The author explains lean
accounting is actually the milestone of a completely different model of
manufacturing management. Lean accounting is originally emerged to
make factory operations, marketing and pricing decisions, quality
management, application of logistics and other critical business functions
easy. Lean accounting requires less capital, space, time, material, and
human effort to produce products and services with fewer defects to
precise customer desires compared with traditional modern management.
Finally, the author concludes that lean accounting is at early stage of its
maturity. It is possible that it will gain wider acceptance by those
companies who are implementing lean manufacturing. Lean accounting is
a necessary accounting method to give a true picture of the business. To
reflect the correct businesses position, an effective accounting method
must be required in any type of company. The benefits must prevail over
the costs associated with the addition of a new accounting method. While
Even if, lean accounting should not be considered before the production
processes going lean. Finally the author suggests to make a strong effort
with continuous improvement into the daily work activities to make the
organization truly lean.
 Sim and Rogers, (2009)41 explain why implementing continuous

improvement strategies can be difficult in any type of organization by the
time passes. The study highlights on a Fortune 500 manufacturing plants
located in Eastern USA. The survey has been conducted to both salary of
employee and hourly rate for a labor. The result of the survey shows that
primarily the problem stand with highly working hours to an aging work
force and there is a lack of committed leadership at this research site. In
the research, salaried employees getting positive rating of continuous
improvement (CI) initiative but hourly rate workers are getting negative
rating on this index. While these hourly rate workers more contributed in
this improvement process but they found that they have no value in the
organization. The limitation of the study is not adding more theoretical
question because of some internal constraints, another is a workforce that
is most senior in the hourly basis employees. Third is a job security of
workers and employees in the company in this global economy. The study
attempts to answer the question that why every company needs to improve
its processes to remain competitive in the global market, and why is it still
difficult to implement total quality in lean programmes.
 Warren (2009)42 in the article, ‘Why Lean Accounting? - Confronting

Reality!’ has been answered the question in simple and direct way –
confront reality which means managing by results do not work in a lean
organization and never effectively manage profitability in a lean company
until the managers who have experienced the transformative power of lean
improvements. It will really take lean thinking to the profitably manage
lean enterprise. The simple logic of lean accounting is the principles of
traditional accounting theory which become ineffective as a management
tool. In the lean organization, value stream processes require a new take on
management cost accounting i.e. management by means or management at
the point of action where value streams are in flow, problem solving and
self improved. According to the author, the lean environment must include
enhancing the quality of products, growing the skills of the workforce,
building profitability through productivity, reducing cycle time of
production and also cost management. The hard facts for introducing lean
accounting methodology throughout an organization and continuing
traditional accounting practices risks derailing the lean organization. In
today's highly-competitive global marketplace the consequences of
downsizing due to loss of profitability-or even to the point of bankruptcy,
the choice is completely left on users.
 Brosnahan (2008)43 comments that lean accounting is framed in response

to a requirement generated by companies choosing to lean as their
manufacturing methods. ‘Getting lean’ includes elimination of waste and
generation of value. A company needs to undertake the principles and
practices, which are introduced in lean accounting and educates their
employees for the lean tools that is used in lean accounting. Lean
accounting can generate benefits for a company including better decision-
making and more visibility, but it should be done accurately and for the
right reasons. Lean accounting is not fully errorless method so in order to
implement it in a successful vision, a company needs to train their top
management in problem handling and educates employees absolutely all
through. Lean accounting can be continued to make an impact to more
product variability, customer value and easy to approach method. Lean
accounting is a necessary accounting method to give a true picture of the
business. The benefits must prevail over the costs associated with the
addition of a new accounting method. While Even if, lean accounting
should not be considered before the production processes going lean. Lean
accounting must be individually used as a hold up to the revolution of the
production zone.
 Fullerton and Wempe (2008)44 examine that non financial manufacturing

performance measures impact on lean manufacturing financial
performance. For this purpose, a model is estimated by using sample of
some U.S. manufacturing firms. This study investigates whether non
financial measurement performance measure mediates or moderates the
lean manufacturing financial performance relationship. The author has
concluded the results provide as substantial evidence that utilized the non
financial measurement performance measures mediates the relationship
between lean manufacturing and financial performance. The most limiting
factor of the study is selection of non random sample and its small sample
size, relative to the structural equation model.
 Haber (2008)45 focuses his attention to transaction cost economic theory

generated by Ronald Coase in 1931. Coase’s theorem is about the nature
of the firm. According to it, a firm exists to replace high transaction costs
with lower organizational costs, and a firm will grow larger when it can
minimize organizational costs and transaction costs. This paper is broken
up into three sections. The first section of the paper gives a brief
background of Coase’s theory of the firm and transaction economics. After
that a general overview has given about the lean accounting. In this
section, the author discusses two examples of simple accounting cycles
common to all manufacturing organization. The second section of this
paper analyses how lean accounting can reduce the transaction costs and
organizational costs. In this section, the focus of the author is on how a
company can takes steps to change certain processes to become lean and
also how lean accounting can help to eliminate wasteful transactions in the
manufacturing process which are not necessary. At the end, the last section
has discussed about the changing role of the accountant as the change
maker. The author concludes the article as lean accounting is process
driven not number driven, which make it different from the other costing
methods. Even it includes some limitations but by improving the process
within the company, it can be followed many years to come.
 Hanid, Koskela and Siriwardena (2008)46 indicate that traditional cost

management system is not relevant in the current point of time. The
research finds the remarkable resurgence of interest in both the practice
and the theory of cost and management accounting in recent years. It
indicates that further development to the existing traditional cost
management still taking place and being practiced currently. This paper
makes an attention on the drawbacks of traditional cost accounting in
terms of the irrelevancy of the information provided by it. The irrelevancy
with today’s economic and technological environment, the method used,
the product cost, the role of accountant and the new set of rules and
regulation. Against the drawbacks have been found by the authors
regarding traditional cost management, they also suggest solution to
improve it. They make an attempt to provide a brief description of modern
cost accounting system like Activity Based Costing, lean cost
management, Theory of Constraint, Balance Score Card and Target
Costing as taking the criteria of relevant information, focus on customer,
product, services, functions, processes and activities. At the last, the paper
concludes that the current traditional cost management practices are in
need of improvement especially in manufacturing industry and
construction industry.
 Merwe (2008)47 concerns with the principles that underlie some existing
management accounting approaches. The author explores the impacts of
implementing a lean production system in the firm that is generally
governed by accounting practices which recognized for production saving
but informally promotes its lean efforts through paying the attention on
“innovative” accounting. The author states three propositions relating to
customers effects of the lean implementation and its financial approaches.
The study found that minor effects on customer behavior and labor rate
variances, fill the gaps in the literature related to government productivity
improvements and enlarge the knowledge of lean in labor saving,
employment effects and work demand also. The research also investigates
a scaffold for examining the dynamics of competitiveness of military
facilities seeking to obtain commercial contracts. Generally, the lean
stands for less time, money, space and also manpower but in the
commercial context, it clearly encourages the decisions related questions
highlighted in this article is without looking closely on the background of
the principle of causality.
 Maskell and Kennedy (2007)48 illustrate the value stream in accordance to

lean principles. It is the key important tool of lean accounting that should
be identified before implementing the lean cost management in a
company. Based on the objectives of lean accounting, there are 4
objectives i.e. 1) to provide accurate, timely, and understandable
information to motivate lean transformation throughout the organization,
and for decision making leading to increased customer value, growth,
profitability, and cash flow; 2) to use lean tools to eliminate waste from
the accounting processes while maintaining thorough financial control; 3)
to fully comply with GAAP, external reporting regulations, and internal
reporting requirements; and 4) to support the lean culture by motivating
investment in people, providing information that is relevant and actionable
and that empowers continuous improvement at every level of the
organization. There is nothing within the body of knowledge called “Lean
Accounting” that is new. In order to achieve these objectives, the lean
accounting adapts familiar financial and management accounting methods
to the needs of lean organizations. The authors describe different tools and
techniques like box score reporting, hoshin policy deployment, kizen, JIT,
kanban, total quality management, six sigma, bottleneck analysis, product
quantity analysis, gemba, plain English statement, target costing and value
stream costing.
 Richard and Karen (2007)49 give an exploratory look at lean accounting in

the article ‘Lean Accounting – fad or fashion?’ According to them “Lean
production is a philosophy of production that emphasizes the minimization
of the amount of all the resources (including time) used in the various
activities of the enterprise. It involves identifying and eliminating non-
value-adding activities in design, production, supply chain management,
and dealing with customers.” Lean, now days, becomes a technique of
process oriented rather than transaction oriented. The organization, which
wants to transform itself into lean production factory, must work on “flow
along the value stream” approach instead of “batch” and “queue” method.
The authors explain how lean accounting different from other accounting
methods like constraints accounting, direct (variable) costing, standard
cost accounting, absorption costing, activity based cost accounting and
resource consumption accounting. They have concluded that each of the
systems, except the traditional absorption costing system, believes to
operate under the flag of management accounting or an assist to
management. Each does it in a rather different way and with rather
different intents.
 Vinas (2007)50 explores that traditional accounting and control system do

not support the changes that company takes place when it is thinking about
lean manufacturing. Lean manufacturing is Toyoto Production System
(TPS) invented by Taiichi Ohno also says it is now enough to eliminate
cost accountant from the organizations but the problem is to eliminate cost
accounting system from cost accountants mind. The author has intended to
appreciate more and more companies to take the lean principles seriously
and reached a point in the lean transformation of the lean manufacturing to
the lean accounting. Because companies of different types have shown an
interest in lean accounting, but they are mostly in the early stages of lean.
This paper is trying to reason of this problem and focuses on the complete
elimination of waste in all of their process which makes the process
flowing like a river. If the principles and practices of regarding lean
accounting are completely followed by the organization, no doubt, it will
become a movement about to explode which has a controlled accounting
and measurement system and lean focused information with the simplify
manufacturing processes.
 Kennedy and Brewer (2006)51 describe that traditional accounting is not

useful now a days because of absorption of indirect cost. To overcome one
of these problems, a new system must be required as lean accounting. The
authors make an extreme comparison between traditional costing and lean
and say now the honeymoon over for the companies which are seeking for
a new contemporary system for their accounting. The article describes
Fortune 500 Company’s transaction from mass to lean production and
shows how it has changed its accounting information system to a new
system. It shows some limitations of traditional accounting practices that
come out as a result of lean accounting. It also points out six keys for the
companies, which make their transformation into lean.
 Kennedy et al. (2006)52 explain that Traditional management accounting

system has emerged over the long year ago to make the transactions in
record and support the operational activities. But after a long time, the
condition has been changed. The users of accounting information are not
now only shareholders but stakeholders. As companies adopt lean
techniques with the environment of lean thinking, strive to reduce waste,
promote a smooth flow and pull system and provide the products which
actually want by the customers. The author shows that standard costing
rooted in the decision making processes of companies but it conflicts with
the economics of lean. So moving to the right decision through deliver
value to the customers, improves productivity and makes flow in the
manufacturing process. Now, at last, the webinar concentrates on tear
down standard costing. The traditional uses of standard costing are
inventory valuation, profitability analysis and operating performance but
in lean management accounting, there is no need to value inventory
because it works on JIT and Standard WIP. Also the profitability analysis
and operating performance measures can be eliminated by using box score
in lean management accounting. At last, authors have concluded by saying
that lean practices and decision making techniques offer alternatives for
management accountants to explore them for implementing lean
techniques.
 Maskell and Baggaley (2006)53 state that lean accounting is still in work-
in-process; there is now an agreed body of experts that is generating the
set approach to accounting, control, and measurement. These principles,
practices, and tools of lean accounting have been implemented in a broad
series of companies at different stages on the flight to the lean revolution.
These methods can be readily adjusted to meet company's definite needs
and they rigorously maintain devotion to GAAP and external reporting
requirements and regulations. Lean Accounting is itself lean, low-waste,
visual, frees up finance and accounting people's time so they can become
actively involved in lean change instead of being barriers. They understand
the accurate financial force of lean changes. Companies focus on the
business around the value created for the customers, and lean accounting
actively impels the lean transformation. This helps the company to grow,
to add more value for the customers, and value for the stock-holders and
owners. Finally, this article review the framework of principles, practices
and tools of lean accounting being developed by a group of lean
accounting thought leaders as a result of the lean accounting summit in
September 2005.
 Maskell and Kennedy (2006)54 are noteworthy in that the most of the
manufacturers in the world are looking to the lean thinking as to improve
productivity, greater customer satisfaction, minimum prices, high level of
productivity, better quality, simple process, less stock, fewer defects,
people empowerment and raise profits, cash flow and stock price. These
companies are choosing lean practices as their vital business replica and
want to do everything which makes them succeed. This article
recommends six reasons why accounting methods need to change before
companies adapting lean conversions. It also shows different basic lean
accounting methods and tools that support three aspects of a lean
organization i.e. visual management, value stream management and
continuous improvement. These three techniques of lean have been
successfully employed in an extensive series of companies at various
phases on this flight to lean transformation.
 Maskell (2005)55 has givven a dept understanding of the meaning of lean

accounting. Lean accounting is the general term used for the changes
required to a company’s accounting, management, measurement and
control processes to support lean thinking and lean manufacturing system.
It is a right thing, a right quality, a right resource and a right plan at the
right time. Most of the companies ignore lean practices because their
accounting practices do not support lean changes because it is based on
mass production thinking. Lean manufacturing breaks the rule of mass
production and turns in its head for the recent requirement of accounting
field. The author explains what lean accounting does for us and how we
implement lean accounting.
 Kroll (2004)56 focuses on the benefits of lean accounting. The benefits

generally are lower costs, short lead time, high productivity and higher
product quality. As company implements lean accounting approach, its
financial statements show a temporary shock to the bottom line as lower
productivity, deferred labor and overhead from the inventory account on
the balance sheet and also lower profit on the income side of profit and
loss statement. It not means that company is not getting its proper
reflection of application of lean manufacturing. Actually, the problem is
real versus reported performance. As a result, Certified Public Accountants
(CPAs) and consultant have begun to question on the role of Standard
Costing. This article explains the basics of lean manufacturing and why
CPAs may need to use substitutive accounting practices to help companies
better understanding the benefits of lean accounting.
 Kaplan and Anderson (2003)57 deliver a new idea of mixing of lean

accounting and activity based costing in the article as ‘Time Driven
Activity Based Costing’. This article presents a “new ABC” that is based
on time and capacity. It suggests an approach that based on the cost of the
product on the time it takes to flow through a process and recognizes the
need to understand how capacity is used within the flow. At the beginning
of the article, Professor Kaplan explains that many companies have
adopted ABC but most have dropped this idea because of too complex and
burdensome. He suggests that the new approach will solve the problem
that has been raised by the ABC method. He cites one large organization
employing 7,000 people over 100 locations requiring 14 full time people
to manage the data collection; it simply requires the lean approach. So the
‘new ABC’ with the concept of lean and ABC, make much quicker and
easier of calculation of cost, and will require very little data entry.
 Shah and Ward (2003)58 suggest that contextual factors can produce strong
internal forces within the organization that prevent from any irrational
technique. This paper examines the effects of three contextual factors i.e.
size of organization, age of organization and unionization status, in 22
manufacturing firms where lean production system has applicable. Four
internal factors that the author considers are Just-in-time (JIT), Total
quality management (TQM), Total preventive maintenance (TPM), and
Human resource management (HRM). These four factors are empirically
validated and investigated their effects on operational performance.
Finally, the author concludes that there is a strong support for the
influence of size of organization but the influence of unionization and age
of organization is less pervasive than conventional wisdom suggests.
 Yvonne Ward et al. (2003)59 illustrate how costing, accounting and

measurement systems can be built up to prop the lean aerospace
enterprises. The adoption of lean practices and principles within the
aerospace company is attracting great attention in the manufacturing area.
As the company becomes more efficient in continuing lean activities, it
has extended the lean idea to other parts of the organization and now the
concept of lean accounting is widely used in aerospace industries to
achieve the potentially significance in total product cost savings. The
decisive goal to introduce lean practices and techniques in the aerospace
industry is to diminish total acquisition costs. The report describes a lot of
tools and techniques which can be used to develop new product and its
manufacturing phases. It also describes how some of these techniques can
be continued to the supply chain with the intention of maximize cost
reduction prospects. The report concludes that the greatest chance for cost
reduction in aerospace industry when product is at the stage of early form,
after that, a greater impact need to be placed on lean technique like target
costing and life cycle costing in order to reduce the cost. Although there is
less possibility to reduce cost when product is at its manufacturing stage. It
is important to use cost, accounting and measurement system aligned with
lean thinking like value stream organization, supporting pull and flow
production and driving continuous improvement.
 Nave (2002)60 compares three progress improvement methodologies

namely six sigma, lean thinking and theory of constraints. According to
the author, these all improvement programmes appear to conflict with each
other or cross the contribution of other methodologies. This situation
creates some conflicting strategies in the organization. So he gives a
framework for choosing what’s the best for the organization. If the
organization values analytical studies with the relationship of data, charts
and analysis, Six Sigma is perfect. If the organization values visual
changes and concentrates on waste elimination, Lean thinking is the best
programme and if the organization values a systems approach where total
participation is not desire, Theory of Constraints is a good way to start.
Finally, the author says each improvement methodology contributes value
to the organization. It depends how we use its strengths for organization
improvement.
 Rosenthal (2002)61 reveals that there are two pillars of lean. First is JIT
and other is Jidoka. In this paper the author is talking about Jidoka. It
means automation with the human touch. For example, a machine stops
the production after detecting the problem instead of producing bad
products. The author defines it in a four step process that engages when
abnormalities occur. First is detecting the abnormality. In the lean system
Poka-Yoka devices can be used to detect the problem and stop. Takt time
and kanban system are also there to detect abnormalities. Visual controls
also trigger the option for detecting the problem. The second step is to stop
the process when abnormality identifies. This stop is to maintain the
machine, if there is any problem. These two steps can be automated. The
third step is to fix and correct the abnormal condition so that production
can be started. Here, the author presents the solution of the problem.
According to the author, the decision taken for fixing the problem, need to
be made at the lowest possible level of the organization, but no lower. The
last and fourth step is to investigate the root cause of the problem and
install a permanent solution. Depending on the nature of the problem, the
solution could be straightforward, or maybe the solution is regarding six
sigma techniques of the lean production. At the end, the author points out
that if JIT and Jidoka work together, the engine of kaizen that drives the
system, can get better every day.
 Kim and Ballard (2001)62 address that Activity Based Costing has more
popular in the decade of 80’s because it prevents cost falsifications and
provides a process view which could not provide in traditional cost
accounting. It is the theory which works on the resources that are assigned
to the activities and the activities are assigned to the cost objects. Lean
concept emerges after the limitations of this theory of lots of cost drivers
and complexity to make assignment on cost objects. This paper is
exploring the relationship between Activity Based Costing and lean
construction and shows that the lean practices can control the cost by
adopting ABC system. The author explains the application of ABC system
in construction by taking an example and explores it potential benefits
with the comparison of resource based costing. ABC system can be
adopted by the lean enterprises because of its flow view by the two ways
i.e. process based costing assumes that resources are assigned to the
activities and the activities are assigned to products. The purpose of the
process based costing is not to misrepresent the cost data but to provide a
process view. It means that it helps to remove the waste or non value
adding activities, which is the main purpose of lean accounting. The most
limiting factor of the study is that the paper deals with only the use of the
information during implementation of the project.
 Cooper (1996)63 explores the role of Activity Based Costing in the lean
environment. The general belief that Activity Based Costing cannot be
used in the lean environment but the author argues that Activity Based
Costing can be used to encourage the spread of the lean enterprise. He
addresses the role of Activity Based Costing in supporting a company’s
transaction to be a lean enterprise. By explaining the role of Activity
Based Costing, he says that implementation of Activity Based System in a
firm would reconsider the optimum batch size and quality levels, instead
of causing them to convert to lean production. He points out that there is
no conflict between Activity Based Costing and lean costing. Because
Activity Based Costing supports the shift to TQM and JIT, and the both
ABC and lean enterprise believe in reduced defect levels. In conclusion,
the author mentions the fact that many ABC systems have already been
implemented in companies that are lean or are in going to be lean process
approach. He commits that ABC holds back in the enterprise, which is
already a lean enterprise, or working towards becoming a lean enterprise.
 Womack and Jones (1996)64 argue that according to the lean thinking, a
company allows to specify value and creates actions in the best sequence
that can be moved without interruption with more and more effectively.
The author discusses here five lean principles which, are the pillars of lean
thinking i.e. value, value stream, flow, pull and perfection. Value is
defined by the author as capacity provided to the customer at the right
time, on the right place and in the right price. The value stream includes all
the activities from taking order from the customer and to deliver it
properly. Flow is the progressive achievement of manufacturing process
from raw material to finished goods without any waste, stoppage, scrap or
breakdowns. Pull, the fourth principle, defined as a system where product
demand comes from the side of customer not from the factory side. Here,
product is being pulled by the customer. The fifth and final principle is
perfection, defined as the complete elimination of waste in the process and
all activities in the value stream create value. After describing their
concept of the five lean principles in the Part I of Lean Thinking, the
authors then present five case studies in Part II of applying lean thinking
concepts to companies that was in trouble. Each of the case studies meets
with different types and level of success in implementing a lean system
and deriving benefits from it. At last, the authors conclude their book with
an outline for an action plan which any company can use when it is
transforming into lean.
2.2 CASE STUDIES
This is the second category of the literature reviewed by the researcher

earlier. This part consists of the case studies of those firms where lean approach is
applicable or they are in-process of lean journey. The objective of this section is
to get experienced with the lean stories by Indian and foreign authors. The brief
elaboration of researches covered in this segment is presented below:
 Tortorella G. L. et al. (2015)65 examine the relationship between six

contextual variables and the occurrence frequency of learning organization
problems in companies that are implementing lean manufacturing,
According to the authors, lean manufacturing is an approach that aims to
reduce waste and improve operational efficiency. But there are some
contextual factors that are barriers for lean manufacturing implementation.
These six contextual factors that the authors have studied, are number of
employees, annual revenue, educational level, existence of continuous
improvement team, age of the plant and unionization level. This paper
identifies problems occurrence frequency of learning organization and
relates with contextual factors to specify the contexts in which problems
are expected to occur. The authors has studied 13 companies where lean
manufacturing is applicable and the results indicate that the same
contextual variables, which are deemed as influential for implementing
lean manufacturing, have a different relationship with the organizational
learning capability.
 Murugananthan et al. (2014)66 express that value stream in lean accounting

application is required for all types of actions i.e. both value added and
non-value added. In this paper the authors try to apply Value Stream
Mapping in a casting foundry company and results are considered with
current state maps and future state maps after following the different steps
starting from the detailed time study for mapping the processes from raw
materials to final product. This research identifies the activities that
contribute no value to the product or service produced and improves
customer satisfaction. Finally the author says Value Stream Mapping in
Lean Accounting is different from conventional costing methods. It can
capture the information at individuals stations about station cycle time,
resource utilization, manpower requirement, WIP inventory and the
information flow from raw material to finished goods.
 Paranitharan, et al. (2014)67 implement the lean approach in a modulator

valve manufacturing company in India using a strong tool of lean Value
Stream Mapping. The objective of this study is to minimize the non value
adding activities, reduce the inventory and lead time of product by using
takt-time. To fulfill the above objectives, the most problematic area of the
company has been identified. By using the value stream mapping, current
value stream map prepared on the basis of data collected. This map shows
high non-value adding activities in the existing flow of modulator valve in
anti-lock braking system. This study has tried to improve productivity and
lead time of modulator valve by implementing lean approach through
value stream mapping. A future value stream mapping created as
implementing the lean principle to meet the demand of the customers
through required takt-time of individual operation. The final comparison
has been made through highlighting the cost of non-value adding activities
which was bearing by the company in the past years.
 Tandon, Tiwari, and Tamrakar (2014)68 investigate their work in the

direction of implementing lean manufacturing principles in foundries.
Authors suggest implementing a “U” shaped line to assure one way flow
and maximize visibility. To carry out the proposed research work, some
small and medium sized foundries have been visited and then group the
products into their families as the criteria of having same processes. As the
key factor of the study, Takt Time has calculated. By observing the
sequence of tasks that each worker performs, it breaks all the operations
into its sub activities. Value adding and non-value adding activities have
been identified on the basis of Takt Time. Finally a flexible layout for all
the members of the production family has provided to implement “U”
shaped line of flow. This flow in manufacturing process provides visibility
to make decision at the top level of management as well as bottom level
also. This research practices the lean implementation in the case studied
company and also gets an achievement of saving cost and better use of
assets with a smaller number of employees.
 Islam, Khan, and Islam (2013)69 in the article ‘Application of Lean

Manufacturing to Higher productivity in the Apparel Industry in
Bangladesh’ emphasize to identify waste and eliminate it because it has
important impact on overall factory economy. This paper works on how
lean manufacturing can be effectively applied to improve the performance
of apparel industry in Bangladesh. The study examines the present level of
lean manufacturing in apparel manufacturing industry in Bangladesh. The
case study presented in this paper, has shown lots of waste such as
transportation, excess inventory, excess production, waiting, defects, over
motion etc. It can be reduced by applying the lean concept in the company.
In this paper, authors have tried to segregate productive and non
productive activities in selected type of garments and calculate the average
production loss in terms of factory economy by using the figure of non
productive activities. It was the figure of $103084.8 and if it is applicable
to all 80 production line in the company the figure goes up $8246784 per
year. This amount is enough to make some essential decision in the
company.
 Stoller (2013)70 explores the practical approach of lean accounting. When

the recession hit in 2000, Watlow Electric Manufacturing Company has
faced heavy losses and employees pay-off. The company has taken a tough
decision to implement a comprehensive continuous strategy known as
“lean” in 2004. To recover with this economical downfall, it has employed
continuous improvement methods such as lean and Total Quality
Management. But, Company is using lean manufacturing and like many
other companies, it has continued with traditional accounting methods
which focus on short term results but lean accounting is long term
orientation. The company has adopted lean accounting in 2005. Mr.
Desloge, CEO of company, and his team having experience of 30 years,
got trained about lean accounting. This team has used their expertise to
support front line workers who trained their bottom line workers as
creating a cell team in the organization for continuous improvement.
Watlow’s key performance metrics have also been replaced by five new
ones – people, quality, delivery, cost, and growth – all of which have seen
steady single- to double-digit growth since 2005, according to the
company.
 Tabanli and Ertay (2013)71 investigate the problem of demand fluctuations

and difficulties to estimate it. This paper presents a case study about
deployment of radio frequency identification (RFID) technology-based
electronic Kanban system in an automotive industry supplier firm. The
main problem of this company is how to cut cost when small numbers of
different products are producing. To project this problem, the author
measures the true value added time in the production process. For this,
Value Stream Mapping has been used as a lean tool. It exhibits the
mandatory requirements of RFID technology deployment in the shop
floor. Current and Future Value stream mapping have generated to
recommend some revisions for the automotive supplier company. Some
other tools of lean accounting like performance metrics and benefit cost
analysis have been used to evaluate the return of investment. Finally,
results are better inventory management and reduce inventory levels
within the production system.
 Cunningham (2012)72 explores the theoretical link between lean
accounting and decision making. She says in the article ‘The Lean vs.
Standard Cost Accounting Conundrum’ that 50% of executive decisions
are made on intuition. It is based on irrelevant or incomplete information.
In this paper, Jean Cunningham uses three case studies to illustrate how
lean accounting can improve the decisions. Because of the conflict arising
between lean accounting and standard costing in this manufacturing world,
there is very difficult time to take the best decision. This is the time for
any company to look at the more fixed cost that is directed to a specific
product line which included employees’ salaries and related benefits. So,
at the end, the author suggests, make sure about that the information and
numbers that are truly relevant with the product or structural decisions. Be
prepared to put additional time and effort to overcome the misleading
financial indicators and finally make the correct decision.
 Silva (2011)73 shows a case study of applicability of Value Stream

Mapping (VSM) in the Apparel industry in Sri Lanka. In this paper, the
author makes an attempt to identify the applicability of VSM for the
apparel industry in Sri Lanka. The research has been implemented in one
of the leading apparel company with using personal interviews, secondary
data and observations. The case study presented in this paper, has shown
lots of wastes such as transportation, excess inventory, excess production,
waiting, defects, over motion etc. It can be reduced by applying the lean
concept in the company. Value Stream Mapping is the tool of the lean
which creates a map for all the productive activities in the company and
eliminates non-productive activities. The current state map has developed
after making necessary observations and calculations. By eliminating or
removing all the waste activities in the company, some improvement
proposals have been identified based on the lean tools and techniques and
the future state map has been developed.
 Watson, Damien and Samson (2011)74 conduct a research regarding
international analysis of lean manufacturing practices to determine the
extent of these practices and how they have influenced the performance.
This includes the performance dimensions of quality, cost, flexibility and
delivery of 1295 manufacturing plants in 22 countries. The study has
considered whether lean plants have characteristically performed better
than the non-lean plants and the implementation of different levels are as
commitment to lean performance. The primary findings show that there is
not sufficient participation of firms regarding commitment towards the
lean. Lean activities are become very formal which require a high level of
commitment to achieve results.
 Burden (2010)75 shows a case study of a family owned company that

specializes in computer controlled machining and manufacturing. This
company switches itself from job costing to lean accounting and save
more than $250,000 in a year, only in job recording costs. The old system
of the company based on a process of having employees record manually
with the information of job start, set up, run time and job end at the
completion of each shift. The accountant manually calculates the figures of
time spent in factory and then enters into computer for calculation of job
cost. The president of the company is dissatisfied with the system as the
profit and loss data arrived after a job has been completed. This
dissatisfaction moves this company to the lean accounting. The president
has convinced his management team that the company is bearing
$6,072,000 as total amount of job recording costs over 24 years and if
company moves to lean accounting, estimated costs of developing and
implementing a lean accounting system is worth $600,000 and the total
amount of time spent for recording job information per year is now 0
because value stream costing recording it automatically. So finally the
company saved an estimated $760,500, which makes great impact of this
type of small business.
 Mohd Ismail and Razak (2010)76 give a general review of past researcher
that what they have done with the lean manufacturing practice in
Malaysia. This paper deals with the lean implementation among Malaysian
manufacturers which shows how they are implementing and practicing
lean. This investigation has found that most lean related research have
conducted so far directed toward specified product-type manufacturers and
only focuses on several variants of lean manufacturing like JIT, Kaizen
and Value Stream, with less attention of studying lean as a total
operational system. This paper proves invaluable to that research without
providing summation of actual lean impact on Malaysian manufacturers.
 Wiinberg (2010)77 shows benefits realized from the lean by using a case
study approach to seize the benefits. The purpose of this study is to
develop the management’s ability to seize the financial and operational
benefits of lean by examining the pharmaceutical company H. Lundbeck.
The result from the case study shows that the management ability to seize
the financial and competitive benefits of the lean should be improved by
implementing value stream management; produce value stream costs
reports and setting up ground data instructions. This will help the
management to take initiative in their work because by using the lean tool,
a clear picture of instruction sets and the value stream performance helps
the management to make sure that the entire capability of lean
improvement has been consumed.
 Woehrle and Shady (2010)78 reveal that lean is an effective business

philosophy for improving business in a competitive market by eliminating
waste and improvement of operational activities. This paper deals with the
use of Value Stream Mapping and Lean Box Score as a visual tool to
convince management to adopt lean from both operational and financial
perspectives. The authors suggest that for better performance of lean, there
should be involvement of both CFO and controller to physically
participate in kaizen events to see and feel the benefits of eliminating
waste on the shop floor. Furthermore, the authors promote the involvement
of accounting community in the lean journey so that lean benefits are
recognized immediately in their financial statement which satisfies both
GAAP principles and Internal Revenue Service.
 Kennedy and Widener (2008)79 investigate the control framework of lean

accounting. The lean accounting works for reduction steps in transaction
processing, eliminating standard costs in favor of actual cost and
discontinuing cost allocations. Lean is a complete business system that
works with advanced manufacturing techniques including just-in-time,
total quality management and total preventative maintenance. In the case
study the authors develop a theoretical framework that assists in
understanding the control choices, accounting practices and organizational
structure associated with lean manufacturing. Within the control
framework, the authors identify many intervening and bidirectional
relations of the lean accounting.
 Ramesh, Prasad and Srinivas(2008)80 implement lean model for carrying

out Value Stream Mapping in a Manufacturing Industry for the
manufacture of Machining Center. Value Stream Mapping is just a tool of
the lean accounting to identify non-value-adding elements in a targeted
process and brings the product or group of products in the main flow. The
authors identify current state value stream for the main components like
Base, Column, Cross Slide, Milling Head and Table. After that, value-
adding and non-value-adding activities have been identified to be taken up
by the higher level management. This paper also elaborates how to reduce
set up time and cycle time in the whole manufacturing process. Finally,
authors have discussed the plan of action for improving the Future State
Value Stream Mapping.
 Seth, Seth and Goel (2008)81 explore an application of Value Stream

Mapping for minimization of wastes in the processing side of supply chain
of cotton seed oil industry in Indian context. The purpose of this study is
to identify different types of wastes in the supply chain of the edible
cottonseed oil industry using the tool of lean i.e. value stream mapping to
develop productivity and capacity utilization in an Indian context. Value
stream mapping is an approach to the industry to identify and remove non
value adding activities. Observations, made in this paper, have been based
on primary method of data collection and the different chain links were
investigated through personal visits and discussions. This paper gives an
attention for boosting the productivity of the oil sector. Waste removal
from the oil seed processing sector is the key point of research in this
study. This paper deals with the various wastes identified by the
researchers in the supply chain of the Indian cottonseed oil industry. All
the wastes are then individually attacked by using the lean technique of
value stream mapping to reduce it and eliminate it from the manufacturing
process. At last, suggestion has been given to improve the productivity of
any type of cottonseed oil factory.
 Abdulmalek and Rajgopal (2007)82 state that lean approach can be applied
more frequently in discrete manufacturing enterprises rather than
continuous process sector. The authors have adopted a case study for the
process sector for application at a large integrated steel mill. As the lean
tool, Value Stream Mapping has been used to identify sources of waste
and to reduce the waste. A future state map has been developed for the
system using the simulation model that is developed to show before and
after situation for the managers in order to quantify the benefits gained
from using lean tools and techniques.
 Maleyeff (2007)83 tries to improve service delivery in government sector

with six sigma technique of the lean accounting. The lean six sigma is the
combination of Lean and Six Sigma which emphasis on customer
satisfaction and continuous improvement. It searches for root causes to
reduce waste. For the application of Lean Six Sigma in government sector,
the author suggests DMAIC technique i.e. Define, Measure, Analyze,
Improve and Control to run a process improvement project. Firstly, a
precise project definition or problem statement is developed which
includes major constrains, key metrics, improvement targets, and the role
of each team member. This will show value and non-value added activities
that are called waste. To ensure the improvement, each idea for
improvement should be geared towards removing the specific waste. For
controlling the process, develop the implementation and follow up plan
where is required.
 Achanga, et at. (2006)84 present the critical factors that constitute a

successful implementation of lean manufacturing within manufacturing
SMEs. A group of ten SMEs based in the East of the UK were employed
in the study. These companies practicing lean methodology and the data
have been collected through interviewing of the relevant and key
personnel involved in lean implementation. As per findings, several
critical factors like leadership, management, finance organizational culture
and skills and expertise have determined for the successful implementation
of lean concepts.
2.3 CRITICISM OF LEAN ACCOUNTING
This part of literature review puts a view on the opposite side of the coin
that gives an idea about limitations as well as challenges of lean accounting and
criticism made by the experts. As saying goes, where is good, there is bad also.
This dimension of lean accounting has not very much insight but it presents a
different look for the whole story. The brief elaboration of researches covered in
this segment is presented below:
 Maskell (2015)85 has posted a blog by David Paino where he tries to

describe a problem which he has faced in his working experience. ‘Are
unions anti-lean?’ In this post the author discusses the problems arise
between labor and management when a company adopts lean as a strategy.
Before this lean transformation, workers did only one job in one way but
after lean adoption they are afraid of losing their job, they afraid of
change. According to the author the lean can have a negative connotation
with people that creates fear. The company has the responsibility to
remove fear of its workers, communicate a clear vision about the change,
empower the people and finally make it for everyone’s benefit. As the
result, lean transformation has given outstanding improvements and finally
company comes out of the difficult time.
 Marshall (2014)86 states that after the success of Toyota Production

System in the automotive industry, many of the organizations in the world
transform their operations from traditional management approaches to the
lean approach and still they are struggling for getting success. To indicate
failure mechanisms and critical success factors of lean transformation, the
author raises some questions in his dissertation that why there is a failure
of organization which has been transformed from traditional philosophies
into lean and if it successes what are the critical factors for lean
transformation success, and in all those what is the role of an organization
human resource during the lean journey. By answering all question, the
author investigates behavioral influences and antecedents and offers a
refined understanding of the role that human resource performance
management can play a role in the whole lean transformation process.
 Fiona KeruMwacharo (2013)88 examines the main challenges of

implementing management techniques and develops their solutions. The
research has conducted in form of questionnaire and an interview call on
several companies in Finland. The method is a quantitative method. The
main problem is the inertia of the worker accepting the new system of the
lean and the problem of maintaining of the lean as the workers are suited
to the traditional way of working. Further work can be done to find the
internal and external challenges prevailing inside the industry. The data
collected have been validated by the authenticity of the respondents and
the ways the researcher uses to validate the results. Specific numbers are
given to the questionnaire and the respondents. These numbers are cross
verified and other ways like member check, interviewer corroboration,
peer de-briefing and prolonged engagement are also used for cross
verification. The author has found that lean is a tool to improve
productivity, overall processes and gives a competitive advantage but the
industries face various challenges during the change process.
 Abdelmoneim (2012)89 indicates that many organizations in the world are

rapidly implementing lean thinking but with the use of traditional costing
control systems instead of lean accounting. Further the author explores the
relationship between lean accounting and field practices. There is an
essential need to examine why lean manufacturing units may continue
with the traditional standard accounting and costing procedures. In this
paper, the author utilizes Anthony Giddens’s structuration theory to
highlight the conceptual and theoretical framework for implementation of
ean accounting. It explores the effectiveness or ineffectiveness of lean
accounting in depth to show why lean organization may continue of
discard traditional costing systems. Finally, this paper suggests that while
organizations are moving from traditional manufacturing practices, they
still fall back on their historical approaches to accounting and resource
planning.
 Womack (2013)87 elaborates that lean consists of three parts i.e. purpose,
process and people. Purpose involves the challenge to implement lean in
the organization. Process is the way out to apply the lean which are
responsible for the maintenance of the lean and see that the changes have
been working correctly. Before, a change is applied in any process value
stream should be identified and various options in place of the traditional
way are looked up by identifying the waste. Various value streams are
identified and best possible way is finally applied. The streams are
selected from the good financial indicators and a good physical metrics.
With the example of the Toyota cars, the author has mentioned to
eliminate management accounting and follow up the lean methods. The
whole process should be broken down in various activities and cost of
particular activity can be identified. This will lead to the perfect pricing of
the particular element in the various flow streams. The cost of the products
in the market was subsequently reduced and thus it helped the company to
survive in the competition. The author has finally concluded that the lean
should be extended to product development, purchasing, customer
management and for policy development in the organization.
 Chiarini (2012)93 examines the difference between the activity based

costing to the traditional coasting. The results show that the mistakes
introduced by the traditional accounting that has wrongly predicted the
price of a particular type of product. The author has pointed out that the
organization should be value stream based organization then only activity
based costing can be applied on it. In activity based costing the activities
are broken into sub activities and waste is identified in each process. A
plan is made to eliminate the waste and the best suitable plan is selected
among the all plans. The optimum plan is implemented and regular
inspection should be done by regular monitoring. Thus the cost per activity
in the whole process is identified.
 Chong HooiCheah, Wong and Qiang (2012)91 explain the challenges in

lean manufacturing implementation. They mention that lean
manufacturing is preferred in order to improve efficiency, achieve better
quality and be more competitive on the global market front. But it is not an
easy job to implement lean manufacturing with many challenges that leads
to inefficient operations. Thus the authors have applied interpretive
structural modeling technique and developed a hierarchical relationship
model to explain the relationship direction in the implementation
challenges. The methodology includes identifying the key challenges
affecting the implementation by brain storming or by experts in the field.
A contextual relationship has been established between the challenges.
The relation has been checked for correlation by checking it for contextual
relation transitivity. Finally the challenges are grouped and categorized
and their relation dynamics are analyzed.
 Darabi, Moradi & Toomari (2012)90 express the challenges faced by the
Iran industries and there is much need to transform the strategies method
and structure. The main challenge lies behind the transition from the
traditional thinking to the lean thinking. To quantify it, the authors have
collected data in form of questionnaire. Student T-test method is used to
test hypothesis. Cultural, technical, organizational and economic factors
has considered in the hypothesis. To assess the reliability of the study
Cronbach’s Alpha test has been used. In organizational factors,
understanding the long term goals, removing functional structure, creating
operational flow and use of horizontal structure have been recommended.
In the economic factor effective use of taxation laws and regulation to
encourage lean accounting is recommended. Finally, this paper suggests
managers should take lean as a beneficiary in long term and decide to
establish lean that were recommended before.
 Darlington & Mackle (2012)92 have focused the various challenges of

application of the lean. The author have pointed that the main reason is
that the lean implementation fails when a major contradiction rises. The
system is performing well on the traditional way but when the changes are
applied and the system faces a problem in effective working the lean
method is criticized. In the tradition accounting the people are well set for
the documentation. When they changed their work with new approach,
worker are likely to commit mistake, thus valuable information can be
lost. However by examples the author has quoted that the traditional
accounting system based on standard costing principles will frequently
provide misleading information and will lead to poor decision making.
 Rao and Barger stock (2011)94 reveal that despite of the beneficiaries of
the lean management the industries continue to use the traditional standard
cost accounting control system which hinders the lean implementation.
The authors have used the structural theory by using the concept from
managerial accounting to find the possible reasons of lean manufacturing
plants retain standard costing. The authors have elaborated the elements
impacting inventory valuation by the fact that a level of inventory is
indirectly proportional to the cost maintaining it with standard costing.
The author suggests have use of variety of standard survey instruments to
be used in this field. Some of the mature lean manufactures are retaining
standard costing, thus the applicability of the theoretical concept of lean
accounting to the structure cannot be implemented 100%. The test of
proportions can be done by statistical method and evaluating the survey
results. Further research will be done to find the independency of various
factors.
 Haskin (2010)96 focuses his attention on teaching special decisions in a

lean accounting environment. The author explains that most of the
accounting text books are still continue using standard overhead
absorption model which is not accurately reflect the benefits of lean
oriented organizations, it might distort the impact of changes. The
developments input by lean accounting should be exposed to the
accounting students after a brief introduction of basic cost and
management accounting courses. This paper develops a model for the
accountant or accounting students regarding to such decision which uses
value stream costing. The use of these models in cost and management
accounting classes will be a boon to the future cost and management
accountants or students. This paper has recommended a limited solution to
the lack of disclosure of lean accounting. The type of examples illustrated
in this paper would be very useful learning aids. Students would get
benefit not only from their improved understanding of special decisions
and make or buy type of decisions but would also gain a greater
knowledge of cost projects, direct costing and the application of value
stream costing.
 Kovacheva (2010)95 studies various case studies and examines how the
implementation of the lean could bring value to the organization processes
and achieving an operational excellence. Different organizational factors
and the key success factors are identified. The author enlists the challenges
faced by a company. After referring to many case studies where the lean
has been applied the author agrees on the fact that it leads to reduction of
defects, inventory size, work in process, lead time, redesigning
manufacturing processes and manufacturing floor space. The lean exists
on two levels strategic and operational. With the example of Toyota
Company, author has concluded that lean thinking at the strategic level
and lean production at the operational level plays a crucial role in
understanding lean, in order to apply the right tools and strategies for
achieving the customer value and growth of the company. The lean also
leads to improving the quality and productivity, reducing lead times,
endures competitive advantage.
 Paul Haber (2010)97 examines the transaction economics with the

background of traditional theory. Simple accounting cycles common to all
manufacturing organizations has been discussed. Lean accounting has
been found to reduce transaction cost and organizational cost. The author
has focused on the step by step changes made in certain processed to apply
lean in the organization. Companies can reduce the transaction cost by
improving information technology system. Technologies like Enterprise
Resource Planning (ERP) systems, Electronic Data Interchange (EDI), and
Electronic Fund Transfers (EFT), have reduced transaction costs. Lean
accounting comes after lean management. But the actual problem faced in
the firm that production line managers and the workers could not
understand the concept of lean manufacturing so the lean accounting gives
negative results in process flow. The concept of lean is not to maximize
efficiency but to eliminate waste. The author finally has concluded that the
lean accounting is the necessity of the future, but only when it is fully
coordinate with every part of the organization.
 Tiffany C. Wright (2008)98 has pointed out the disadvantage of lean
accounting. The author focuses on the point that the lean accounting
focuses on freezing of the resources to increase the product line value to
customer in order to make more profit. Thus it has been thought by the
management to increase the profit of the company. The Implementation of
the lean to the organization does not mean that it contributes in more profit
making of the company. The profit making of the company depends on
many points related to work environment and the training to the workers.
Just implementation of the lean without the pre training and planning will
lead to the company in trouble as the workers are not adapted the changes
made. Finally the author has made the disadvantages in three form
accounting system, pricing and cost concern and personal.
2.4 RESEARCH GAP IDENTIFIED
After considering in-depth study regarding the lean accounting, it has been
observed that there is a big research gap especially in the Indian context. This
literature review provides an essential background on the topic and gets
knowledge about the work which has already been written in this sector. Several
authors have contended that the lean concept is very new and contemporary in the
present era of cut-throat competition. But in the Indian sky for the lean concept, is
not very clear blue. The Indian corporates are not daring to adopt the lean
accounting. As keeping all the reviews in mind, the research gap has shown in
between traditional thinking and the lean thinking. All the companies which have
been quoted in the case study reviews adopted lean manufacturing with the
combination of traditional costing methods. But after looking at the results
provided by lean accounting, managers and CEO’s came to know the wrong
decisions which they had taken before. The research will get direction after
getting the pitfall of mental perception, which creates by the accountants. The
following issues identified after reading this portion of literature review-
1. This concept is not very famous in Indian perspective.
2. Very few studies have been undertaken by the Indian authors on the lean
accounting.
3. There should be a gap between the lean manufacturing and the lean
accounting.
4. Can the lean accounting be replaced by traditional financial and cost
accounting?
5. Does the lean accounting fully and properly comply with IASB especially
in the Indian context?
6. Is the lean accounting fully complying with the other accounting standard
boards of different countries and IFRS?
These are some key issues which are to be tried to answer in the present
research work. Therefore, to fill this gap it is decided to carry on this research
with selected Indian companies where lean manufacturing and accounting have
been applied. Furthermore, the accounting procedures have been changed
according to lean method to show the actual impact of lean accounting instead of
traditional cost accounting methods.
2.5 CONCLUSION
After paying attention to the review of literature, it have been concluded

that the most of the studies related to the lean accounting have been done
regarding foreign countries and by the foreign authors. The studies with reference
to India are found rarely. The above reviews give us an eye to the lean accounting.
It also explores comparison of the lean accounting with other costing methods as
well as different case studies of companies worldwide adopting lean accounting.
According to the views expressed by most of the authors, the lean accounting is
focusing on the business around the value created for customers. When an
organization moves from mass production to lean thinking, the accounting,
control and measurement system need to be changed.
It can further be concluded regarding case studies portion of this literature
review that the lean thinking can be sustained only with the lean accounting
methods because traditional costing is anti-lean as it doesn’t have accurate and
timely information to make better decision. Instead of this, lean is doing right
thing, at the right time, on the right place and with the right information. As
discussed, lean accounting is not only a method to get stands in this competitive
age but also it is a magic of number which systematically moves company from
downward to upward.
But in the third section, which reveals limitations and challenges of lean
accounting, concludes that when lean ideas have been followed by the people with
lack of spirit, it will give some extent negative results. Implementation of lean to
the organization does not mean that it will contribute more profit for the company.
Every method which has lots of qualities, excellence, moral, and traits for
standing in this competitive age, not possible that it would be perfect in every
aspect of the organization. Even, there are lots of challenges ahead, in front of
lean, but some improvements are there to be suggested by the authors to fulfill
this research gap.
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CHAPTER-3
LEAN ACCOUNTING PATHWAY
Outlines:
3.1 Introduction
3.2 Lean Pilots
3.2.1 Lean Cell Performance Measurements
3.2.2 Other Cell Measurements
3.2.3 Benefits of Cell Performance Measurements
3.3 Managing by Value Stream
3.3.1 Value Stream Performance Measurements
3.3.2 Value Stream Costing
3.3.3 Benefits of Value Stream Costing
3.3.4 Box Score Reporting
3.3.5 Usage of Box Score Report
3.3.6 Value Stream Income Statement
3.4 Lean Enterprise
3.4.1 Target Costing
3.4.2 Performance Measurement Linkage Chart
3.4.3 Value Stream Mapping
3.5 Conclusion
This chapter covers the whole path associates with Lean Accounting. This
path can be followed by any company to develop a plan for implementing lean
changes. This path is not proven path for lean accounting but this chapter
undertakes an in-depth study of different “Maturity Path levels” of lean
accounting and their methods, stages, issues and practices used in the selected
companies for case study.
3.1 INTRODUCTION
Lean is a journey which starts with customers and ends with customers.
Lean thinking epitomizes customer as AEIOU concept i.e. customer is the person
who Accepts, Evaluates, Inspects, Owns and Uses the goods and services. And
that goods and services must have variety, competitive cost, quality that customer
wants and finally on-time, in-full and error-free delivery. In this changing scenario
the organizations are also seeking for new production and accounting methods to
become the world class organization. In the late 1980s and early 1990s, powerful
and culture-changing methods of the lean Accounting had been introduced to
create a 21st century revolution in accounting, control and business management. 1
There is a Maturity Path associated with the lean accounting. As the company
matures with lean thinking, additional methods of lean accounting will become
useful. The figure 3.1 shows the different “Maturity Path Levels”.
Lean
Pilots Figure 3.1:
Maturity
Path Levels
Managing
by Value of Lean
Streams Accounting
Lean
Enterprise
There are three different Maturity Path levels of Lean Accounting 2-
(a) Lean Pilots or Getting started with Lean Accounting

(b) Managing by Value Stream or Lean Accounting widespread
(c) Lean Enterprise or Lean throughout the company
3.2 LEAN PILOTS
Lean accounting is designed to maintain operational and financial control

of the business but it does not stand alone to achieve these objectives. This stage
of lean accounting linked up with lean manufacturing. Lean manufacturing
includes a set of principles that the lean thinkers use to achieve improvements in
productivity, quality and lead-time by elimination waste through continuous
improvement. The goal is to provide the customer with a defect free product or
service when it is needed and in the quantity it is needed. 3 Lean manufacturing
generally synonyms as Toyota Production System (TPS). Figure 3.2 shows a TPS
house.
Maximize flow, Minimize waste
Just In Jidoka
Time
Quality at
Right part the source
Right
amount
Right time
Operational Stability
Figure 3.2: Toyota Production System House

The TPS house shows, at the base, there is operational stability, which
means creating consistency in methods and tasks, equipment, workplace
organization and output of work. There are two pillars, Just-In-Time and Jidoka.
Just-In-Time means providing the next downstream customer with what they
need, when they need and also in the right quantity. The second pillar Jidoka
means autonomation. It highlights the causes of problems because work stops
immediately when a problem first occurs. It leads improvements in the processes
that build in quality by eliminating the root causes of defects. These concepts,
combined with the culture of continuous improvement, lead to the best quality,
lowest cost, and shortest lead time for products and services. It finally, maximizes
the flow and minimizes the waste.4
3.2.1 LEAN CELL PERFORMANCE MEASUREMENTS
In the early stage of lean accounting, it does not need to make underlying
changes in accounting, control and measurement systems. This journey of lean
starts with eliminating the huge amount of detail reporting in new lean cells. Lean
cells are time-balanced segments which design in ‘U’ shape work cell to achieve
the continuity of manufacturing operation in the fix amount of time. 5 However, in
the lean production cells, new performance measurements are required. These
measurements reflect the core issues of the lean thinking like managing the takt
time, standardized work, flow and pull. They are visual, timely and action-
oriented. The main objective of these measurements is to guide the production
people what to do and what needs to be done. The Cell Performance
Measurements are presented below-
(a) Day-by-the-hour report

(b) First time through
(c) WIP-to-SWIP
(d) Operation equipment effectiveness
3.2.1.1 Day-by-the-hour report
Day-by-the-hour report is the vital part of the lean continuous

improvement. It shows what and which work must be completed during each hour
of production on a visual board which is located within the cell or process. In a
department, this report represents how many products to be made in each hour. At
the end of each hour, any leading person writes up the quantity actually achieved
and also the cumulative quantity made in this shift or day. This report shows the
reasons for any problem occurred and any quality issues.
Day-by-the-hour report tracks the cell’s success at the achievement of takt

time. Takt Time is the rate of time at which customer demands any product. For
example, if per day customer demand of any company are 48 units and the
company works 8 hours during the day, so takt time shows customers need a
product in every ten minutes. It means the cycle time of any cell involved in
manufacturing the product must match the requirement of ten minutes.
The Day-by-the-hour report facilitates cell’s people to track their rate of

production and keep them in line with the customer’s takt time. There are some
purposes of this measurement.6
(a) This measurement keeps the operating people in the cell focused on
maintaining a consistent output of products in line with customer demand.
(b) It provides fast feedback when problems in the cell need to be fixed
quickly.
(c) It gathers data about the problems so that cell’s people can be studied and
permanently correct it.
(d) It shows monthly real time process information in cumulative manner
which enable the supervisors to schedule better and to level the
production.
(e) It gives information to the cell people themselves, the value stream
continuous improvement team and managers or engineers within the value
stream to introduce changes that permanently resolve the problems.
(f) This measurement works towards perfecting the process that leads to
continuously improving process quality.
The foremost objective of lean is to minimize waste and maximize flow
and to achieve this objective a cell must manufacture the product according to the
customer need. In the lean manufacturing, cells are designed to run at the same
rate as the takt time. To maintain the perpetual sequence of production, the cell
people must be trained in standardized work methods; effective handling of parts
and material and also tracking their production rate.7 If people are not trained in
all these, the result of this measurement cannot achieve its benefits. The managers,
supervisors and other in authority regularly have a look on this report, review the
issues, understand the problems, resolve problems and manage the processes
visually, so that workers take this report seriously. Table 3.1 shows the format of
Day-by-the-hour report.
WORK AREA_________________________ DATE______________________

MODEL(S)____________________________ TAKT TIME________________
TIME PLAN ACTUAL TOTAL TOTAL +/- COM-

PLAN ACTUAL MENT
8:00am-
9:00am
9:00am-
10:0apm
10:00am-
11:00am
11:00am-
12:00noon
1:00pm-
2:00pm
2:00pm-
3:00pm
3:00pm-
4:00pm
4:00pm-
5:00pm
Table 3.1 Format of Day-by-the-hour Report

The Day-by-the-hour report is a simple but essential tool to control
production flow in any lean enterprises. It works very well with long and variable
production processes. It also provides data for making real continuous
improvements in the production process just to build the lean event successfully.
3.2.1.2 First Time Through (FTT)
First Time Through is the percentage of units that completes a process and
meets quality guidelines at the first time without being scrapped, rerun, retested,
diverted for off-line repair, or returned. It is a measure of the quality of the
manufacturing process.8 The purpose of this measurement is to observe whether
the cell is manufacturing the products right in the first time or not. It is not the
quality measurement of product but it measures how many goods are produced
correctly without scrap, rework and repair. Finally, it tracks the effectiveness of
the cell’s standardized work. In the lean manufacturing, work must be
standardized. Every step in production process is predefined and mapped that
shows the exact sequence and timing of the production process. Cell’s people are
trained to perform their work exactly in accordance with the standardized work so
that the product is made perfect in the first time and at the right rate. 9
The First Time Through report tells about the percentage of product made
in the cell from start to finish without any rework, rejection or scrap. If the
product is adhered with the standardized work, the FTT will be 100 percent with
zero defects made or passed on.
ct al nits P cesse e ecte e c a eteste nits

tal nits P cesse
FTT of Multiple Operation = FTT1 * FTT2 * FTT3……s n.
FTT measure is multiplicative not additive in nature. For example, 70 percent of

products process in cell A without rework or rejection and 80 percent in cell B, so
the overall FTT will be only 56 percent. It means a small percentage of rework
and rejection can impact the ultimate capability of the overall production
efficiency. There are some benefits of using FTT 10
(a) It increases capacity and efficiency of cell.

(b) It ensures that product is made correctly and according to standard.
(c) There is no need to check quality by the supervisor because 100% units are
ensured by workers on the spot.
(d) It reduces need for excess production inventory and improves cycle time.
(e) It improves ability to maintain sequence throughout the process and
improves scheduled performance.
(f) It eliminates the waste due to scrap, repair and excess inventory resulting
in improved total cost.
First Time Through measurement can be reported as a bar graph on the

cell performance measurement white board. The data can be collected by the cell
people themselves by monitoring their own production process in a check sheet. If
it is not possible to check whole process, only critical or problematic steps or
production process can be verified. This measurement can be reported throughout
the day at regular intervals or after finishing the shift.
3.2.1.3 WIP-to-SWIP Report
There is a common belief that more and more production in the production
line is better and it proves efficiency of workers. But Taiichi Ohno, the father of
modern lean, consider this to be worst form of waste. This work is efficient but
not effective and creates overproduction. The lean manufacturing prevents this
practice and work towards work in progress to standard work in progress. This
measurement shows the inventory levels in the cell. It designates minimum
amount of material required to keep the standard work flowing. This helps in
reducing variation and its impact on lead time. The purpose of standard WIP is to
enable consistency in the process.11 The reason behind that if a worker works on
ten units in a batch, eight or twelve units can obviously be fluctuated during
passing that work to the next process.
Cells are designed to produce some amount of inventory in production
process. In lean manufacturing, this inventory is determined by the number of
kanbans (it contains the number of items which are to be processed in a cell at any
one time) between the cell’s work centers. This is called the standard cell
inventory that safeguards the production process in the cell against problems and
delays.
WIP to SWIP is a measurement of pull system because it tracks the

success of pull system. If the inventory in the cell is always same according to
standard inventory scheduled for the cell, means pull system is working properly
but if the inventory within the cell is fluctuate or not according to standard, means
pull system is deteriorating.
The WIP to SWIP can be calculated by dividing the total inventory within
the cell by the standard cell inventory.
The ideal result of this formula is 1 where WIP is equal to SWIP. If it is

less than 1, there is shortage of inventory and department would be in danger. But
if the value of WIP to SWIP is more than 1, it means there are more inventories in
the cell and this would create the waste of overproduction.
The information collection for this measurement is simply by counting of

kanbans in the cell. Kanbans may be in the form of box, container, totes, shop
floor or physical card for the item. If Kanbans are not being used on the
workplace, information can be collected through counting of WIP units after
completion of day. The result of this measurement can display day by day as bar
graph or line chart on white board in the cell. Also, it is important to track the
reason for the problems so that it can be attended and settled quickly.
3.2.1.4 Operational Equipment Effectiveness (OEE)
OEE is the measurement for obtaining the effectiveness of machines

within the cell. It tracks the ability of a machine to make product on time and of
the right quantity. It is a relative measure which uses to identify process
performance of a machine and how can it be improved. In many processes, cell
cycle time is also determined by this measure. OEE measures the performance of
a manufacturing unit into three different components. These are Availability,
Performance and Quality. Each component targets for improvement in production
process.
The OEE takes time to track the information so that in the first time, this
measurement should be applied on that machine which has complex and
problematic work process. This bottleneck machine represents the maximum flow
rate and cycle time of the entire cell. When the enterprise has matured in lean
manufacturing and the people have trained in using Operational Equipment
Effectiveness measure, it can be applied to other manufacturing equipment within
the cell.
The calculation of OEE requires three types of data i.e. machine

availability, machine performance and the quality of products.
In the above formula, operating time is the amount of time for which a
machine finally operates for manufacturing. It can be calculated by subtracting the
shortfall time of machine (which occurs by equipment breakdowns, setup and
adjustments, tooling losses, changeovers and other stops) from the net available
time of machine within the cell. Planned production time is the total scheduled
time less shortfall time which is usually set according the management decisions.
Operating time = Net Available Time – Shortfall Time
Planned Production Time =Total Scheduled Time– Required Shortfall Time
Performance efficiency is the “process rate” that represents the speed of

the machine at which it runs as a percentage of its designed speed. If a machine is
designed to produce 10 units per hour as according to the customer takt time, but
it is producing only 8 units per hour so the performance efficiency is 80 percent.
The quality measurement is same as First Time Through measure. It the

percentage of units manufactured without rework, rejection, repair or scrape. It is
calculated as total good units manufactured divided by total units manufactured.
In this way, the Total Operational Equipment Efficiency measurement can

be calculated by multiplying all three factors.
The information required for OEE measurement can be collected by

tracking the machine carefully throughout the day. The results should be showed
daily at the machine on a graph by giving the breakdown of all three elements.
The perfect result of this machine is 100 percent. It means machine is working as
100 percent available time, 100 percent productive and 100 percent quality of
product. When the result is not 100 percent, it indicates the reasons for quality
problems or machine slow-downs and any other shortfall which must be solved
out permanently.
OEE measurement supports the Total Productive Maintenance (TPM). It is
the formal method for ensuring the correct maintenance on production machines.
As same as OEE monitors the production capabilities of machines and initiate
preventive maintenance to ensure machines are always capable of making
products on time and according to quality.12
3.2.2 OTHER CELL MEASUREMENTS IN LEAN UNIT
The above four measurements are primary cell measurements for lean unit.
These measurements motivate the cell people towards continuous improvement
and lean manufacturing goal. There are some more supportive measurements for
lean cell which are not compulsorily to use but they assist the cell people more in
achieving the desired rate of production and also maintain the success of lean cell.
3.2.2.1 Five S
5S is a system to reduce waste and optimize productivity through

maintaining an orderly workplace and using visual cues to achieve more
consistent operational results. Implementation of this method "cleans up" and
organizes the workplace basically in its existing configuration.13 5S is Sort, Set In,
Shine, Standardize, and Sustain. It is a tool to eliminate waste from a poorly
organized work area. According to it, firstly, sort the area. It means eliminate that
which is not needed. Secondly, organize the remaining items or set them in order.
Make the work are shine i.e. clean and inspect work area everyday then write
standards for above. Finally, keep it sustains and regularly apply the standards.
3.2.2.2 Kaizen
The lean company frequently works for the ultimate object of Kaizen. It is
a technique of the lean management which shows continuous improvement. It
seeks to achieve small but continuous changes in processes with the intention of
improved quality and competence in a systematic manner. It is an ongoing effort
to improve products, services or processes where employees work together
proactively to achieve regular, incremental improvements in the manufacturing
process. It combines the collective talents of a company to create an engine for
continually eliminating waste form the process.14
3.2.2.3 Plan-Do-Check-Act (PDCA)
It is a scientific method whereby improvement ideas are measured and

results are verified. PDCA works for the control and continuous improvement of
processes and products. It is a four step technique which assesses current situation
and plan for future. It checks the action taken over using measures. It identifies
root cause and generates solutions. Then it examines the effectiveness of solutions
and develops new standard work to sustain improvements.15
3.2.2.4 Visual Performance Measurement
The performance measurement of lean is to make sure all the processes are
exactly following the expectation of strategy goals, and value stream performance
is to initiate continuous improvement and create more benefit in the
organization.16 This tool uses visual techniques to display critical measures in the
workplace and see instantly what is going wrong on the shop floor. It can improve
feedback between performances and results.
3.2.2.5 Hoshin Policy Deployment
Hoshin Policy Deployment (also called Hashin Kanri) is a method for

ensuring that the strategic goals of a company drive in progress and action at
every level within the company. It eliminates the waste that comes from
inconsistent direction and poor communication. It aligns company goals with the
plans of top management and work performed by employees to ensure that
everyone is pulling in the same direction at the same time. 17 Hoshin policy
deployment starts with the company’s business strategy. It decides what should be
done in the next coming year. The top level Hoshin plan has a handful of break-
through changes required to support the business strategy together with the
measurement to monitor the achievements, and the resources needed to complete
the plan. This top level Hoshin plan is then rolled out to the first-level executives,
their first-level managers, and down to the value streams. 18
3.2.2.6 Three P
Production Preparation Process (3P) is a disciplined method for designing

or redesigning production process. Generally it is used for building new facilities,
upgrading or changing equipment, changes in demand etc. The 3P team is
required to develop several solutions to the problem. Often they are forced to
“think outside the box”. 3P also requires the team to evaluate each alternative
using an extensive checklist of lean attributes, most of which are non-financial.
The financial impact of each alternative is presented on a box score as a part of
the decision process.19
3.2.2.7 Cross-Training Chart
This chart shows average amount of cross training achieved by a person in

the cell. This chart lists all the name of the employee in the cell on the horizontal
axis and on the vertical axis there are all the tasks which require training. These
tasks can be divided into four parts i.e. tasks required within the cell for
manufacturing a product, skills required to do preventive maintenance and
improvement, tasks required to support other cells and the fourth part includes
skill required in kaizen and lean improvements.
When a team member achieves training, it is marked in the cross training

chart according to his skill for example 1 mark for training, 5 marks for
certification, 10 marks for trained and skilled person. At the end of the month, the
average marking shows how much cross training has been achieved among the
cell.
3.2.2.8 Kanban
Kanban is a scheduling system which can be a card, sign, box or container

that triggers the orders when inventory is depleted. Kanban is a method of
regulating the flow of goods both within the factory and with outside suppliers
and customers. Based on automatic replenishment through signal cards that
indicate when more goods are needed. It eliminates waste of inventory and
overproduction.20
A Kanban system needs a proper leveling and well understood demand
data and also careful analysis of the capabilities of the manufacturing process. A
well analyzed and well implemented Kanban system can save cost by reducing
inventory and manufacturing expenses.
3.2.3 BENEFITS OF CELL PERFORMANCE MESUREMENTS
Cell Performance measurements are designed to provide updated

information which is really required for continuous improvement. It helps the cell
to meet its takt time of the customer. These measures are easy to use and also
eliminate any other measurement which generates by the traditional cost
accounting methods. It listens to the users, provides a no-blame workplace and
summarizes the data. Table 3.2 shows the overall benefits of cell performance
measurements.
AFFECTED LEAN BENEFITS
ACTIVITY
Financial analysis -revenue stays the same

-costs stay the same initially
-reduce inventory on cost of sales
-cash flow from operations may increase
Customer requirement -attempt to reduce product cost

analysis -increase performance of product delivery
-eliminate distance of suppliers with manufacturer
-maintain quality of product that was sent by suppliers
-quick response time for customer’s complaint
Process analysis -set up time reduction

-eliminate manufacturing cycle time
-production scheduling
-eliminate complexity of operation
-mistake or error proofing
-work standardization
-eliminate inappropriate processing
-eliminate machine down time
-proper labour utilization
-promote cellular manufacturing
-total productive maintenance
Employee analysis -training for employees to do more job (multi skill)

-employees evaluation
-visual factory
-Increase utilization creativity of manpower
-work delegation
Table 3.2 Benefits of Cell Performance Measurements21

The cell performance measurements are the initial set of measurements to
ensure that company’s operational performances are in good condition or not. If
the condition is good, it means the process is under control and wasteful
transactions are begun to eliminate. But if the condition is not so good, there is a
strong need to quick identified the problem and its solution.
3.3 MANAGING BY VALUE STREAM
A value stream represents all the things we do to create value for the
customer. The first principle of lean thinking relates to customer value. The value
stream focuses on creating large amounts of value for the customer. And the
second principle of lean thinking is that always work by value stream. 22 Generally
value stream is the sequence of activities which required to design, produce and
provide a particular good or service. It is the movement of material throughout the
process from customer order to delivery. But as the time passes, value stream is
not the physical flow of material but also flow of information as well as flow of
cash. Lean improvement must increase the flow of all three. Figure 3.3 shows a
typical value stream of customer order. This figure shows all the sequential
activities which are necessary to fulfill a customer order.
Receiving the Designing the Order to Purchase of

Order Product Supplier Materials
Packing & Product Material Production

Shipping Manufacturing Handling Planning
Invoicing Repair and

Maintenance
Figure 3.3:
Collecting the Redesigning
Value Stream
Cash
Structure for
Customer Order
After Sales Quality
Services Assurance
A value stream must include all the activities which are required to create
value for the customer. The organizations those are mature with lean
manufacturing, can extant their value stream beyond the walls of factory. They
include the complete flow of the broader value stream of which they are a part,
they are able to work with their customers, suppliers, and other third party
organizations to eliminate waste and improve the entire flow. 23
Figure 3.3 shows the value stream of order fulfillment that provides
current products to the current customers but there can be different types of value
streams according to need of organization like value stream for acquiring new
customer, value stream for customer development, value stream for new product
development, value stream for service provider organizations etc. These expanded
forms of value stream reflect the best way to maintain the company’s
achievement. Generally a value stream focuses on the following issues-
(a) Waste- Value Stream identifies waste and delays and develops an action
plan to eliminate it. It strives to eliminate existing traditional
departmental organizational structure.
(b) Flow- Value Stream is the best way to understand the flow of material,
information and the flow of cash. It maps the obstacles in the flow and
initiates improvement efforts to increase flow of material, information
and cash.
(c) Value- The primary objective of lean is to focus on those activities
which are adding value to the customers. The value is created within the
value stream process because it is a sequence of value adding activities
from customer order to its final delivery.
(d) Simplicity- Value Stream tries to make all the operations simple. It
identifies the easiest way to process the flow and eliminates complexity.
(e) Accountability- Value Stream generates accountability. Value Stream
manager and his team are responsible for operational and financial
improvements, growth, profitability and success of the value stream.
(f) Continuous Improvement- Value Stream team works as continuous
improvement team. This team reviews the value stream performance
measurements each week and tries to improve this. Finally this team
competes by themselves.
When a company matures in the lean manufacturing, it must be necessary

to manage the operations by value streams. Value stream team, within each value
stream, focuses on to grow the value stream, increase customer value, eliminate
waste, make continuous improvements and as its result, make more money.
3.3.1 VALUE STREAM PERFORMANCE MEASUREMENT
Performance measurement is a process that measures efficiency,

sufficiency and improvement of quality. Lean thinking strives towards continuous
improvement and excellence follow-up of plans.24 The main objective of value
stream performance measurements is to ensure continuous improvement within
the value stream. These measurements are generally reported weekly to show its
achievements and performance throughout the period. These measurements must
show the ability of value stream team that they are producing value for the
customer in each and every process of value stream. It motivates the entire value
stream team to drive changes in order to improvement in value, reducing waste,
improvement in flow and profitability. The value stream team or continuous
improvement team is completely responsible for the performance of value stream.
This team carries out performance measurement every week and develops new
projects to perform proper performance measurement. 25
The Value Stream Performance Measurements are presented below-
(a) Sales per person

(b) On time delivery
(c) Dock to dock days
(d) First time through
(e) Average cost per unit
(f) Account receivables days outstanding
3.3.1.1 Sales Per Person
This measurement shows the value created by the value stream in terms of
the units produced by the value stream. If value stream is producing more units, it
means value stream must sell more products with the same or less resources. This
will increase the value. But it is important that value stream efficiency increases
regularly in time.
Sale value includes all the sale orders and products associated with the
value stream and the number of people includes all the permanent and temporary
personnel include in value stream. This measurement makes the people
empowered to set their goals as high as they perform and also accountable the
employee for their outcomes. This measurement is more practical where value
stream manufactures can produce a wide range of products with different prices,
processes and materials. If the company is working with the same product, unit
per person can be calculated. If the company have highly machine oriented
operation, sales per machine hour can be calculated and if the company has more
man power then machines, this measurement can be reported as sales per labour
hour.
3.3.1.2 On Time Delivery
This measurement shows the rate of orders that are shipped to the
customer on time. This reflects the control level within the value stream that how
value stream team is serious about delivering the customer order on desired time.
As lead time of a company in lean business is reduced, the company improves its
on-time shipment rate.
If On Time Delivery rate is high, it means value stream is under control
but if the ratio is low, it reveals failure of value stream and the process are not
under control. In the lean accounting, a company manufactures product when it
receives customer order. So this measurement makes the company responsible for
the need of its customer and decreases the time it takes to deliver the product. This
measure is quite important for finance department in the company.
3.3.1.3 Dock-to-Dock Days
It is the measurement which defines the days between the unloading of

raw materials and the discharge of finished goods for shipment or delivery. It is
the flow of material throughout the whole value stream. It measures how fast raw
material is converted into finished goods. Lean principle emphasizes on flow and
Dock-to-Dock measurement motivates the flow of material within the value
stream. Traditional companies build more and more parts and create stock by
speed up the process but Dock-to-Dock time is not speeding up the process, it
speeds the flow of material from receiving to releasing. It decreases inventories
and leads to less material handling and storage, which result in less damage of
product.
Total Inventory = Raw Material + WIP + Finished Goods Inventory
Average rate of product shipped = Unit shipped in a week/ days in a week
In a small company, just count the number of items in inventory for

getting the total inventory value but in lean company, with a good kanban pull
system, just count number of kanbans within the value stream. As this rate
decreases, the flow of material is increased and the inventory level comes down.
But as the result increases, the flow of material decreases and level of inventory
becomes high. This measurement can be reported weekly together with other
value stream measurements and the results can be demonstrated graphically by
run chart, line chart or other methods.
3.3.1.4 First Time Through
First Time Through is the percentage of units that completes a process and
meets quality guidelines the first time without being scrapped, rerun, retested,
diverted for off-line repair, or returned. It is a measure of the quality of the
manufacturing process.26 The purpose of this measurement is to observe whether
the value stream is manufacturing the products right in the first time or not. It is
not the quality measurement of product but it measures how many goods are
produced correctly without scrap, rework and repair. Finally, it tracks the
effectiveness of the value stream’s standardized work. In lean accounting, work
must be standardized. Every step in production process is predefined and mapped
that shows the exact sequence and timing of the production process. Value
Steam’s people are trained to perform their work exactly in accordance with the
standardized work so that the product is made perfect in the first time and at the
right rate.27
The First Time Through report tells about the percentage of product made
in the value stream from start to finish without any rework, rejection or scrap. If
the product adhered with the standardized work, the FTT will be 100 percent with
zero defects made or passed on.
FTT of Whole Value Stream = FTT1 * FTT2 * FTT3……s n.
First Time Through is multiplicative in nature. If cell level FTT is

multiplied in all, it makes the FTT of whole value stream. The individual FTT can
be quite good but when the all cells are multiplied, it multiplies the reworks,
rejections of all cells. This will create unusual results and make responsible to
continuous improvement team and value stream manger for improving the level of
control and eliminate variability within the value stream.
3.3.1.5 Average Cost per Unit
It is again an important measurement for overall improvement of the value

stream processes. The average cost per unit shows the overall direction of value
stream that real changes for improvement are taking place in the value stream or
not. Sometimes lean improvements do not show an immediate financial impact,
the results acquaint with over the time. At this time, these improvements manifest
in the average cost per unit measurement. As the lean improvements take place,
the average cost reduces.
Value Stream Cost =
Material cost + Labour cost + Machine cost+ Facilities cost + Other cost
This measurement shows high results when value stream is producing

more than its demand. In other words, if value stream builds inventory, the
average cost per unit will increase. And if the value stream sells more products,
the average cost will go down. This measurement initiates new research and
development in the value stream to bring the cost down or encourages the team to
sell more products without increasing resources. The value stream cost used in
this measurement is direct and real cost of the week and also number of unit
shipped to the customer is showing the exact number of sell, so this measurement,
finally, reflects real changes taking place, for better or worse.
3.3.1.6 Accounts Receivables Days Outstanding
This measurement shows that how fast a company collecting cash from the
customers. Lean is all about flow and this measurement concerns about the flow
of cash. Due to high importance of cash is a business, it is a company’s interest to
collect cash quickly from customers.
Average Daily Sale = Monthly credit sale / Number of days
A high ratio of this measurement shows that value stream is selling its
product to customers on credit and taking longer time to collect money. Instead of
this, low ratio of this measurement reveals efficient performance of value stream
team and provides assurance for improvement in cash flow. This ratio, ultimately,
works for the lean principle of increasing rate of cash flow through the value
stream.
Value Stream Performance Measurements are the tools which measure

efficiency and sufficiency of value stream. This information shows that who is
doing the work, what is the status of project, what type of data is being used by
team members and in short, it tells the whole story of the project. The value
stream performance measurements, which are calculated within the value stream,
should be presented visually. It must present weekly on value stream performance
board so that value stream team can get inspiration and work towards the lean
principle continuous improvement.
3.3.2 VALUE STREAM COSTING
When company matures with the lean manufacturing and most of the
waste reduces or eliminates throughout the manufacturing process, there must be
requirement for such accounting method which helps the managers to take
accurate decisions. The information required for the lean environment is
completely different from traditional accounting. Value stream costing provides
better information than traditional standard costing. The value stream cost
information contains the real cost of the value stream. The information is not
distorted and complicated by the allocation of overheads. 28
Value stream cost is the cost for whole value stream which can be treated
as a separate organization unit. It includes the cost to operate the value stream and
the cost of products shipped from the value stream. The information generated by
this method is more reliable than any traditional costing method to take decision
of an order or contract, make or buy product, product pricing, profitability, and so
forth. This method is easy to understand therefore it can be used by anyone by the
value stream team as well as the company.
Traditional costing methods or standard costing methods are having anti-

lean behavior. These methods are designed for mass production model that seeks
economies of scale to create the lowest unit cost for items produced. Using this
model, company encourages a highly automated factory capable of producing
large production amortize the cost of these expensive resources. Companies make
money by reducing the per unit cost.29 One assumption of standard costing is that
all overheads need to be assigned to the product and that these overheads relate in
most cases to the amount of labour required to make the product. This leads to the
distortion of product costs. In result, some products appear to cost more than they
really do and other products appear to cost less. These costs mislead people to
make wrong decision. Standard costing also requires an expensive and wasteful
data collection system which leads to the implementation of wasteful and
confusing system.30
Value stream cost identifies and establishes cost for the process steps
which is required to provide value to the customer. It considers all the costs in the
value stream as direct. There is no distinction between direct cost and indirect cost
within the value stream. Costs outside the value stream are not taken into account
by this method of costing. Finally, it is a process of ascertaining that how much
value is created by each process step.
Value stream cost is to be calculated every week. Figure 3.4 shows all the
cost include in value stream i.e. production material, production labour,
production support, machines and equipment, operation support, facilities and
maintenance etc.
Figure 3.4: Costs included in Value Stream Costing
(Source: Baggaley, 2003)31
Production labour cost includes all the payment made for the employees in
value stream during the week whether these employees are making product in
value stream, engaging in moving material, designing the product, maintaining the
machine, doing planning for production, engaging in sales or doing accounting.
There is no difference between ‘direct’ or ‘indirect’ labour in the Value Stream
Costing, also there is no distinction between the work activities of labour.
Generally, manpower is assigned directly within a single value stream.
Production material cost includes the material payment which has been
purchased for the value stream during the week. This is simply actual material
used by the value stream during the period. For justification of material cost, there
must be low and under control inventory of raw material and work in progress
because the material held in stock will be used quickly and the material cost
reflects only that material which is purchased during the week. But, if raw
material inventory is high, value stream material cost is calculated based on raw
material issued to the value stream. This figure can be calculated from bills of
material of product issued to production or from calculating the month-end
inventory purchases less the previous month-end inventory.32
Production support costs are the cost for purchasing spare part and loose
tools for the machines and equipment, using in value stream. As well as, machines
and equipment cost includes the cost of purchasing machines and equipment
requires for production within value stream. This information can be gathered
through fixed asset purchase account for the period. In addition, depreciation and
repair and maintenance expense for the machines, spare parts and loose tools can
be calculated from an organization’s detailed fixed assets and depreciation system.
If these small machine costs cannot be identified by the value stream, it can
allocate to the value stream.
Operation support costs are the costs of consumables, supplies, and any
other expenses occur in day-to-day business for the value stream. There is a
problem to collect these expenses. Lean Accounting solves this problem visually.
When a job is shipped out, the authorized document, kanban, and a copy of
kanban is pasted on visual board with the information like pricing, lead-time,
expenses incurred and so forth. The same process has to be followed when a job is
received back. This exercise maintains a good record of operation support cost,
and it eliminates the need of invoice.
Facility cost, in the value stream cost process, includes expenses incur for
factory building like rent, depreciation, repair and maintenance, guard and
security expenses, insurance etc. This is the only allocation used regularly within
value stream costing. The only difference from traditional allocation is that value
stream is charged only for the space it uses. Total facility cost is divided by total
square feet or meters of factory and multiplied by square feet or meters used by
the values stream. The square feet or meters occupied by the value stream include
the production area, office area, stockroom area and the area used by the value
stream people.
Other costs of the value stream include spare parts, supplies, consumable
tools, travel and so forth. It is common for someone in the value stream to be
responsible for buying these items. They are mostly purchased from suppliers that
have long term contracts and are paid for by purchase card. The responsible
person keeps track of what he has spent and reports it weekly.33
After applying the all above cost to the value stream, the total value stream
cost can be calculated for the period. To determine an average cost of product,
total value stream cost is divided by the value stream output which is shipped
during the period in units.
Total Value Stream Cost = Production labour cost + Production material cost
+ Production support cost + Machine and equipment cost + Operation cost +
Facilities cost + All other value stream cost for the period
The simplest thing in Value stream costing is its costing process. It is

simpler than traditional costing system because there is no detailed collection of
actual cost. Here, costs are not collected by apportionment or absorption method,
so there is no longer necessary to have huge number of departmental cost centers.
Value stream costs are simply the sum of all the costs paid for the value stream
during the period. This makes the calculation of cost easy and conveys real
information of cost and profit to the value stream people as well as people outside
the value stream. The costs or expenses which are not associated or partly
associated (for example accounting, office cost etc.) with the value stream, should
not allocate to the value stream. These non-value stream costs are assigned to
companies P/L statement. These costs are not relevant for calculation of total cost
and per unit product cost because lean principle focus on the value created for the
customer with reference to the profitability of the value stream as a whole, not for
the individual product. All the decisions like pricing, profit margin, cost variance,
make or buy etc. can be taken by using value stream cost. So, standard costing can
be eliminated as waste. Table 3.3 shows a format for calculation of total value
stream cost.
Activities/expenses Material Labour Suppor Machine Other Total
Included In Cost Cost t Cost Cost Cost cost
Value Stream
Planning/Designing
Purchasing
Test/Rework
Quality Assurance
Assemble
Purchasing of Machine
Maintenance, Depreciation
Warehouse
Shipping
Building Rent/Depreciation
Insurance
Accounting
TOTAL COST
Table 3.3: Format for Calculation of Total Value Stream Cost
The result of this value stream cost statement is used to calculate average
cost per unit as well as to create a value stream P&L statement. This profit and
loss statement includes the revenue from sales of the value stream during the
period less total value stream cost expanded during the same period.
3.3.3 BENEFITS OF VALUE STREAM COSTING
In lean accounting, Value Stream Costing stands as a bridge between

operational views and financial views of lean which makes the transfer of
information very easy from shop level to management level. Following are some
benefits of value stream costing-
(a) The information generation in value stream is quick and simple. When the
organization is well managed with value stream, gathering of cost and
revenue information becomes easy and unpretentious.
(b) There is no or little allocation of overheads. So the cost information is
direct and accurate. It is helpful in taking any type of decision regarding
product.
(c) The information collected in value stream is weekly. This means recent
financial information is in the hands of value stream managers. They can
control or reduce their cost timely and frequently.
(d) Value stream costing provides real information because it is not based on
any traditional assumption. So it provides a real base for taking routine
decisions like quoting, make or buy, capital acquisition etc.
(e) Value stream cost is the summary of direct cost of a certain period. This
cost can be collected by using very few and significant transactions. So
there is no need to study detailed and complicated transactions in all.
(f) Value stream costing supports team work. This encourages the lean
principal of ‘empowerment of people’. Value stream team, work as a mini-
entrepreneurial organization within the organization and concentrate
completely on the product.
Value Stream Costing is a process of assigning the actual expenses of an

enterprise to value streams, rather than to products services, or departments. 34 It
eliminates the assumptions of mass production. Overhead costs become direct.
Profitability generates from the maximum flow of product through the value
stream with ‘pull’ concept. The cost of any product depends on how fast it flows
through the value stream. But, Value Stream Costing can only be effective when
the organization is managed by value stream not by departments, when there are
few (or no) shared services and people, when inventories are consistent and under
control, and when there must be full tracking of out-of-control situations like
defects, rework, scrap, technical error etc.
The lean organization eliminates standard costing in favour of Value

Stream Costing. It is a strong mechanism which identifies costing and accounting
tools and techniques that may be benefited to lean organization for cost
measurement.
3.3.4 BOX SCORE REPORTING
Box Score is a fundamental and decision making tool for lean company
which gives a summarized view of the value stream performance in three modes
i.e. operational performance, financial performance and capacity usage. These
three dimensions of box score assess that how the value stream is performing
operationally, how the value stream is performing financially and how the value
stream resources are being used. Box score data for the operational performance
can be collected and maintained through visual boards and through value stream
performance measurements. The financial information can be gathered through
value stream P/L statement. Capacity information is calculated through job card or
labour summary as work done by the people and machines in the available time or
resources. Table 3.4 shows a typical illustration of box score.
Last This Next Next to
week week week next
week
Operational
Unit per person

On-time shipment
Dock-to-dock days
First time through
Average product cost
Account receivable days
Productive
Capacity
Non-productive
Available capacity
Revenue
Financial
Material cost
Conversion cost
Value stream gross profit
Table 3.4: Example of Box Score
A box score process is “a spreadsheet-based technique” that is used to

identify performance against target. It is used to summarize the weekly progress
reporting of the value stream in terms of performance, decision making, and
prioritizing the lean improvement initiatives. Presentation of goals and targets in
box score allows all levels of the lean organization to understand the effectiveness
of the lean and what needs to be done to create improvement.
3.3.5 USAGE OF BOX SCORE
Box Score is generally used for measuring value stream performance and
making some operational and financial decisions. There are three big things about
using the box score for decision-making. (i) The decisions are made having
impact on the whole value stream, instead of looking at the individual product or
production cell. (ii) The box score shows a through view of the value stream. It
takes into account the impact of the financial changes, as well as the changes in
capacity and the operational outcomes. All of these issues must be addressed for
sound decisions to be made. (iii) The box score shows simple and clear-cut
information. Anybody using this information will spend their time addressing the
important business decision.35 Following are some extreme usage of box score-
3.3.5.1 To Evaluate Value Stream Performance
Value stream performance measurements control the production and other

processes at the shop-floor within the value stream. These measurements
eliminate the need of variance reporting supported by traditional standard costing.
Table 3.5 shows use the box score for the weekly measurement and tracking of
value stream performance.
Last This Next Next to Planned

week week week next future
week state
Operational
Unit per person

On-time shipment
Dock-to-dock days
First time through
Productive
Capacity
Non-productive
Available capacity
Revenue
Financial
Material cost
Conversion cost
Table 3.5 Example of Box Score using for Evaluating Weekly Performance
The first section of table 3.5 contains operational information which is the
value stream measurements. ‘Unit per person’ shows productivity of value stream.
‘On-time shipment’ shows process control within the value stream. As same,
‘Dock-to-dock days’ reveals flow of material and information throughout the
value stream. ‘First time through’ exposes quality and standardized work.
‘Average product cost’ discloses linearity and overall improvement of value
stream. Finally, these all measurements motivate ‘Continuous Improvement’ to
achieve the planned future state.
The primary purpose of the weekly box score report is to focus the
attention of the value stream team on the areas that can benefit from continuous
improvement efforts. The improvement in value stream results can be tracked
weekly as an indicator of the effectiveness of the continuous improvement
efforts.36
The third section of box score shows financial information which is the
summary of value stream cost. The value stream cost is the sum of all expenses
incurred within the value stream. This cost is subtracted from weekly revenue of
value stream and finally obtain value stream gross profit. Through this reporting, a
lean company can analyze its gross profit weekly, instead of getting annul gross
profit according to traditional accounting methods.
The second section of box score demonstrates changes in capacity usage.

Capacity means ability to do work as provided by people and machine in available
time. When people or machine spends time on creating a product according to pull
of the customer, it is called productive capacity. When people or machine uses
their time on non-value adding activities like time spent on shifting of man or
machine, rework/ remake of product, repair and maintenance of machine, waiting
of resources, movement of material, scheduling, planning, management,
administration etc., is called non productive capacity. The time remains after
doing productive and non productive work is called available capacity. Changes in
capacity usage make an association between operational and financial changes.
When operational results are improved, non productive capacity changes into
available capacity. Consequently, it impacts on financial results.
Box score weekly evaluates the value stream performance so that process
can be controlled and defects can be identified weekly. When defects are
identified, it can be resolved in the short term to serve the customers better.
3.3.5.2 To Show the Effect of Lean Improvements
When a company managed by value stream, elimination of waste takes

place and continuous improvements becomes in practice. These lean
improvements frequently have a dramatic impact on operational results, but less
impact on financial results. These changes can be shown in box score effectively.
The box score shows the changes from the current kaizens and continuous
improvement work to the future state. Table 3.6 depicts a structure of box score
for showing lean improvements.
Current State Future State
Unit per person
On-time shipment
Dock-to-dock days
Operational
First time through
Productive
Capacity
Non-productive
Available capacity
Revenue
Financial
Material cost
Conversion cost
Table 3.6: Format of Box Score for Showing Effect of Lean Improvements
The box score here can show the future effects of lean improvements. The
current state map depicts value stream as it in present and the future state map
shows what figures will look like after improvement in kaizens. When lean
improvements occur on floor and kaizens take place, non-productive capacity and
productive capacity have decreased. The impact is increasing in available
capacity. A lean company can use this freed up capacity in manufacturing new
products, expand their business, rent the space, sell or lease out the space etc.
3.3.5.3 For Decision Making
Box Score is also useful in taking routine type of decisions like make/buy
decision, profitability decision, quotation price decision, outsourcing decision and
so forth. It is one of the most important features of the box score that any decision
can be taken by using simple yet powerful information that is already available in
box score. There is no need to use standard costing. Table 3.7 shows a format for
decision making related to outsourcing of a new product.
Current Make Buy in Buy from

State Product Local Outside
Market Market
Operational
Unit per person

On-time shipment
Dock-to-dock days
First time through
Productive
Capacity
Non-productive
Available capacity
Revenue
Financial
Material cost
Conversion cost
Value Stream gross profit
Table 3.7: Format of Box Score for Make or Buy Decision

If a lean company is using the box score in decision making, value stream
operational, financial and capacity information must be determined before it. This
will depict the whole picture related to the decision clearly. The option which is
most benefited to the company, can be opted or chosen without using of standard
costing. Box Score is also useful for evaluating a broad range of management
decisions. The decision regarding product rationalization, launching of new
product, adding more machine or people to the value stream, are some extreme
example of managerial decisions. Table 3.8 exhibits use of the box score in
product validation.
Current Remove Introduce

State “L Ma gin” New
Products Product
Operational
Unit per person

On-time shipment
Dock-to-dock days
First time through
Productive
Capacity
Non-productive
Available capacity
Revenue
Financial
Material cost
Conversion cost
Table 3.8: Format of Box Score for Product Validation
When company is taking decision regarding product validation i.e. product

should continue or shut down, the box score is useful to take accurate decision.
Table 3.8 shows a box score regarding product validation information. First
column refers the normal condition of company when product is selling out as
normal case of business. Second column refers the information when low margin
product has removed. Third column gives an idea when a company introduces
new product for using excess capacity. Value stream profit compares all three
options and the best decision can be made with overall accuracy. Same as table
3.9 is showing a box score for evaluation new product. This box score gives
month by month progress of new product i.e. impact on profit after introducing
new product, additional machine or people requirement for new product, capacity
utilization etc.
Current 3 6 1 18 2
Months Months Year Months Years
Operational
Unit per person

On-time shipment
Dock-to-dock days
First time through
Productive
Capacity
Non-productive
Available capacity
Revenue
Financial
Material cost
Conversion cost
Value Stream profit
Additional people used
Additional machine used
Table 3.9: Format Box Score for Evaluating New Product Progress
The Box Score is simply presentation of goals and targets in a same format
to explain all levels of lean organization the effectiveness and improvement of
lean programme and also what need to be done for future improvement. Every
person in the lean organization uses the box score for talking about lean
performance. Value stream managers use the box score to evaluate value stream
performance and further planning. Kaizen team managers use the box score to
know the efficiency of their continuous improvement programmes and also their
impact on financial and operating results. Top level managers use the box score
for evaluating business performance and for decision making.
The Box score is flexible to meet the needs of different kinds of decisions,
yet it proves itself to be very versatile in reporting the value stream operations,
lean improvements and impact of strategic changes to the business. 37
3.3.6 Value Stream Income Statement
Value Stream Income Statement demonstrates true operating income of the

company. It is simply value stream revenue minus value stream cost. It is “Plain
English P/L Statement” which can be easily understood by anyone in the
company. The information is presented in the value stream income statement is
not more complicated that even non-financial people can get better insight on it. It
has two parts, value stream profit section and financial accounting adjustment
section. The first section contains the revenue from actual sale and actual cost of
the value stream for the period. Another fragment, which is below the value
stream income statement, is the financial reporting adjustment section where
adjustments regarding inventory changes and corporate overheads have been
taken into account for compliance of GAAP. Table 3.10 shows a format of value
stream income statement.
Manufacturing System New product Sales and Total
Value stream VS development Marketing
(VS) VS VS
Sales
Material Cost
Labour Cost
Machines Cost
Operation Cost
Facilities Cost
Support Cost
Other Cost
Total Value
Stream Cost
Value Stream Profit
(Sales – Total Cost)
Opening inventory -----
Closing inventory -----
Inventory adjustment -----
Corporate overheads -----
NET PROFIT
Table 3.10 Example of Value Stream Income Statement
Value Stream Income Statement looks different from the regular traditional
income statement but it depicts true picture of company’s financial position for
the period. An income statement based on standard costing mixes the financial
accounting adjustment with operating income which makes it very difficult to
explain by the operating people.
3.4 THE LEAN ENTERPRISE
A Lean Enterprise means a strong and efficient organization which focuses

on continuous improvement through elimination of all sorts of waste over the
time. The lean enterprise wholly adds value to the final product. When a company
starts with the lean manufacturing, it creates lean production cell and gets
improvement in bottom line. After getting changes in operational level, it needs to
change its organizational culture to turn possibility into reality, making invisible
visible and impossible possible. These cultural changes open up the organization
to the development of a lean enterprise, which sees the need for lean flow beyond
the company’s four walls and into the macro value stream comprising with
customers and suppliers. This comprehensive understanding of how to remove
waste and increase value distinguishes a company that is successful with the lean
manufacturing from a lean enterprise. 38 A lean enterprise has following
characteristics-
(a) A lean enterprise has maximum value for the customer. It understands
not only the customer’s requirements but also their expectations for
product’s the quality, delivery and price.
(b) This type of organization is apparent with its vision, mission and
strategies that where it wants to go, what to do and how to do.
(c) The People are the engine of the lean company. All the people involved
in this process have a common understanding of the organization’s
purpose and also practical understanding of the consequences of failure
and success.
(d) The visualization is the specialty of a lean enterprise. It translates
performance of every process into expected versus actual. It provides the
opportunity to immediately mark and take action at the earliest possible
that performance has not been achieved what was expected.
(e) A lean enterprise has flexible workforce. It maintains redundancy and
flexibility both within the core competency.
(f) It works as team not individual, internally between employees and
externally with suppliers.
(g) A lean enterprise supports simplicity. It can be achieved through the
avoidance of complexity and then by rationalization exercises.
(h) It is always unhappy with its progress and is always looking for more
improvement. Thus it emphasizes continuous improvement.
A lean Enterprise is not created quickly. When a business applies lean

thinking, culture and methods throughout the entire organization and beyond its
four walls to customers and suppliers a lean enterprise is formed. 39 When an
enterprise nearly transformed into lean, some more methods can be applied to
manage wider value streams. These methods are-
 Target Costing
 Performance Measurement Linkage Chart
 Value Stream Mapping
3.4.1 TARGET COSTING
It is a new costing technique where cost is derived from the target prices.
Target price can be determined according to the features and characteristics of
products, services and other value added issues. It may be the market price of
same product or price predicted to achieve a desired market share or existing price
+/- value of feature added or deleted in current product. Target price involves
assessing the market and individual customers’ wants and/or needs and what they
might pay for the tentative product, evaluating competing products, their prices,
and estimated costs, and agreeing among the team members as to an appropriate
target price.40 The second step in the target costing is to determine target profit
margin. Target profit margin can be a percentage on sales or percentage of cost or
it can also be a whole amount that is decided by the company.
When target price and target profit margin are determined, the next step is
to ascertain target cost at the production level. The target cost is the selling price
or target price less the profit percentage required for the product. Figure 3.5 shows
ascertainment of target cost.
SELL PRICE
DESIRED TARGET
OR TARGET
PROFIT COST
PRICE
Figure 3.5: Formula for Target Cost
The target cost is the allowable cost for the company as actual value
stream cost can never be exceeded this target cost. Once the allowable cost is
fixed, it has been compared with current average value stream cost and finds the
difference. If the actual cost is within or below the target cost, production can start
at any movement. But if the actual value stream cost is above the bandwidth, there
is a great need to establish lean improvements to bring the actual cost in line with
the allowable cost. This overview is defined in figure 3.6.
Target costing ensures that products are the best match with the customer’s
need. It reduces MUDA to the maximum extent possible and also it reduces
manufacturing cost significantly. It shortens the development cycle of a product as
well as it increases teamwork among all the internal parties associated with
developing, planning, manufacturing and selling a product. 40
Preliminary Product Design Establish Lean Improvements
Determine Customer Value for the Identify Critical Process and

Product improve it
Ascertainment of Target Price/Selling Computation of Output Cost

Price
Ascertainment of Desired Profit
Fixing Target Cost (as a bandwidth)
Compare If Actual cost > Target cost

Actual
and
Target
If Actual cost < Target cost
Production
Continuous Cost Reduction

(Kaizen)
Figure 3.6: Overview of Target Costing Process
Target costing incorporates with the lean accounting process. It focuses the
value stream team’s attention on the customer value. It recognizes the critical
process and closes the loop of value stream management. It encourages the firm
for its desired profit and makes money. Finally, it is never ending process of
pursuing perfection.
3.4.2 PERFORMANCE MEASUREMENT LINKAGE CHART
Performance measurements are the measures which monitor the

performance of a system related to expectations. Effective lean performance
measurements link cell performance measurements to value stream performance
measurements with company’s strategy and goals. The delineation of the linkage
of strategies, goals, objectives with the cell level measures and value stream
measure is called performance measurement linkage chart.
Generally cell level measures guide the production people what to do and
what needs to be done within the cell. Instead of, value stream measures ensure
continuous improvement within the value stream. These measurements generally
reported weekly to show its achievements and performance throughout the period.
Performance measurement linkage chart starts with the company’s strategy, goals
and objectives. The success of these strategies, goals and objectives are related to
value stream goals. Value stream goals are related to cells performance measures
within the value stream.
Performance measurement linkage chart focuses on the goals of the

organization and give direction that the organization intends for the future. It links
the different measurements throughout the firm to achieve company’s goals and
mission. It also focuses some critical success factors which reveal that what
company must do to achieve its goals and mission.
There are some steps for creating performance measurement linkage chart.
These steps work very well in a lean company.
(a) Define the business strategy.

(b) Define company strategic goals and objectives.
(c) Define the value stream.
(d) Define the value stream goals.
(e) Define strategic goals related to the value stream goals that what must be
best to achieve these value stream goals.
(f) Define value stream performance measures.
(g) Link value stream goals to the value stream measures with the
connection of which goals can be achieved through which measure.
(h) Define cell and process level critical success factors.
(i) Define cell and process goals and targets.
(j) Define cell performance measurements.
(k) Link the critical success factor of cell to its best achieved cell goals and
also cell goal to cell measurement that which cell goal can be achieved
best through which measure.
(l) Review this performance measurement and improve it according to need.
Performance measurements design to motivate and monitor the lean

behaviors and the lean improvements. It thoroughly reflects the company’s goals
and strategies. When people are working for improvement of their cell
measurement, actually they are working for improvement of value stream
measures and finally it impacts on achieving company’s goals and missions.
3.4.3 VALUE STREAM MAPPING
It is the ‘language of lean’ which depicts the flow of material and

information from supplier to customer as a product or service makes its way
through the value stream. This is a special type of flowchart which analyses the
current state and gives a plan for future state for all the series of events occur from
receiving of raw material to delivering final product to the customer. It provides
optimum value to the customer through a complete value creation process with
minimum waste in designing (concept to customer), building (order to delivery)
and sustaining (in-use through life cycle of product or service). 41 Following are
some more benefits of value stream mapping-
(a) Value stream mapping is a tool that allows identifying waste within the
value stream and planning to eliminate it.
(b) The financial impact of lean improvement can be explained from the
current state and future state value stream maps.
(c) Lean organizations having improvement events alone are not enough,
Value Stream Mapping connects all improvement activities and
reinforced the benefits of lean by providing future plan.
(d) Value stream map gives detailed information about each step in the
value stream at a glance.
(e) Value stream cost and capacity analysis use the information provided by
the value stream maps.
(f) Lean organizations use value stream map as living documents, source of
continuous improvement etc.
Value stream map includes detailed information of material flow such as

production cycle, scrap rate, set up time, lead time, downtime, inspection %,
inspection time, rework rate, overproduction quantity etc. The process of value
stream mapping is based on PDCA technique i.e. Plan, Do, Check, and Act. First
identify the value stream which is to be mapped. Collect the information regarding
process times, inventory, material flow, customer requirements etc. and produce
current state map using its special flow chart symbols. After creating current state
value stream map, challenge the current thinking, encourage the value stream
mapping team to make suggestions and look for the areas of waste. After that, sets
the target and compiles the future state map keeping the target in mind based on
the current state map. Create an action plan that could be implemented to change
the current state into future state. Finally, apply the improvements and check it on
the shop floor that the benefits expected have been obtaining or not. It is important
that for creation of value stream map always collects information while walking
the actual pathways of material and information flow.
Value stream mapping is a team exercise and should involve

representatives from all the areas within the process being mapped. This process
should be facilitated by an expert with experience in creating value stream maps
but it is conducted by those people who are involved in the process, at the actual
process floor.43
Value stream maps are very useful in the wide lean accounting. But it is
useful when it must be completed with appropriate and true information of
production and non-production steps within the value stream. It should not be too
busy and complex so that it can solve its purpose of continuous improvement.
3.5 CONCLUSION
“Maximize flow and minimize waste” is the ultimate tenet of lean. This
chapter discusses about lean Accounting pathway at all. This maturity path
enables the lean accounting team to develop an action plan for each stage of firm
which is divided into different value streams and eliminate the waste. When
company is an initial stage of lean accounting, lean pilots work as Total Lean
Management (TLM). Company is now divided into different small cells to
perform special type of work. Lean cell performance measurements evaluate their
work in the form of Total Quality Management (TQM), Total Flow Management
(TFM), Total Productive Management (TPM), Total Service Management (TSM)
and Total Employee Management (TEM). TQM is the 100% people involve for
100% development with 100% responsibility. TFM means material and
information is flowing like river throughout the firm. TPM is the integration of
production and quality system through the machines, equipments and employees.
TSM indicates to control process to become best in class by flexible working
conditions, optimization, process improvement, co-operation and self
organization. TEM is the empowerment of people through self assessment system,
lean counseling, training, safety and morale. These all components work together
as Total Lean Management.
The second phase of lean accounting is ‘managing by value stream’. Now

firm is working in different value streams to reduce the waste and try to eliminate
it. Value stream measurements motivate the value stream team for continuous
improvement. These measurements are reported weekly and explain how the
value stream is achieving its performance goals. When company is getting mature
with lean and eliminates lots of transaction related with cost accounting, value
stream cost can be introduced. It is the real cost of the value stream without any
allocation of overheads. Standard cost now eliminated because there is no longer
use and decisions like order profitability, make/buy, inventory valuation are made
with the help of Box Score. Box score reports the value stream measurements as
well as financial and capacity measurements of the business and evaluates the
effectiveness of lean from multiple perspectives.
In the third phase of lean accounting, lean is everywhere in the company.

Now, the most of the internal waste has been eliminated and the external waste is
now addressed. The lean company considers the issue regarding third-party
cooperation including customers, partners, suppliers, government etc. Target
costing used to understand customer’s need. Product cost is decided according to
customer’s desire. It develops the action plan within the value stream and strives
toward continuous improvement. The performance measurement linkage chart
shows connectivity between all improvements. As same, value stream mapping
gives clear picture of current state and future state of company’s value stream.
Extended value stream mapping are now outside the company’s wall i.e. for
suppliers, customers and third-party partnership.
Finally, lean Accounting is every day, every time, by everyone. It drives

its business from the customer value- not the cost. It manages the business by
value stream with accountability for growth profitability and continuous
improvement. It saves time, increases flow and pulls the customer demand by
radical elimination of non-value adding transactions. Ultimately, it empowers
people who work for the lean.
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33. Stenzel, J. (2007). Lean Accounting: Best practices for sustainable

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April 4, 2015.
CHAPTER-4
CASE STUDY
Outlines:
4.1 Waterman Industries Private Ltd., Ahmedabad

4.1.1 Company Profile
4.1.2 Issues faced by the Company
4.1.3 Diagnosis Report (Before)
4.1.4 Lean Strategy- The Road Map
4.1.5 Benefits Achieved
4.2 Bhansali Industries, Beawar
4.2.2 Waste Identified
4.2.3 Lean Strategy
4.3 Reliance Chemotex Industries Ltd., Udaipur
4.3.2 Waste Identified and need of Lean
4.3.3 Lean Accounting Practice
4.4 Conclusion
This chapter covers the actual field work done regarding lean accounting
in the selected enterprises of India. It deals with the case studies of Waterman
Industries Pvt. Ltd., Bhansali Industries, Reliance Chemotex Industries Ltd. Each
company, selected in the sample, is a manufacturing company and in the different
stage of lean accounting. This chapter undertakes an in-depth study of the need,
diagnosis, strategy, practice, benefits and behavior of these Indian firms in respect
of lean accounting. Lean accounting motivates continuous improvement with
elimination of wasteful transactions. This impact on company’s operational,
financial as well as on the capacity structure. Present chapter attempts to make
detailed analysis of all such effects in selected Indian companies.
4.1 WATERMAN INDUSTRIES PVT. LTD., AHMEDABAD
Waterman Industries Pvt. Ltd. Ahmedabad, Gujarat, INDIA is a leading

manufacturer and exporter of water handling pumps. The company has a
consistent growth since its inception in year 1973. It is an ISO 9001-2008
accredited company from TUV NORD, Germany. Waterman manufactures more
than 3000 Varieties of water handling pumps like Stainless steel Submersible
pumps, cast Iron Submersible Pumps, Submersible Motors, Horizontal and
Vertical Open-well Submersible pumps, Centrifugal pumps, Domestic pumps and
Industrial pumps etc. In addition to the manufacturing of pumps for the Indian
market, waterman also exporting water handling pumps in number of countries
over the globe. Waterman provides complete hydraulic systems for water supply
and drainage. It works for the maximum customer satisfaction in the area of
Domestic, Irrigation, Agriculture, Rural Water Supply scheme and Industrial
Supply.
The Company has adopted Kaizen, Kan-ban and the 5S system of

management. Mr. Bharat Patel (Managing Director) has encouraged his
employees as per Kaizen to carry-out the work place at zero cost. Operators, with
the approval of the Managing Director are making the changes at the workshop in
order to improve the efficiency. The supply of raw materials, components is
streamlined with adoption of two-bin system. The workplace is designed in such a
way that the operators need minimal supervision and gain expertise in the work
assigned to them in no time. At Waterman Industries, Pumps are integrated of
multiple casting parts and several processes on it. The Main parts of the pumps
namely cast iron is coming from their casting suppliers. These parts are then
received at the factory and get machining as per requirement. When all parts are
ready, it assembled and coloured and made ready to dispatch to the customers.
Figure 4.1 give an idea about manufacturing flow chart of Waterman.
Figure 4.1: Process Flowchart of Waterman Industries Pvt. Ltd.
4.1.2 Issues Faced by the Company & Need of Lean
Going lean introduces a revolutionary shift in a manufacturing

organization. It requires competence to take a wider range of responsibilities and
blurring the lines between top and bottom level management. The company faced
the same issue before applying lean. As well, lean addresses different areas of
waste that has been identified after a visit on company’s floor. These issues are
presented in table 4.1.
Type of
S.No. Issues Comments
Waste
As company has 2 different manufacturing

Major
locations, Upper Floor & Lower Floor. It is
1 Transportation Tranposration
observed considerable transport of the
of material
resources (material & worker)
Company is operating in two different floors

Medium
and store is on Upper Floor & Lower Floor,
2 Motion motion of
hence higher muda of motion is observed in
worker
the plant
Company keeps enormous amount inventory

to support its manufacturing process.
3 Inventory Rs. 3.25 cr
This area has considerable opportunity of
improvements.
Company keeps FG stock of standard model.

Quntified
Over However, the Stock keeping numbers for
4 figure is not
production each variety of standard product has not
available
decided on scientific calculations.
Cleaning
5 5S & Visual Needs strong Visual Management.
Area wise
and audit
Table 4.1: Issues Faced by the Company

Table 4.1 exhibits different issues faced by the company in terms of waste.
These are some non-value adding activities which are not creating value to the
company and to the product. After diagnosis of Waterman Industries, the
following real pain issues are raised-
(a) The production layout was incapable and ineffective to meet the
customer demands, also Muda of Transportation and Muda of Motion
was on high side.
(b) The real effective machine utilization was not possible with the current
layout, which led Waterman to increased man power, delivery time &
outsourcing.
(c) Due to ineffective work oriented layout, waterman had never utilized
production capabilities and that swallowed the profit for the long time.
(d) Lack of visual Management
The above loopholes have been identified in the initial process of lean
journey. Each of these elements can offer several challenges that must be conquer
to achieve a truly competent lean manufacturing system. These key issues are vital
building block for developing the lean implementation plan.
4.1.3 Diagnosis Report (Before)
The company has diagnosed before applying lean idea on the basis of four
parameters i.e. productivity per month, space utilized by the company, total
inventory per month and manpower employed in the presented company. Table
4.2 displays the report generated on different parameters.
Per month Per month

S.No. Parameter
(in units) (in Rs.)
1 Production/Productivity 1000 (V3 & V4) -
2. Space Utilized 2100 Sq. Ft. -
3. WIP / Total Inventory - 3.25 Cr.
4. Manpower 148
Table 4.2: Diagnosis Report before Lean Implementation

Before applying lean, Waterman is producing 12,000 units per year or
1000 units per month of its most frequent selling product i.e. V3 & V4 motor
pumps. Approximate 2100 sq. ft. space is utilizing for production floor. As well,
averagely 3.25 crores inventory including WIP is generating per month. At least
148 employees are engaged in production process from beginning to end.
4.1.4 Lean Strategy- The Road Map
Based on the above diagnosis, the Company has defined the lean strategy
to overcome its loopholes identified. It integrates the lean principles and tools
with the corporate strategy to deliver breakthrough improvements year after year.
Out of the different tools of lean, company has adopted the following road map-
(a) Flow Management – To reduce the Muda of Transportation & Muda of

Motion.
(b) 5S Methodology– To improve work environment, control WIP, Search
free, count free ergonomically improved store and work place.
(c) Visual Management– To create visual control for any activity of any
kind.
(d) Cell Performance Measurements- To guide the production people what
to do and what needs to be done.
(e) Value Stream Performance Measurements- To ensure continuous
improvements within the value stream.
(f) Value Stream Income Statement- To know value stream profit or loss.
(g) Box Score Reporting- To make a summarized view of lean
improvements.
4.1.4.1 Total Flow Management
It is a technique of lean accounting that makes production process flowing

like river. Waterman lean team started diagnosis of the existing layout with flow
of the product. After analysis of product flow, variation in demand, keeping the
space constraint in calculations, cost for changing the layout, the lean team has
proposed and executed, linear layout for the company. Figure 4.2 and 4.3 shows
current and revised flow layout of the company.
Flow Layout Before
Figure 4.2: Current Material Flow Layout of Company

Flow Layout After
Figure 4.3: Revised Plant Layout

Figure 4.2 depicts material flow within the company before applying lean
where material flowed in a zig-zag movement throughout the factory. It took
much time for supplying material to the customer. But in figure 4.3, material is
moving in very systematic manner. In the revised layout of plant, casting,
machining, assembling, colouring, packing and dispatching of material is in
sequence with different stator line and rotor line that there is no waiting of
material. With the change in layout production flow become smooth, multiskill
manpower developed. There is quick traceability of jobs and manpower, single
point supervision, small batch production, space and manpower saving. Now,
delivery time has reduced, rework has reduced, WIP has managed and all type of
waste has reduced which were diagnosed before.
4.1.4.2 5S Methodology
5S is Sort, Set In, Shine, Standardize, and Sustain. It is a tool to eliminate

waste from a poorly organized work area. According it, firstly sort the area, means
eliminate that which is not needed. Secondly, organize the remaining items or set
them in order. Make the work are shine i.e. clean and inspect work area everyday
than write standards for above. Finally, keep it sustain and regularly apply the
standards. Waterman has evaluated the awareness of 5S, its misconception,
interpretation, integration into the work system and issues in the implementation
of 5S. Depending upon the diagnosis at various levels and scope for 5S, company
has started educating its workgroup about 5S, its history, misconception, 5S
games, exercise, visual training and 5S scope in respective areas. Company has
approached its personnel with various strategies to add 5S in the work practice to
sustain by its own. Table 4.3 shows the 5S assessment of Waterman.
5S Assessment
Beginner Systematic Preventive
Level Baseline 0 Basic 2 Visual 3
1 4 5
Needed List of
Needed and Red tag area
/un-needed needed Un-needed
un-needed created, all
Unsafe items items items items are
Sort items found un-needed
in work area. separated, developed, not allowed
in work items
un-needed maintained, in area.
area. removed.
tagged. posted.
Needed
Needed and
Needed items can be
un-needed Method for
Needed items have retrieved
Placement of items are adding/delet
items dedicated within (cell
Set in items causes placed -ing
stored in an positions target)
Order unsafe randomly indicators
organized that are seconds and
conditions. throughout for needed
manner. clearly (cell target)
the items
indicated. number of
workplace.
steps.
Work area
Root cause
Spills, waste, and
Area and Standard Daily sources of
trash, etc. machines
equipment work layout inspection of dirt, grease
Shine produce are not
cleaned posted and plant and & spillage
unsafe cleaned on
daily. maintained. area occurs. have been
conditions. a regular
eliminated.
basis.
Methods of
Methods of work posted Methods of Methods of
Methods of
No work work and work work are
work not
Standa- methods or documente consistently consistently regularly
completely
rdize procedures d but not used by used by all reviewed
document-
documented. consistently some cell cell team and
ted.
used. team members. improved.
members.
5S Root causes
5S assessment of problems
No routine 5S
Occasional, assessment conducted revealed by
review/ activities
unschedule conducted on a regular 5S
Sustain correction of conducted
d 5S occasionally basis and assessment
unsafe on regular
activity. and results recurring are
conditions. basis.
posted. problems are identified &
identified. eliminated.
Table 4.3: 5S Assessment of Waterman

Table 4.3 demonstrates step by step practice adopted by the company regarding
5S. First of all, work area has been sorted with needed and unneeded items.
Unneeded items removed from the work place and list of needed items have been
prepared, maintained and posted on the visual boards. Needed items have been
stored in an organized manner and they have at their decided positions which are
clearly indicated. Now, needed items can easily be retrieved, added or deleted.
Work area and machines are cleaned on regular basis because of shine element in
5S. Standard work layout has been defined and maintained. Daily inspection of
plant and area takes place. Methods of work documented are posted and
consistently used by all cell team members. Thus, 5S assessment is being
conducted on regular basis in the company, recurring problems are being
identified and results are posted on visual boards.
It is a lean technique where information is communicated by using visual

signs instead of written text or instructions. The instructions are clearly visible
and easy to remember to keep at the frontline of the mind. Waterman creates
visual control on its workplace by visual marking, visual boards, colour coding
etc. to be a visual factory. Figure 4.4 shows visual management in Waterman with
before and after analysis.
Before After
No Visual, No labeling, No Visual marking on the floor to fix

segregation of colour & Metal position and colour coding for each
items
scraps
No colour coding for water lines Visual waterlines & valves for ease of
& valves operation, Maintenance & repair
No visual, no fix location for the Colour coding size wise leads to
attachment search, error free
Contd…
Before After
No fix place & fix quantity for material Visual marking on floor to fix place
& WIP control
No visual & marking for FG stock Visual marking on floor with FG

stock control
No visual & coding for Jig fixture Visual colour coding for Jig fixture
product wise
Contd…
Figure 4.4: Visual Management in Waterman
Figure 4.4 depicts that there is not any visual management or control
throughout the company before applying lean. Waterman was in practiced with
traditional skills of material and process handling. But after applying lean,
company has complete visual signs and signal to communicate information for
making effective decisions. These decisions may be process oriented or safety
oriented or may give reminders as what steps can be followed in occurrence of
any problems. Visual management makes the control and management of the
company as simple as possible. When any deviations are visible, required action
can be taken immediately to correct the problems. Waterman displays the
operating or progress status in a given format to provide instructions and to
convey information along with the component where immediate feedback is
provided by any level of management.
4.1.4.4 Cell Performance Measurements
Cell Performance Measurements reflect the core issues of lean thinking

like managing the takt time, standardized work, flow and pull etc. As a result of
adopting lean thinking in production line in the projected company, production
has been shifted only to the ground floor of the company in ‘U’ shape work cell to
achieve the continuity of manufacturing operations. Table 4.4 suggests some cell
performance measurements for Waterman.
S. Cell Objective & Calculation

No. Performance
Measurements
1. Day-by-the- This measurement shows what and which work must be

hour report completed during each hour of production. That means how
many products to be made in each hour.
= 6.23 Minutes
First Time It reveals the percentage of units that complete a process and
Through meet quality guidelines at the first time without being
rework, rejection, repair or returned.
2.
= 0.99 or 99%
Contd…
3. WIP-to- This measurement reflects the inventory levels in the cell.
SWIP Report It helps in reducing variation and its impact on lead time.
= 1
Table 4.4: Cell Performance Measurements for Waterman
Results and Discussion
Table 4.4 depicts results associated with cell performance measurements

for Waterman. In the early stage of lean accounting, there is no need to make
underlying changes in accounting, control and measurement systems. Lean idea
works around lean manufacturing with reducing huge amount of waste in lean
cell. But now the efficiency of lean has been measured by lean cell performance
measurements in Waterman.
Projected company has per day 8 hours (480 minutes) of working. Its per
month average customer demand is 2000 nos. (approx 77 nos. per day with 26
working days, assuming 4 Sundays in a month). Thus, takt time of the cell is (480
minutes/77 nos.) 6.23 minutes or simply 6 minutes. It shows customers need this
product in every 6 minutes. The efficiency of cell depends on that how they match
this time with actual practice of manufacturing the product. The Day-by-the-hour
report maintains and monitors this rhythm of production. To achieve the benefits
of this report, Waterman has trained its cell people in standardized work methods
with effective handling of parts and material. The supervisors regularly review
this report and resolve problems and manage the process visually. Figure 4.5 is
the Day-by-the-hour reports using by the company for a particular day where per
hour planned production is 10 units according to takt time. This report required
reason if production is not according to plan.
Figure 4.5: Day-by-the-hour Report using by Waterman
As same First Time Through (FTT) of the company is 99% that means
99% units out of total units proceed in a week, meet quality guidelines at the first
time without being scrapped, rerun, retested, diverted for off-line repair or
returned. FTT is the measure of quality of manufacturing process. Waterman
employed lean approach in 2012. After successful completion of lean
manufacturing, company is moving towards continuous improvement in
production process. Consequently, every step in production is predefined and
mapped that shows the exact sequence and timing of the process. It makes the
product perfect in the first time and at the right rate. Now company is trying for
100% FTT with zero defects policy.
The result of WIP-to-SWIP measurement is 1 for the company. This is the

ideal result of this formula where WIP is equal to Standard WIP which is
scheduled for the cell. The information regarding SWIP is gathered by counting
the number of kanbans required in the cell. There is neither shortage of inventory
nor company is creating the waste of overproduction. Company is maintaining
this result after establishing 5S properly throughout the company.
These cell performance measurements indicate that company’s operational
performances are in good condition. The process is under control and wastes are
being eliminated.
4.1.4.5 Value Stream Performance Measurements
Value stream is the all necessary value adding activities from receiving
order to delivering goods to the customers. Figure 4.6 is indicating the sequence
of activities for a particular product (i.e. V3 and V4 motor) for the Waterman.
This is the value stream for customer order which include all the activities that are
required to create value for the customer. Currently, company is working with
different types of value stream like value stream for new product development,
value stream for sale service development, value stream for acquiring new
customers etc. Moreover, company is extending its value stream with its
customers, suppliers and other third party organizations to eliminate waste and
improve the entire flow. According to the requirement of this thesis, only the
value stream of customer order is defined in figure 4.6.
Receiving the Designing the Order to Purchase of

Order Product Supplier Materials
Packing & Product Material Production

Shipping Manufacturing Handling Planning
Invoicing Repair and

Maintenance
Collecting the Redesigning

Cash
After Sales Quality

Services Assurance
Figure 4.6: Value Stream for Customer Order for Waterman

Value stream performance measurements, as well, ensure continuous
improvement within the value stream. These measurements give an idea about
value stream team’s achievements and performance throughout the period. Value
stream team is completely responsible for the results of these measurements. In
Waterman, value stream team motivates its team members to drive changes in
order to improvement in value, reducing waste and improving flow and
productivity. Table 4.5 designates some value stream performance measurements
for the projected company. These measurements should be reported weekly so
data has observed for the period of a week.
S. Value Stream Objective & Calculation

No. Performance
Measurements
1. Unit Per Person This measurement explains how much units have been
produced by a person. It makes the people empowered to
set their goals as high as they perform.
= 8.06 or 8 units per person
Contd…
2. On Time This measurement shows the rate of orders that are
Delivery shipped to the customer on time.
=1
3. Dock-to-Dock
Days It is the measurement which defines the days between the
unloading of raw materials and the discharge of finished
goods for shipment or delivery.
Average rate of product shipped =

Unit shipped in a week / days in a week
= 3.96 or 4 days
Contd…
4. Average Cost Per
Unit It shows the overall direction of value stream that real
changes for improvement are taking place in the value
stream or not. If more units are shipped, average cost per
unit will decrease.
Value Stream Cost = Material cost + Labour cost +

Production Support cost + Operation Support cost +
Facilities cost + Other cost
= 12,118
Table 4.5: Value Stream Performance Measurements for Waterman
When a company matures in lean manufacturing, it is necessary to manage

the operations by value streams. Value stream team of Waterman focuses on to
increase customer value, eliminate waste and make continuous improvements.
Table 4.5 reports the ability of value stream team that they are producing value for
the customer in each and every process of value stream or not. These value stream
performance measurements are calculated weekly as per requirement.
The first measurement, Unit Per Person calculates how many products
have been produced by a person. This shows the efficiency of personnel included
in value stream. Waterman produced 500 units in the projected week and total
person involved in value stream was 62. This presents, at least 8 units (500 / 62)
have been produced by a person in the given period. This motivates people to set
their goals as high as they can perform. Waterman value stream team manager
tries to increase efficiency of people regularly in time.
On Time Delivery rate of the company is 1. It reflects the control level

within the value stream that how value stream team is serious about delivering the
customer order on desired time. Due to lean approach everywhere in Waterman,
company is 100% delivering its product on time to the customers. The customer
demand in the projected week was 500 units. Waterman achieved this target by
using different lean strategies on the shop floor. It shows the value stream is under
control in Waterman.
As Dock-to-Dock days defines that projected company is taking 4 days

between unloading of raw material and discharging the finished goods for
shipment. This measurement motivates flow of material throughout the value
stream. Traditional view of mass production speeds up the process, resulting as
building more inventories but lean accounting speeds up the flow of material from
receiving to releasing. Waterman is converting its raw material into finished
goods within 4 days and sending it for shipment. This maintains the flow of
material as well as inventory level. For collecting the information regarding total
inventory, number of kanbans have been counted within the value stream.
Sometimes lean improvements do not show an immediate financial

impact, these results acquaint with over the time. At this stage, these
improvements manifest in the average cost per unit measurement. As the lean
improvements take place, the average cost reduces. Waterman Average cost per
unit is Rs. 12,118. The value stream cost data include material purchased during
the period is Rs. 46,08,510. The labour cost includes Rs. 3,74,500 as salary,
bonus, commission, PF contribution, welfare training expenses etc. also Rs.
3,54,940 as additional labour charges. The production support cost consists new
fixed assets purchased during the period is Rs. 79,212, depreciation cost for the
period is Rs. 31, 370 along with repair and maintenance of fixed assets is Rs
7,720. The operation support cost is the expenses of normal course of business
like packing and other expenses Rs. 68,09,994, electricity charges Rs. 12,46,562,
selling expenses Rs. 1,43,40,226. The facility costs belong to expenses regarding
factory building like rent, insurance etc. for the period is Rs. 18,103. Other cost
which is not included in above but necessary for fulfilling the customer order and
associated with the projected period is Rs. 1,53,975. This measurement wholly
depends on the number of units shipped within the period. If value stream is
producing more than its demand or it is building inventory, the average cost per
unit will increase but the value stream is selling more products, average product
cost will go down. To maintain or reduce average cost per unit, Waterman team
should encourage the value stream members to sell more products without
increasing resources.
The above value stream performance measurements indicate that after

successful implementation of lean system, Waterman is increasing its value with
the same or less resources. It has all the process under control with its value
streams. The rate of material flow is increasing consistently. Furthermore, it can
make standardized work every time throughout the value stream processes.
Therefore, Waterman value stream team must review the value stream
performance measurements each week and tries to improve this.
4.1.4.6 Value Stream Income Statement
It is a “Plain English P/L Statement” where profit or loss can be calculated

through value stream revenue less value stream cost for the period. The
information presented in this statement can easily be understood by anyone in the
company. It shows true operating income of the company for a particular period.
Currently, Waterman is using traditional methods for costing the product. As per
information observed, table 4.6 exhibits its value stream income statement for the
projected period.
Particular Customer New product Sales and Customer Total
Order development Marketing Development
fulfillment VS VS VS
Value
Stream
(In Rupees)
Sales 61,20,535 ___ ___ ___ ___

Other Income 42,917 ___ ___ ___ ___
Total VS Revenue 61,63,452 ___ ___ ___ ___

Material Cost 46,08,510 ___ ___ ___ ___
Labour Cost 7,29,440 ___ ___ ___ ___
Machines Cost 1,18,302 ___ ___ ___
Operation Cost 4,30,822 ___ ___ ___ ___
Facilities Cost 18,103 ___ ___ ___ ___
Other Cost 1,53,975 ___ ___ ___ ___
Total Value 60,59,152 ___ ___ ___ ___
Stream Cost
Value Stream Profit 1,04,300 ___ ___ ___ ___
Table 4.6: Value Stream Income Statement of Waterman
Value stream income statement in table 4.6 expresses the sale value of
goods shipped during the projected week. This figure has been collected from the
sale book of that period. It also contains total value stream cost i.e. material cost,
labour cost, machines cost, operation cost, facilities cost, support cost and other
cost. These informations are generated through related vouchers in the company
for the projected period. The value stream profit for Waterman is Rs. 1,04,500,
evaluated through value stream revenue less value stream cost. Altogether, this
statement works with information generated from different value streams existed
in the company. But as per requirement of this study, only customer order
fulfilling value stream information has been taken into account. If necessary, this
statement can show additional breakdown of the information but it is always best
to keep this report as simple as shown above in table 4.6.
4.1.4.7 Box Score Reporting
Box Score is a fundamental and decision making tool for lean company
which gives a summarized view of the value stream performance in three modes
i.e. operational performance, financial performance and capacity usage. These
three dimensions of box score assess that how the value stream is performing
operationally, how the value stream is performing financially and how the value
stream resources are being used. Table 4.7 shows box score for the projected
company.
Current Next Next to

Planned
week week next week
future
state
Operational
Unit per person 8 units

On-time shipment 100%
Dock-to-dock days 4 days
First time through 99%
Average product cost Rs. 12,118
Productive 51%
Capacity
Non-productive 34%
Available capacity 15%
Revenue Rs. 61,63,452
Financial
Material cost Rs. 46,08,510

Conversion cost Rs. 14,50,642
Value stream gross profit Rs. 1,04,300
Table 4.7: Box Score to Evaluate Value Stream Performance

In table 4.7, the operational data have been collected for the box score
through visual boards and through value stream performance measurements. The
capacity information are calculated through data provided by the company’s
representative as total working hours of the company for the projected period is
3,504 (8 hours per day * 73 people involved in value stream * 6 working days in a
week). This designated as 100% capacity during the period. Out of this, 62 people
associated with production work so total working capacity is 85%
[(8*62*6)/3,504 * 100]. This working capacity has been split up into productive
and non-productive capacity in the ratio of 60:40 as indicated by the company’s
representative. Productive capacity is the time spent by the labour for creating
product. Non-productive capacity is the time spent by the labour on changeovers,
rework, material movement, repair, waiting of resources etc. The available
capacity is the labour time left over after productive and non-productive time. The
financial information for the box score is fetched from the value stream P/L
statement where revenue represents the sale and other income for the projected
week, material cost is the material purchased during the period and conversion
costs are the expenses incurred for converting the raw material into finished goods
except material. This information generates value stream gross profit of projected
company.
Box score is the summary of all the information generated to know the
lean improvements. It shows a through view of the value stream. It takes into
account the impact of the financial changes, as well as the changes in capacity and
the operational outcomes. All of these issues must be addressed for sound
decisions to be made. This information, presented in the box score, can be
compared with the next week, next to next week or planned future state box score
report, for showing continuity in the value stream performance.
Lean Accounting is an orderly, step by step process of transforming

company’s accounting, control and measurement system. It is a never ends
journey which finally strive towards kaizen principle. Waterman has begun its
lean journey in 2012 with early methods of lean accounting. When lean
manufacturing methods are widespread across its production area, whole plant
was ready for the more fundamental lean accounting changes as described before.
It managed by value streams and now it reflects continuous improvement with
reduced amount of waste. Table 4.8 shows the benefits achieved by Waterman
after employing lean approach throughout in the company.
Sr.
Parameter Before After Benefit
No.
Production/ 1000 Pump 1200 Pump Production Increased

1. Productivity (V3, V4) (V3, V4) By 20%
2. Space Utilized 2100 Sq. Ft. 1000 Sq. Ft. Rs. 1.2 L / Year
Rework reduced by 30%, This has increased the

3. Rework Reduction
TPT by 8 to 10%
4. Manpower 123 116 Rs. 4 L / Year
Total throughput time has been reduced. Earlier

TOTAL Throughput company was making 1000 pump/month. At
5.
time (TPT) present production is of 1200/month. Hence,
production is increased by 20%.
Table 4.8: Benefits Achieved by Waterman
Total lean management impacts on company’s productivity and other

components. The production of the company has been increased by 20% i.e. 1000
pump per month to 1200 pumps per month of its frequent selling product V3 and
V4 motors. The space utilized by the company before installing lean was 2100 sq.
ft. that production was running on two floors, upper floor and lower floor.
Currently only lower floor is utilizing for production with only 1000 sq. ft. area
after exercising the lean tool of total flow management. It saves approximate 1.2
lakhs per year. Saving in manpower is 4 lakhs per year that only 116 people are
required in overall instead of 123. Also, due to 5S techniques rework reduced by
30% and total throughput time increased by 8% to 10%. Except of above, there is
an extensive use of visual systems. WIP and finished goods inventory are
relatively low and consistent. Production work is standardized with flow, pull and
kanban principle. Operational performance measurements are effective and
controlled.
Waterman Industries Private Ltd. has closely impacted by lean idea. Lean
is a never ends journey so company continuously trying to compete itself to be a
world class organization.
4.2 BHANSALI INDUSTRIES, BEAWAR
Bhansali Industries, Beawar, Rajasthan, India established in the year 1990,

is a well- known firm which deals as the foremost Manufacturer, Exporter and
Supplier of different types of Cotton. The firm has a robust infrastructure which is
equipped with all types of essential amenities. It is equipped with modern
machines such as: Kier, Hydro Extractor, Blowroom line, Carding, Rolling,
Automatic Packing Machine, Bleaching plant (Fully Automatic, Sophisticated,
Imported) for preparing highly hygienic and unmatched quality of product. The
firm has a strong team which is comprised of industrious professionals i.e. Raw
Cotton Procuring Agents, Sales and Marketing Representatives, Processors,
Quality Analysts. These professionals have great experience in their fields.
Moreover, company trains their professionals on regular basis to keep them at par
with the competition. At least 50 direct/indirect employees work for maximum
customer satisfaction in worldwide market Supply. Company’s quality paradigm
allows its quality analysts to observe every process right from the procurement of
raw cotton till the delivery of the final product. Company has different range in
absorbent and non-absorbent cotton. It has specialty in absorbent cotton rolls,
absorbent bleached cotton and absorbent zig-zag cotton. As cotton offered by it is
widely used in Surgical, Dressings, Cosmetics, Absorbent, Packing and various
domestic purposes like cleansing and swabbing of wounds with additional
importance to hygiene. Moreover, finished cotton is checked under all the
parameters mandatory in Drug and Pharmaceuticals rules. Some of them are
chemical free, odor-free, absorbency etc. Figure 4.7 shows the manufacturing
process chart of Company’s most selling product, absorbent cotton.
Raw cotton
Carding &
opeing & Lapping
Rolling
cleaning
Boiled with Weighting &

Drying
Chemicals Cutting
Washing & Hydroextracting

Packing
Bleaching to remove water
Figure 4.7: Manufacturing Process Chart of Bhansali
The manufacturing process for the absorbent cotton involves the following
stages of production:
Opening and clearing: Raw cotton is loosened and dust and other particles are
removed. The cotton is then sent to a kier where it is steamed, boiled for about 3-4
hours after adding chemicals such as caustic soda, soda ash, detergent etc. This
treatment removes much of the natural waxes and oils and softens and
disintegrates any foreign matter that may remain after cleaning operation.
Washing: After cotton is boiled it is removed from the kier and taken to the tanks
for washing.
Bleaching: The washed cotton though absorbent is not of good colour. It is

therefore bleached with chemicals such as hydrogen peroxide or sodium
hypochlorite. The bleaching not only whitens the cotton but also improves its
wetting properties and assists in disintegration of any remaining foreign materials.
Alkali Removing: The bleached cotton is thoroughly washed again to remove the
chemicals. A small amount of diluted sulphuric acid is also added to neutralize
alkali excess. The cotton then is passed through hydro extractor to remove water.
It is then sent to a wet cotton opening machine.
Drying: The cotton, so opened is then passed through dryer. Where drying
machine is not there the cotton is subjected to the sun drying. This method,
however, restricts the capacity of the unit besides the cotton getting mixed up with
dust.
Lapping: After the cotton is dried it is again sent to the blow room where it is
thoroughly opened and made into laps.
Carding & Rolling: The laps are then fed into the carding machine where cotton
comes into thin layers. Paper is inserted under the laps and the cotton is rolled and
simultaneously compressed.
Weighing and cutting: The rolls are then weighed and cut according to the
required size. The cut rolls are then further packed in a polythene roll after
labeling and putting the weight mark and then sent for final packing.
During packaging, company puts its registered marka on the product and
sends it for delivery.
4.2.2 Waste Identified throughout the Company
Lean system sustains with elimination of wasteful transaction

continuously. It frees up the resources as well as the time of the people within the
company, so that they can engage themselves in the more valuable activities with
freed up resources for creating change and improvements. Bhansali Industry really
needs these changes and improvements. After a lean-eye view, lots of waste has
been identified throughout the company. These wastes associate with quality of
works, material management, non-productive time and also safety issues. Inspite
of that, Bhansali Industry processes hundreds of transactions regarding reports
generation, meeting convention, project initiation and its completion. Although
these processes and transactions are wasteful by the lean-view but they are serving
a purpose for the company. Company is using traditional system of accounting
and controlling the transactions with recording, scheduling, rescheduling,
forecasting, material storage etc. These issues have been tracked to eliminate or to
reduce step by step. Table 4.9 is showing the waste identified throughout the
company and issue faced by the company regarding these wastes.
S. Waste Issues faced by the Company

No. Identified
1. Overproduction Company is making more than its demand and creating

waste of material, man hours and equipment usage.
2. Substitution It is a monetary waste sometimes creating by the

substitution of raw material by a more expensive one
i.e. Desi Bangal raw cotton for unnecessary better
performance.
3. Waiting Company is not working on one-piece flow, hence the
product as well as manpower waiting for next process.
This area has considerable opportunity for
improvements.
4. Transportation It concerns with the internal movement of material with
the use of inadequate equipment and bad conditions of
pathways. It creates waste of man hours, waste of
energy, and waste of space.
5. Inventories Unnecessary or excessive inventory creating material
waste in the company. It results as lack of resources.
6. Movement Company uses terrace and ground floor for drying
purpose, hence higher muda of motion is observed in
the plant from terrace to the ground floor.
7. Unused Human Unnecessary and inefficient usage of workers because
Talent of inadequate equipment, non-standard work methods,
and poor allocation of people on the work place.
Table 4.9: Waste Identified in Bhansali Industry

In the most traditional companies with detailed transaction based tracking
system, having less significant control within their processes. But lean methods are
systematic and continuously applied to the company’s processes so that system can
come under control rapidly. In light of these waste in Bhansali industry, a lean
committee was set up by the company to exercise lean improvements.
4.2.3 Lean Strategy
When an organization moves from mass production to lean thinking, the

accounting, control and measurement systems need to change. Traditional system
undermines the company’s journey towards lean because it motivates non-lean
behavior at all levels of the organization. Bhansali Industry starts its lean journey
with implementation of the methods known collectively as lean Accounting. The
lean committee has adopted the following road map to overcome the issues raised
regarding wastes identified.
(a) Flow Management

(b) 5S Methodology
(c) Kanban & Gemba
(d) Performance Measurement Chart
4.2.3.1 Flow Management
This technique of lean accounting is to make production process flowing

like river. The projected company has applied this technique with the concept that
the product and the process flow must be based on customer driven “pull system”
instead of forecast driven “push system”. Bhansali Industry’s lean team has
started diagnosis of the existing layout with flow of the product. After analysis of
product flow, variation in demand, keeping the space constraint in calculations,
cost for changing the layout, the lean team has proposed and executed, linear
layout for the company. This linear layout of the firm helps in hurdle free
movement of material. It tries to reduce the waste of transportation as well as the
waste of motion. Figure 4.8 and 4.9 exhibit current and revised flow layout of the
company.
Figure 4.8: Current Layout of Bhansali Industry
Figure 4.9: Linear Layout of the Firm
The material flow in Bhansali Industry is like zig-zag movement. Figure
4.8 points this zig-zag motion of material where purchased raw material has been
lodged in the storage room firstly and dispatched to the production floor according
to requirement. After cleaning, bleaching and drying of material, it moves to
refining and rolling area which is nearby to the storage area. Finally it moves to
packing department which situated at fag end. In this way, wiggly movement of
material produces muda of motion, muda of transportation, muda of waiting etc.
Figure 4.9 has proposed that the material flow must be in linear layout where
material flow is continual without any obstruction. Here, raw material is lodged in
store room and issued to the production department with kanban card. This card is
the indication of material requirement at production floor. With the required
quantity, material is supplied according to the convenience of issue department.
After cleaning, bleaching and drying of raw cotton by hydro extractor machine, it
is kept for sun drying at terrace. The dried cotton can be collected through a
window from terrace to store room. This window could be helpful in bad weather.
This dried cotton is refined, rolled and packed. Finally, finished goods are stored
with visual signal of unique colour code for every product. In this layout, Material
is flowing smoothly so there is no need of rework and re-movement of material as
well as man. The delivery time has been reduced. The firm has quick traceability
of job and manpower. It has single point supervisory as well as small batch
production. Hence, Bhansali Industry tries to reduce seven deadly waste i.e. muda
of transportation, muda of motion, muda of waiting, muda of rejection, muda of
over processing, muda of over production and muda of unused human potential.
5S is the name of workplace organization method. Bhansali Industry

employs this tract of lean theory to organize its work space with efficient and
effective manner by identifying and sorting the items used, maintaining the area
and sustaining the new order. Depending upon the diagnosis at various levels and
scope for 5S, Bhansali Industry lean team gave training to its workgroup by
educating the foremost intention of this methodology. Table 4.10 gives a step by
step view of 5S work programme in Bhansali Industry. As a result, waste has been
eliminated at shop floor which aroused from poorly organized work area.
5S Methodology
Sort Set In Order Shine Standardize Sustain
Unnecessary All unneeded Identified the Standard 5S is
and unneeded items are items that cause practices have implemented on
items are eliminated from contamination. established for daily basis.
identified on the workplace. regular work.
the shop floor.
Unneeded items According to Preventive Standardized Senior authority
are red tagged work flow, it is action has taken process has makes periodic
and once stored decided that to stop root visually review of the
in holding area. which item to put causes of such displayed at status of 5S.
where. contamination. work place.
Needed items Needed items are 10 to 15 minutes Methods of Problems and its
are sorted out set in order as it has allotted to work has root causes
and a list can be retrieved every person to documented identify and
maintained for within seconds clean and and eliminate
it. with minimum inspect his consistently regularly.
steps. workplace. followed by
people.
Holding area’s Everybody has Cleaning and Responsibility Owners
items are informed about inspection of has assigned to (operators)
evaluated and positioning of workplace individuals for conduct 5S
disposed, if items. adopted as his work area Kaizen activities
required. regular practice. or machine. at shop floor.
No unneeded Needed items are Plan has Methods of 5S results
items are set in order with developed and work are displays
allowed at shop labels. responsibility regularly regularly at
floor. has distributed. reviewed and work place.
improved.
Table 4.10: 5S Methodology Applied at Bhansali Industry

4.2.3.3 Kanban & Gemba
In the journey of lean accounting, the projected firm has become visual
factory. In this process of visualization, Kanban as well as Gemba tool of lean
methodology has been adopted. Kanban is a visual sign that activates an action.
Bhansali Industry is using this card for supplying its raw cotton to the production
line with displaying a sequence of specification and instructions. Initially this card
has tagged outside the store with required quantity of material before time. The
store department, according to its convenience, supplies the required material to
the production line and a pink colour card has been tagged for completion of work.
Figure 4.10 explains the use of Kanban card at Bhansali Industry.
Kanban card and red tag for material Pink card for completion of work
requirement
Figure 4.10: Use of Kanban Card at Bhansali Industry
As same, Gamba tool is applied for investigating real problem at work

place in Bhansali Industry. Gemba is a Japanese term which means the real place
where actual product value is created. The idea of gemba is that the problem must
be visible at work place. In follow up this idea, Mr. Bhupesh Bhansali, MD, takes
responsibility for gemba walk everyday at least half an hour to look for waste and
opportunities or practical shop floor development. He promotes a deep and
thorough understanding of manufacturing issues – by first-hand inspection and by
talking with plant floor employees. This idea has benefited to the firm by
continuously recognizing waste and apt visibility for whole firm.
4.2.3.4 Performance measurement chart
This chart shows the performance of the firm in overall activities from raw
material received to finished goods prepared. For executing this report, the whole
process has been converted into activities. These activities are the actions which
consume certain time of production. After that Standard Allowance Minute (SAM)
has been calculated by capturing the cycle time through stop watch. The cycle time
is the time of completion of one activity. This cycle time is converted into basic
time i.e. cycle time * efficiency percentage. It is assumed that workers are doing
their work on 75% efficiency constantly. Figure 4.11 exhibits a performance
measurement report of Bhansali Industry.
Figure 4.11: Performance Measurement Report of Bhansali Industry
To prepare the performace measurement report of a particular day, actual

time is noticed by stop watch and compared it with standard time. The efficiency
percentage is calculated as standard time/actual time * 100. This percentage is
reffered as performance of employees appointed to the particular activity. Figure
4.11 presents performance measurement report for a specific day and low
performance has been round marked. This report motivates employees to improve
their performance continuously.
Bhansali Industry is in “Getting Started” phase with lean accounting where

whole factory works as successful lean cell, people are in training stage of lean
principles, linear flow and kanban system must be in place, work has
standardized, people are self inspired, product quality is self inspected by workers
etc. In this early stage of lean accounting, there is no fundamental changes take
place in accounting, control and measurement systems of firm but some important
changes and waste elimintation in manufactruing process supports the lean cell
and lean team. Table 4.11 demonstrates the lean changes occur after
implementation of lean methodology in the projected firm.
Parameter Benefits Achieved

Productivity The firm’s average weekly production was 3.5 tonne. After lean
changover it has increased to 4 tonne in the observed week.
Space Utilized Bhansali Industry’s total area is 317.4 square meter. Linear flow
management makes approx 40 square meter free that can be used
for another purpose in future.
Rework Reduced After lean methods executed, rework has been reduced especially
in collection of dried cotton from terrace, also in the process of
refining and rolling.
Inventory reduction This change can be seen mainly in finished goods inventory.
Firm is working on “pull concept” of Lean. So production is as
according to the cusomer demand.
Waste elimination The firm was involved in some deadly waste like excess motion,
over production, waiting, transportation etc. Liniar flow
eliminates muda of motion, transportation and waiting. Pull
concept removed muda of over production and subsitution.
Transaction elimination Use of kanban eliminates the requirement of material requisition
slip. It also reduces other production tracking documents. Cycle
time is so short that material is used as it is received.
Table 4.11: Benefits Achieved by Bhansali Industry

Bhansali Industry, a small scale industry, with the turnover of 1 Million
per annum, has closely impacted with lean idea. In a long time, lean can influence
its accounting, control and business management system, as this firm goes ahead
with lean idea. Lean is a never ends journey so company is continuously trying to
compete itself to be a world class organization.
4.3 RELIANCE CHEMOTEX INDUSTRIES LTD., UDAIPUR
Reliance Chemotex Industries Ltd., an export house recognized by the

government of India, is a synthetic spinning unit set up in 1977 at Udaipur,
Rajasthan. It has maintained steady growth since that time under the leadership of
Mr. Shanker Shroff as Chairman and Mr. Sanjiv Shroff as Managing Director. At
present, the plant has 53,280 spindles with state of the art machinery from the
blow room to spinning and finishing. All yarn is auto coned, spliced,
electronically cleared and TFO twisted. The company has its own HT/HP fiber-
dyeing plant. It also has its own independent captive power generation
plant. Reliance Chemotex Industries Ltd. has a versatile product mix of fiber-dyed
and blended yarns of polyester, viscose, and acrylic. Production of good quality
ring spun, fiber-dyed 100% viscose and 100% polyester yarn is the specialty of
the company. The products are backed by ongoing research and development and
the company is very quality conscious. The quality of yarn is well established and
accepted in European markets. Reliance Chemotex Industries Ltd. produces
approximately 1250 tons of yarn monthly of which 77% is exported. The annual
turnover is approximately Rs. 200 crores (US$ 45 million). Synonymous with
quality and innovation, Reliance Chemotex Industries Ltd. continually seeks
excellence in the process of spinning synthetic yarn with the range of single yarn,
double twisted yarn and chenille. Figure 4.12 depicts the manufacturing process in
the projected company.
Figure 4.12: Manufacturing Process in Reliance Chemotex Ltd.
The manufacturing process of single yarn and multiple twisted yarn
involve the following stages of production:
Preparing the fibers- Firstly raw fiber are shipped in bales and opened by hand
or machine. The workers loosen and separate the lumps of fiber and clean it. If
raw material is required in mix fiber, quantities of each type of fiber have been
measured carefully and their proportions are maintained.
Carding- The raw fiber is carded with carding machine. The carding machine is
set with fine wires that separate the fibers and make them in parallel form. This
thin web of fiber passes through a funnel shaped device that produces a rope like
brim of parallel fibers. Laps of different fibers can be joined, if requires.
Combing- This process has been followed when a smoother, finer yarn is
required. A comb like device sets the fibers into parallel form with short fibers
falling out of the brim.
Drawing out- After carding and combing, the fiber is sent to sliver. A number of
slivers are combined before this process. A series of rollers revolving at different
rates of speed, drawing out the sliver into a single more uniform thread that is
given a small amount of twist and put into large cans.
Twisting- The sliver is fed through a roving frame machine where the thread of
fiber are further drawn out and given additional twist. This is the single yarn
thread which sends for packing.
TFO (Two For One)- The roving yarn is fed from the spool through rollers.
These rollers elongate the roving. The roving passes through the traveler. The
traveler moves freely around the stationary ring with 4000 to 12000 rotations per
minute. The spindle turns the bobbin at a constant speed. This turning of bobbin
and movement of traveler twists the yarn in one operation. This double twisted
yarn rolls in big reel and sends for conditioning.
Conditioning- This process is especially for giving moisture to the yarn. This
moisture gives weight and robustness to the thread. A steam room is set up for
conditioning purpose.
Packing- The finished goods have been packed with big containers and transport
for shipping.
4.3.2 Waste Identified & Need of Lean
Waste identification is one the most complex and responsible deed in lean
process. As same, waste elimination is one of the most effective ways to increase
the profitability in the lean process. The projected company has done both of work
very effectively. It has identified lots of waste on its production floor and for each
waste, company has adopted lean technique to eliminate or reduce its impact on
the company. These wastes are waiting in production, lots of rework and scrap in
manufacturing process, unnecessary movements of material and men at
production floor, overproduction, inventory etc. Except of these wastes, the
company has mainly elucidated four types of waste i.e. sliver waste, roving waste,
hard waste and stained cone. Table 4.12 delineates these wastes.
S. Name of Description
No. Waste
1. Sliver Waste When fiber has processed in carding and draw frame
machine, it generates output as sliver. But when the
output is not according to standard, it is called sliver
waste.
2. Roving Waste It is the waste of simplex machine. After simplex, the

fiber is converted into thread. The thread remains in
simplex machine, which is not useful, is called roving
waste.
3. Hard Waste The waste generates after the winding process, is

called hard waste. This is the final output of yarn
which is not up to the level. It is 0.8% of total waste.
4. Stained Cone The final yarn is packed in cone shape. When this
cone has stained with dirt, smudge etc., it is called
stained cone waste.
Table 4.12: Waste Identified in Reliance Chemotex
The above table marks out some typical wastes that have been identified in
the company. To get improvement in overall performance, there is an urgent need
of lean system to reduce and eliminate these wastes because according to lean,
customers pay for the value added work, not for the waste.
4.3.3 Lean Accounting Practice
The lean accounting methods which are appropriate for the company is
completely depend on the company’s maturity with lean manufacturing and the
issues they are facing. As the company matures with lean thinking, more methods
and practices become useful. Reliance Chemotex Ltd. has linked up with lean idea
in the year 2014. Company has a good practice of lean methods particularly in 5S
and visual management. Some other tactics have also been suggested for the
company. The adopted lean methods and the suggested tactics are as follow-
(a) 5S Methodology
(b) Visual Management
(c) Cell performance Measurement
(d) Value Stream Performance Measurement
(e) Value Stream P/L Statement
5S (sort, set in order, shine, standardize and sustain) is a tool to eliminate

waste from poorly arranged area. Due to this characteristic, company has adopted
5S to eliminate its waste of breakdowns, unarranged work space, unarranged store
and production floor. The company is in the process of 5S and at present, S4 is
approaching. It has applied S1 to sort out necessary and unnecessary items and
remove unnecessary items from the work area. S2 is applied here to keep
everything in systematic order i.e. a place for everything and everything on its
place. S3 is adopted to keep work area clean and ready to use. As same S4 is
followed to make sure that all standard are visible and sure.
The projected company has taken on a follow up process of 5S. This is the
5S audit plan which has put in the practice by the people of cross departments.
Here, 10 marks is decided for each ‘S’ with definite activities. This report has
been maintained by each and every section of the company so that every
department can be the part of continuous improvement in the lean journey. Table
4.13 shows 5S programme in Reliance Chemotex Industry.
S. No. 5S Activities Followed
1. S1 - SEIRI
-Unwanted spares, tools, scrap and other items in the area
(SORT)
are identified.
-Personal belongings left on racks, floor, machines are
identified.
-Any safety hazards items present in the area are sorted out.
2. S2 - -Needed machines and items are identified.
SEITON -Production data board has been updated.
(SET IN -Label the place which is not labeled.
ORDER) -Items are placed on labeled area.
3. S3 -
-Cleans the work area, floor, racks, walls and partitions
SEISO
every day.
(SHINE)
-Lines, marks, labels are cleaned daily.
-Machines are now free from fly, dirt, excess oil and grease.
-Inspect that S1 and S2 are maintained regularly.
4. S4 - -Work instructions are displayed for every process.
SEIKETS -5S instructions are tagged at production floor.
U -Internal audit reports are prepared.
(STANDA -5S checklist, charge register and verify register has been
RDISATI maintained regularly.
ON)
Table 4.13: 5S Activities in Reliance Chemotex Industry
Lean is an ongoing process every day. The company has adopted 5S

technique of lean broadly in its each and every process of every shift. It makes the
workplace systematic and arranged. The unorganized tools are now organized,
seeking time of tools and little parts are saved, a place has been specified for
trolleys and cans; it makes the production floor clean and efficient. In the
company, 5S assessment is being conducted on regular basis, recurring problems
are being identified and results are posted on visual boards regularly.
This lean technique is used to communicate information and instructions

visually. The instructions are clearly visible and easy to remember to keep at the
frontline of the mind. It makes the work place self ordered, self explained, self
regulated and self improved. Here, what is supposed to happen, does on time
because of the visual solutions. The company creates visual control on its
workplace by visual marking, visual boards, colour coding etc. to be a visual
factory. Figure 4.13 shows visual management with before and after analysis.
Before After
No fix place of raw material Raw material has placed with proper manner
No fix movement of trolleys Colour marking for movement of trolleys
Contd…
Before After
Waste has kept in unarranged manner Waste has packed and put at proper place
Loose tools are tousled and disseminated Tools are placed properly
Unarranged work area Baskets and trolleys arranged with proper place
Contd…
Before After
Fire extinguisher machines are out of order New machines have been brought and
maintained
Figure 4.13: Visual Management in Reliance Chemotex Ltd.

Figure 4.13 describes visual management practice in the projected
company. But before applying the lean techniques, scenario was changed. It was
unarranged and unsystematic which were creating wastes. When the work goes
visual, it becomes much easier for any worker to directly observe the work and
know what is going on. In this technique of lean, problem can be easily identified
by the person who is handling the work and can fix it. Visualization now becomes
learning idea in the company. Moreover, visual management is using in many
different ways in the company. Through it, company understands the capacity of a
project team, it knows the progress of major project, gets information about the
status of production as well as machine etc.
At last, understanding and applying visual management gives the company

a long way to its lean efforts.
4.3.3.3 Cell performance Measurements
Cell Performance Measurements reflect the core issues of lean thinking

like managing the takt time, standardized work, flow and pull etc. These
measurements are action oriented which trigger the action, when things go wrong,
to correct the problems. It enables the cell team to get the work done during the
shift that has to be done. The Cell teams are ‘U’ shape group of people who works
as team to achieve the continuity in manufacturing operations. Actually, cell
measurements are developed to provide motivation to the cell people towards
company’s goal. Some cell performance measurements have been suggested for
the projected company that are Day-by-the-Hour Report, First time through and
WIP-to-SWIP. These are not the ultimate measurement for any company; some
more measurements can be developed according to the need and requirement of a
company. Table 4.14 shows the suggested cell performance measurements and
their output for the projected company.
S. Cell Objective & Calculation
No. Performance
Measurements
1. Day-by-the-
This measurement shows what and which work must be
hour report
completed during each hour of production. That means how
many products to be made in each hour.
= 41.14 Minutes for a Tonne
2. First Time
It reveals the percentage of units that completes a process and
Through
meets quality guidelines at the first time without being rework,
rejection, repaired or returned.
= 0.99 or 99%
3. WIP-to-SWIP
This measurement reflects the inventory levels in the cell. It
Report
helps in reducing variation and its impact on lead time.
= 1
Table 4.14: Cell Performance Measurements for Reliance Chemotex

Table 4.14 presents the results of the cell performance measurements that
are calculated on the basis of collected data through questionnaire. The projected
company has 3 shifts per day with eight hours each i.e. company works total 1440
minutes in a day. As information collected by the company’s representative, it’s
per day average customer demand is 35 Tonne. So production takt time is approx
41 minutes (1440 minutes/35 tonne). It means company must produce its one
tonne production within 41 minutes. The efficiency of cell depends on how they
match this time with actual practice of manufacturing the product. This takt time
is beneficial to make Day-by-the-Hour Report. This report maintains and monitors
this rhythm of production. It is prepared daily where per hour planned production,
according to takt time, has written and also actual production for the hours has
noticed hour by hour. This report required reason if production is not according to
plan. The supervisors regularly review this report and resolve problems and
manage the process visually.
As same First Time Through (FTT) of the company is 99% that means
99% units out of total tonnes proceeds in a week, meet quality guidelines at the
first time without being scrapped, rerun, retested, diverted for off-line repair or
returned. FTT is the measure of quality of manufacturing process. After successful
implementation of 5S technique, company is moving towards continuous
improvement in production process. Consequently, every step in production is
predefined and mapped that shows the exact sequence and timing of the process.
It makes the product perfect in the first time and at the right rate. Now company
can try for 100% FTT with zero defects policy.
The result of WIP-to-SWIP measurement is 1 for the company. This is the

ideal result of this formula where WIP is equal to Standard WIP which is
scheduled for the cell. The information regarding SWIP is gathered by counting
the number of kanbans required in the cell. There is neither shortage of inventory
nor company is creating the waste of overproduction. Company is maintaining
this result after establishing 5S properly throughout the company.
These cell performance measurements are indicating that company’s
operational performances are in good condition. The process is under control and
wastes are being eliminated.
4.3.3.4 Value Stream Performance Measurements
A value stream can consist of all the value creating activities that are
required to bring a product from concept to market launch. To measure the value
stream performance of projected yarn manufacturing company, a value stream of
product development has been identified. This value stream has demonstrated in
figure 4.14. This is the value stream for customer order which includes all the
activities that are required to create value for the customer.
Receiving Material Raw Material Mixing and

Order Designing required Dying
Drawing Carding Blowing Invoicing

frame
Single Yarn Multiple Yarn Chenille Cash

Production Production Production Collection
After Sales
Packaging and
Services
Shipping
Figure 4.14: A Typical Value Stream of Product Development in Reliance

Chemotex Ltd.
The people, included in the above value stream, work as a team. Every
person who is the part of this value stream is responsible for the value stream
measurements results. The person who leads this value stream is treated as value
stream team manager. He is the person who instructs and motivates the value
stream team members and supervises the results, generated by the value stream.
Value stream measurements which are suggested for the projected yarn
manufacturing company are represented in table 4.15.
S. Value Stream Objective & Calculation

No. Performance
Measurements
1. Unit Per Person
This measurement explains how much units have been
produced by a person. It makes the people empowered to set
their goals as high as they can perform.
= 0.20 tonne per person
Or 200 Kg. per person

2. On Time Delivery
This measurement shows the rate of orders that are shipped to
the customer on time.
=1
Contd…
3. Dock-to-Dock
It is the measurement which defines the days between the
Days
unloading of raw materials and the discharge of finished
goods for shipment or delivery.
Average rate of product shipped =

Unit shipped in a week / days in a week
= 12.97 or 13 days
4. Average Cost Per

It shows the overall direction of value stream that real
Unit
improvement are taking place in the value stream or not.
Value Stream Cost = Material cost + Labour cost + Finance

Cost + Operation Support cost + Other cost
= Rs. 1,98,078 or 1,98,100
Table 4.15: Value Stream Performance Measurements for Reliance

Chemotex Ltd.
The projected company has good practice of 5S lean technology. Thus, the
value stream is well managed and systematic. Even the company is not very much
mature with the lean tactics, but its practice towards 5S management, has made
possible to generate data from the value stream. Table 4.15 has carried out some
value stream results regarding the company. The information used for the above
measurements are completely based on the data collected by the company’s
representative through questionnaire. These value stream performance
measurements are calculated weekly and the interpretations of these results are as
follow-
The first measurement, Unit Per Person calculates how many products
have been produced by a person. This shows the efficiency of personnel include in
value stream. The company produced 245 tonnes in the projected week and total
person involved in value stream was 1200. This reports that at least 0.20 tonnes or
200 kilograms (245 / 1200) have been produced by a person in the given period.
This motivates people to set their goals as high as they perform.
On Time Delivery rate of the company is 1. It reflects the control level

within the value stream that how value stream team is serious about delivering the
customer order on desired time. Due to 5S approach everywhere in the company,
it is 100% delivering its product on time to the customers. The customer demand
in the projected week was 245 tonnes and total tonnes shipped by the value stream
were 245. It shows the value stream is under control.
As Dock-to-Dock days defines that projected company is taking 13 days

between unloading of raw material and discharging of finished goods for
shipment. This measurement motivates flow of material throughout the value
stream as well as the inventory level. For collecting the information regarding
total inventory, number of raw material, WIP, and finished goods have been
counted within the value stream.
The Average cost per unit is an important measure of value stream. It

shows the average cost of the product which has been manufactured during the
projected period. And also it gives a comparison between the current cost and the
value stream cost of the product. The value stream cost of the company is Rs.
1,98,100. The value stream cost data includes material purchased during the
period is Rs. 2,75,10,787. The labour cost includes Rs. 61,17,298 as salary, bonus,
commission, PF contribution, welfare training expenses etc. The finance cost
consists of interest and other borrowing cost during the period is Rs. 24,63,740.
The depreciation cost for the period is Rs. 11,21,016. The other expenses include
the expenses of normal course of business like packing, electricity, rent and others
are Rs. 1,13,16,416. The sum of these entire costs creates value stream cost that
has been divided by number of units shipped during the period. This measurement
wholly depends on the number of units shipped within the period. If value stream
produces more than its demand or it is building inventory, the average cost per
unit will increase but if the value stream is selling more products, average product
cost will go down. To maintain or reduce average cost per unit, the value stream
team manager should encourage the team members to sell more products without
increasing resources.
Value stream performance measurements initiate continuous improvement

in the value stream. It shows the ability of value stream people whether they are
producing value for the customer or not. The above value stream performance
measurements in the projected company indicate that after successful
implementation of 5S system, the company is increasing its value with the same
or less resources. It has almost the processes under control. Finally, the company
can motivate right kind of changes and improvements, if it continuously works on
these measures.
4.3.3.5 Value Stream Income Statement
This is the statement to show value stream profit or loss. It is simply value
stream revenue minus value stream cost. The value stream revenue is the sum of
total unit shipped during the period and the value stream cost is the sum of
expenses occurs on performing value adding activities for producing the product
during the period. This statement has been created in plain English language that
can be easily understood by anyone. Table 4.16 depicts value stream income
statement for the projected company.
Particular Product New Sales and Customer Total

Develop product Marketing Develop-
-ment Develop- VS -ment VS
Value -ment VS
Stream
(In Rupees)
Sales 4,70,11,328 ___ ___ ___ ___
Other Income 32,73,031 ___ ___ ___ ___
Total VS Revenue 5,02,84,359 ___ ___ ___ ___
Material Cost 2,75,10,787 ___ ___ ___ ___
Labour Cost 61,17,298 ___ ___ ___ ___
Machines Cost 11,21,016 ___ ___ ___
Operation and other Cost 1,13,16,416 ___ ___ ___ ___
Finance Cost 24,63,740 ___ ___ ___ ___
Total Value Stream Cost 4,85,29,257 ___ ___ ___ ___
Value Stream Profit 17,55,102 ___ ___ ___ ___

Table 4.16: Value Stream Income Statement for Reliance Chemotex Ltd.
Value stream income statement in table 4.16 expresses sale value of goods
shipped during the projected week. This figure has been collected from the sale
book of that period. It also contains total value stream cost i.e. material cost,
labour cost, machines cost, operation cost, and finance cost. These informations
are generated through related vouchers in the company for the projected period.
The value stream profit for Reliance is Rs. 17,55,102, evaluated through value
stream revenue less value stream cost. Altogether, this statement works with
information generated from different value streams existed in the company. But as
per requirement of this study, only manufacturing value stream information has
been taken into account.
A lean organization manages its business by the lean methodology

applied. This lean methodology believes on value creation for the customer.
Because customer only pays for the value not for the waste so it identifies waste
and delays in the process and eliminates. As Reliance Chemotex Industry has
applied 5S throughout the organization in 2014, it will take time to be mature with
lean. But as a result of lean accounting, the company measures it from the
following points-
 Reduction in Machine Cleaning Time

 Reduction in Lot Change Time
 Reduction in Ring Traveller Change Time
 Reduction in hard waste, sliver waste, roving waste and stained cone
waste
When lean 5S methods are widespread across the company’s production

area, whole plant is ready for the more fundamental lean accounting changes as
described before. It can manage by value streams and now it reflects continuous
improvement with reduced amount of waste. Figure 4.15 to 4.19 exhibit the
benefits achieved by the company after employing lean approach throughout in
the company.
RUN CHART OF LOT CHANGE TIME IN Hrs./Machine

‘B’ SECTION (UNIT 1)
2.00
1.50
1.50
0.79 0.80 0.79 0.81 0.80 0.85 0.79 0.79 0.79 0.80
1.00
0.50
0.00
AT JUN JULY AUG SEP OCT NOV DEC JAN FEB MAR
START 15 15 15 15 15 15 15 16 16 16
Figure 4.15: Changes in Lot Change Time
RUN CHART OF RING TRAVELLER CHANGE TIME IN
Hrs./Machine
0.60 0.50
0.50
0.40
0.30 0.24 0.23 0.24
0.20 0.20 0.20 0.20 0.20 0.20 0.20
0.20
0.10
0.00
START 15 15 15 15 15 15 15 16 16 16
Figure 4.16: Reduction in Ring Traveller Change Time
RUN CHART OF MACHINE CLEANING TIME IN Hrs./Machine

2.5
2
2
1.5
1 1 1 1 1 1 1 1 1.02 1
1
0.5
0
START 15 15 15 15 15 15 15 16 16 16
Figure 4.17: Run Chart of Machine Cleaning Time

Figure 4.18: Changes in Sliver Waste and Stain Cone Reduction
Figure 4.19: Reduction in Roving Waste and Hard Waste

The above can be explained as follow-
(a) The lot change time is the time which workers are taking to change the
fiber lot. At beginning, the overall lot changing time was 1.5 hours per
machine per month but as depicted above it has reduced to 0.8 hours per
machine.
(b) The ring travelers are an important tool for manufacturing yarn. Through
it, thread can move smoothly during the process. But it must be changed
when it gets wear down to maintain its flow. This changing time can be
treated as waste if it is more than standards. This time was observed 0.50
hour per machine, at the beginning, but lean impact reduces it to 0.20
hour per machine per month.
(c) As same above, machine cleaning time has been reduced by 50%. It was
noticed 2 hrs per machine per month before applying lean but now it is
reduced to only 1 hour per machine per month.
(d) Except of all above, company reduces its sliver waste from 0.60% to
0.48%. Also the stained cone has been reduced by 1.2% to 0.40%.
(e) Company’s roving waste percentage has been decreased by 0.68% to
0.44% and hard waste percentage has been decreased by 0.57% to
0.53%.
Furthermore, there is an extensive use of visual systems. WIP and finished

goods inventory relatively low and consistent. Production work is standardized
with flow, pull and kanban principle. Operational performance measurements are
effective and controlled.
4.4 CONCLUSIONS
After analyzing all the companies, namely Waterman Industries Private

Ltd., Bhansali Industries and Reliance Chemotex Industries Ltd., it has been
found that in the present environment there is an exigent need to focus any
business around customer value. The tenet of the mass production companies is to
make the production high and make it cheap. But lean accounting focuses on
customer value. The tenet of the lean companies is to maximize customer value
and eliminate waste. All three companies, included in sample, are good paradigm
of lean methodology especially in the Indian context where lean Accounting is not
in better position. It is in very initial movement and adopted by some of the
companies in lean manufacturing form with the use of conventional methods of
accounting. Usage of lean principle in context with lean accounting provides the
investigated companies a better way to understand product cost through value
stream costing. Through 5S methodology, all three firms have well organized
workplace with visual controls and instructions.
While exploring the lean accounting in all three firms, the operational as
well as financial results have been measured through lean methods like cell
performance measurements and value stream performance measurements. The
Waterman Industry gets its productivity improved. It saves manpower as well as
space with total flow management. Rework has been reduced and the production
work becomes visual. Bhansali Industry reduces waste especially through visual
management. After applying lean, the factory becomes visual factory where every
steps, instructions, orders, cautions have been written on visual boards which were
missing before. With the use of other lean techniques of gemba, kanban, flow
management, the company improves its productivity and eliminates waste. As
same, the Reliance Chemotex Industry, with the implementation of 5S, identifies
its loopholes as waste in lot changing time, ring traveler time, machine cleaning
time as well as hard waste, sliver waste etc. The company reduces these wastes
after a good practice of lean throughout the organization. Further, the cell
performance and value stream performance measurements reveals satisfactory
adherence of standards at all.
Lean Accounting is very wide concept to use. It is still work in progress in

all three investigated companies. Its principles, practices and tools have been
widely implemented at various stages in the organizations to maximize flow and
minimize waste.
CHAPTER-5
SUMMARY OF FINDINGS AND
SUGGESTIONS
Outlines:
5.1 Summary of Findings and Conclusion

5.1.1 Present Study
5.1.2 Review of Available Literature
5.1.3 Lean Accounting Pathway
5.1.4 Lean Accounting for Selected Enterprises in India
5.2 Analysis of Results and Suggestions
5.3 Scope for Further Research
This chapter summarizes the findings and conclusions of the study. It
starts by briefly introducing the present study, and then proceeds on by giving
chapter-wise summary i.e. review of literature, lean accounting pathway and lean
accounting for selected enterprises in India together with abridgement of finding
of the study. It also includes suggestions and scope of further research regarding
to the present research work.
5.1 SUMMARY OF FINDINGS AND CONCLUSION
Summary of findings and conclusions of present study has been presented

on following lines-
5.1.1 Present Study
The present study is an attempt to undertake an in-depth study of the

history, concept and practice of lean accounting and to examine the effects of lean
accounting in selected Indian companies. This study mainly focuses on the use of
lean accounting especially in Indian environment. So a convenient sample of three
such companies has been selected for this purpose where lean is practicing. These
companies are Waterman Industries Private Ltd., Bhansali Industries, and
Reliance Chemotex Industries Ltd.
The study seeks to conduct empirical analysis of selected Indian

companies in order to explore various aspects of lean accounting. It compares the
results of traditional practice versus lean accounting and drives lean solution
based on lean principle for the problem facing in traditional volume based costing.
The purpose of the present study is to contribute an understanding of the
requirement of lean accounting in Indian perspective. Further, this study is also
endeavored to identify muda (non-value adding activities) and to reduce or
eliminate it in the selected enterprises. There are two phases which have been
used for data collection. In the first phase, various aspects regarding lean
accounting has been identified through various sources like books, articles,
webinars, online training, expert’s suggestions, and libraries as well. In the second
phase, the information has been collected directly from the informant companies
through questionnaires, survey, observation and interview. Despite many
limitations being encountered during data collection, the researcher is able to
collect substantial information and data to shape this work towards the right
direction. The presumption of this research work is that lean accounting is better
result oriented than traditional system.
5.1.2 Review of Available Literature
In this chapter various reviews have been classified into three categories
namely conceptual review of lean accounting, case studies, criticism of lean
accounting. After paying attention to the conceptual review, it is observed that the
most of the studies related to the lean accounting have been done regarding
foreign countries and by foreign authors. The studies with reference to India are
found rarely. These reviews give an eye for the lean accounting practice.
According to the views expressed by most of the authors, the lean accounting is
focusing the business around the value created for customers. When an
organization moves from mass production to lean thinking, the accounting,
control and measurement system need to be changed.
It can further be perceived regarding with case studies portion of this

literature that the lean thinking can be sustained only with the lean accounting
methods because traditional costing is anti-lean as it doesn’t have accurate and
timely information to make better decision. Instead of this, lean is doing right
thing, at the right time, on the right place and with the right information. As
discussed, lean accounting is not only a method to get stand in this competitive
age but also it is a magic of numbers which systematically moves in the company
from downward to upward.
But in the third section, which reveals limitations and challenges of lean
accounting, presumed that when lean ideas have been followed by the people with
lack of spirit, it will give some extent negative results. Implementation of lean to
the organization does not mean that it will contribute in more profit making for
the company. Every method which has lots of qualities, excellence, moral, and
traits for standing in this competitive age, not possible that it would be perfect in
every aspect of the organization. Even, there are lots of challenges ahead, in front
of lean, but some improvements are there to be suggested by the authors to fulfill
this research gap.
5.1.3 Lean Accounting Pathway
This chapter discusses about lean accounting pathway at all. This maturity
path enables the lean accounting team to develop an action plan for each stage of
firm which is divided into different value streams and to eliminate the waste.
When company is an initial stage of lean accounting, lean pilots work as Total
Lean Management. Company is now divided into different small cells to perform
special type of work. Lean cell performance measurements evaluate their work in
the form of Total Quality Management, Total Flow Management, Total
Productive Management, Total Service Management and Total Employee
Management.
The second phase of lean accounting is ‘managing by value stream’. Now

firm is working in different value streams to reduce the waste and try to eliminate
it. Value stream measurements motivate the value stream team for continuous
improvement. When company is getting mature with lean and eliminates lots of
transaction related with cost accounting, value stream cost can be introduced. It is
the real cost of the value stream without any allocation of overheads. The
decisions have been made with the help of the Box Score. Box score reports the
value stream measurements as well as financial and capacity measurements of the
business and evaluates the effectiveness of lean from multiple perspectives.
In the third phase of lean accounting, lean is everywhere in the company.

Now, most of the internal waste has been eliminated and the external waste is now
addressed. The lean company considers the issue regarding third-party
cooperation including customers, partners, suppliers, government etc. Target
costing is used to understand customer’s need. Product cost is decided according
to customer’s desire. The performance measurement linkage chart shows
connectivity between all the improvements. As same, value stream mapping gives
clear picture of current state and future state of company’s value stream. Extended
value stream mapping are now outside the company’s wall i.e. for suppliers,
customers and third-party partnership.
5.1.4 Case Study
This chapter covers the actual field work done regarding lean accounting
in the selected enterprises of India. It deals with the case studies of Waterman
Industries Pvt. Ltd., Bhansali Industry, Reliance Chemotex Industries Ltd. This
chapter inaugurates the detailed application of lean accounting tools and
techniques over the data collected from the companies.
While exploring the lean accounting in all three firms, the operational as well as
financial results have been measured through lean methods like cell performance
measurements and value stream performance measurements. The Waterman
Industry gets its productivity improved. It saves manpower as well as space with
total flow management. Rework has been reduced and the production work
becomes visual. Bhansali Industry reduces waste especially through visual
management. After applying lean, the factory becomes visual factory where every
steps, instructions, orders, cautions have been written on visual boards which were
missing before. With the use of other lean techniques of gemba, kanban, flow
management, the company improves its productivity and eliminates waste. As
same, the Reliance Chemotex Industry, with the implementation of 5S, identifies
its loopholes as waste in lot changing time, ring traveler time, machine cleaning
time as well as hard waste, sliver waste etc. The company reduces these wastes
after a good practice of lean throughout the organization. Further, the cell
performance and value stream performance measurements reveals satisfactory
adherence of standards at all.
5.2 ANALYSIS OF RESULTS AND SUGGESTIONS
Potential for the lean accounting can be found in the five principles i.e.
value, value stream, flow and pull, empowerment of people, and perfection
through continuous improvement. The lean approach begins with creating value
for the customer through value stream. The value stream links with flow and it
pulls the customer towards the product. It encourages empowerment of people and
creates perfection in the process. It has been observed that all three projected
companies are having homogeneity regarding admission of lean principle in their
regular practice of business. The variety of tools, methods and measurements have
been applied to increase the value through elimination of waste and to identify
operating and financial improvements. Table 5.1 summarizes the results obtained
in the selected enterprises.
S. PARAMETERS WATERMAN BHANSALI RELIANCE

NO. CHEMOTEX
1. Productivity Increased by 1000 Increased by 3.5 Increased by 1050
units to 1200 tonne to 4 tonne tonne to 1250
units per month per month tonne per month
2. Space Utilization Reduced by 2100 Reduced by Remained same
sq. ft to 1000 sq. 317.4 sq. meter
ft. to 277 sq. meter
3. Rework Reduction Rework reduced Rework reduced Machine cleaning
by 30%. It in collection of time, lot change
increased total dried cotton, also time, ring traveler
throughput time in refining and change time
by 8% to 10%. rolling process. averagely reduced
by 1.33 hrs. per
machine to 0.67
hrs. per machine.
Contd…
S. PARAMETERS WATERMAN BHANSALI RELIANCE
NO. CHEMOTEX
4. Waste Reduction Waste of trans- Waste of Especially sliver
portation, motion, waiting, waste, roving
motion, transportation waste, hard
inventory, over have broadly waste, stained
production have reduced. cone waste have
reduced. reduced
averagely from
0.76% to 0.46%
5. Transaction Use of kanban eliminated the requirement of material

elimination requisition slip. It has also reduced other production
tracking documents.
6. Takt time 6.23 minutes per N. A. 41.14 minutes
unit per tonne
7. First Time 99% N. A. 99%

Through
8. WIP to SWIP 1 or 100% N. A. 1 or 100%
9. Unit per person 8 units per N. A. 200 kg. per

person person
10. On Time Delivery 1 or 100% N. A. 1 or 100%
11. Dock to Dock 4 days N. A. 13 days

Days
12. Average cost Rs. 12,118 per N. A. Rs. 1,98,100 per
unit tonne
13. Value Stream Rs. 1,04,300 N. A. Rs. 17,55,102
Profit
Table 5.1: Summarized Results of Lean Effects in Selected Enterprises

Table 5.1 shows the operational as well as financial growths in the
projected companies after application of lean methodology. Point 1 to 5 are
having operational outcomes, point no. 6, 7, 8 are cell performance measurements,
and point no. 9 to 13 are having values stream measurements as well as financial
outcomes. These results can be analyzed and interpreted as follow-
 The overall operational findings of the research have shown that

operational processes in all three companies are under good control.
Approximately 15% to 20% productivity has been improved in all.
Waterman saves more than 50% of its production area which is utilizing
for a new production scheme. Rework and the different deadly waste
have also been reduced. Reliance Chemotex saves nearly 50% time in
machine cleaning, lot changing and ring traveler changing time. As
operational results have improved, wasteful transactions are begun to
eliminate. This leads a lean accounting system with very few
transactions in all three companies.
 The cell measurements results, as pointed in above table, are looking
nearly same in both Waterman and Reliance Chemotex Industries. (The
Bhansali Industry is not in the position to manage by value streams
because it is in the phase of ‘getting started with lean accounting’. So
financial results have not been generated by the researcher.) The takt
time shows how many products to be made in each hour. The waterman
Industry and the Reliance Chemotex Industry are maintaining this
rhythm of production, so its First Time Through and WIP to SWIP are
resulted respectively 99% and 100%. Both companies are making 99%
of its total units proceed in a week, without being scrapped, rerun,
retested or returned at the first time. It supports the lean principle of
perfection as companies are trying for 100% FTT with zero defects
policy. Furthermore, both companies have WIP is equal to its Standard
WIP which is scheduled for the cell. It indicates that there is neither
shortage of inventory nor companies are creating the waste of
overproduction.
 The value stream measurements focus on to increase customer value,
eliminate waste and make continuous improvements. The unit per person
reveals efficiency of people included in value stream that how much they
are producing in a period. The Waterman value stream team produced 8
units per person and the Reliance Chemotex produced 200 kilograms per
person in the projected week. This motivates people to set their goals as
high as they can perform. Both companies are delivering 100%
according to its demand, as shown by On Time Delivery measurement.
The Waterman Industry is taking 4 days for unloading of raw material
and discharging finished goods for shipment. As same Reliance
Chemotex takes 13 days. It maintains the flow of material as well as
inventory level.
 The value stream cost of Waterman is Rs. 12,118 per unit, as well
Reliance Chemotex has Rs. 1,98,100 per tonne. It is assured that the
actual current cost, using by the investigated companies, has not been
disclosed by the researcher, but it is found that calculated value stream
cost per unit is less than the current practicing cost in both the
companies. The saving in cost per unit directly impacts on value stream
profit i.e. Rs. 1,04,300 in Waterman Industry and Rs. 17,55,102 in
Reliance Chemotex Industry. And obviously it is more than the current
profit figure, if it calculates for the projected period of one week.
It is clear from the table 5.1 that lean accounting improves the numbers. It
provides lean performance measurements, which can replace traditional
measurements. It supplies methods to identify the financial impact of lean
manufacturing improvements. It offers a better way to understand product costs
and value stream costs. It eliminates large amounts of waste from the accounting,
control and measurement systems and frees up time and resources to work on lean
improvements. Finally, it is a way to focus the business around the value created
for the customers. Thus it can be said that lean accounting is better result oriented
than traditional accounting practice. It accepts the major research hypothesis
which has been made by the researcher before.
These above findings of lean accounting may have important implications
for an organization which is going to be transformed into lean enterprises. The
organization can remove huge amounts of unnecessary work like gathering and
analyzing data, producing unhelpful reports and generating additional non-value-
adding tasks. These findings also lead to support the researchers who are studying
lean practices and its effects. They may be able to suggest idea for improving
traditional strategies to be adopted in lean practices.
Apart this, the study is based on the figures of a certain period. These
figures are gathered by the company’s representative only on observational basis.
It is worthy to mention here that these results are not the ultimate factor which can
be applied by any other organization in India. The lean measurements and its
practices are not the perfect measurement system; it may differ from one
organization to another organization. It completely depends on the company’s
issues that it is facing. Similarly, there is no end to the lean journey and any model
for the implementation of lean manufacturing and lean thinking is not adequate.
The researcher supplies here a simple model that can address the changes needed
to make lean accounting a reality within an organization. Thus due care should be
taken while interpreting the results of the study.
5.3 SCOPE FOR FURTHER RESEARCH
Research is a never-ending journey. In fact, research is supposed to be a

continuous process whereby every research effort should open new directions and
opportunities for future research improvements. It often raises more questions
than it does answer. Therefore recommendations for future research are made
where relevant questions have not been answered by the data analyzed. The
present study purports to investigate lean accounting impacts in Indian
environment. However it could not cover certain aspects, which leave a research
gap for future researchers. In the view of limitations of the study, following areas
may show the ways for further research-
 The present study has concluded on the basis of one week observations.
In further, the lean effects can be extended for more weeks. This will
identify variations in figures and may come up with some solid results.
 Although lean accounting has so many tools to be applied but this study
focuses on application of lean accounting with limited tools. This study
can be moved further with some other tools like Performance
Measurement Linkage Chart, Value Stream Mapping, SOFP (Sales,
Operations and Financial Planning), Transaction Elimination Matrix etc.
 The mixed model of lean accounting and activity based costing may be
exercised in future research.
 Lean is a continuous journey. So the research can be sustained in the
projected companies in the coming years. This may come up with some
interesting findings.
 In the present study, companies have not disclosed the cost and
inventory data, so it was not possible to compare lean accounting with
traditional system. If in future, when sufficient data are available, one
can use this information for better comparative results.
 Value stream used in the present research can be extended outside the
four walls of the company with its suppliers, customers and other third
party partners. It leads to closer peer-to-peer communication throughout
the value stream to increase customer value.
 Although present study proves the effect of lean accounting in Indian
context but these effects could be extended to the opinion survey of the
stakeholders and others. This endeavor is left for future research.
 The present research deals with lean accounting practices but
‘Accounting for Lean’ could be a new variation in this stream where lean
is applied on financial accounting processes, account payable and
account receivable process, general ledger and month-end close process,
and other financial accounting processes.
 The present research works with order fulfillment value stream. Some
other value stream like acquiring new customers, new product
development, customer development etc. may also be tested in further
research.
 Target Costing, Value Stream Costing, Value Stream Mapping,
Transaction Elimination Matrix etc. may be some contemporary fields of
lean accounting for further research.
The overall objective of this research is to explore the role of lean

accounting in Indian perspective but there are some limitations. Although the
further research work would be a step forward task after these limitations but
every effort has been made by the researcher is to maintain the quality of work
and ensure research output of satisfactory level.
APPENDIX
QUESTIONNAIRE
Esteemed Respondent,
The researcher is pursuing Ph. D. on the topic “Lean Accounting: A Case Study of
Selected Enterprises in India” under the supervision of Prof. G. Soral in
Department of Accountancy and Statistics, UCCMS, MohanLal Sukhadia
University, Udaipur. This questionnaire is aimed to collect information regarding
your company to know the impact of lean implementation. The information
provided by you shall be kept confidential. The information collected through this
questionnaire is purely meant for research purposes. The researcher shall be
grateful to the respondents for sparing their valuable time.
Part-1 Introduction
Lean accounting, in the simplified form, is a systematic approach to eliminate

waste (overproduction, waiting, transportation, inventory, over processing)
through continuous improvement. Lean accounting provides accurate, timely and
understandable information that can be used by users of accounts. Lean is a
principle based operating system which can be expressed by customer value,
value stream (sequence of activities from receiving order to deliver it to
customer), flow and pull with minimum interruption, pursuit of perfection and
empowered people. It is fully comply with generally accepted accounting
principles (GAAP), external reporting regulations and internal reporting
requirements. Lean thinking tries to remove large, complex, wasteful traditional
process which require allocation and huge amount of non value work which do
not add value to the customer, service or product and try to get the right things, to
the right place, at the right time, in the right quantity to achieve the right workflow
while minimizing waste, being flexible with greater customer satisfaction.
Part-2 View Regarding Lean Concept
1. Name of Respondent: _____________________________

2. Gender M( ) F( )
3. Age ______
4. Designation _____________________________________
5. Name of the firm / Company ______________________
6. How many years is Lean applicable in your company?
0-1 Year ( ) 1-2 Year ( ) 2-5 Year ( ) More than 5 Years ( )
7. What problems are you facing in the process of lean implementation?

_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
8. What is the impact of lean methodology in your company?

_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
9. Would you like to give any further suggestions in the field of Lean practice?
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Part-3 Operational Information
10. What are the per day working hours in the company?
______________________________________________________________
11. How many numbers of full time employees in the company?
_______________________________________________________________
12. How many numbers of people associate in manufacturing of product?
_______________________________________________________________
13. What is the per month/day average customer demand of your frequently
selling product?
_______________________________________________________________
14. How many average units have been processed/manufactured in a day/month?
_______________________________________________________________
15. What is your average no. of units that require rework or rejection per
day/month?
_______________________________________________________________
16. What is your average WIP (Work-in-progress) per day/month?
_______________________________________________________________
17. What is the average inventory (Average raw material + WIP + Finished goods
inventory) per month in stock?
_______________________________________________________________
18. What is the average number of units per month that you shipped or deliver to
the customer?
_______________________________________________________________
19. How much time you take to deliver the product or fulfill customer demand?
_______________________________________________________________
20. How much average time (in days) taken in Raw Material unloading to
releasing finished goods to the customer?
_______________________________________________________________
21. What is the total floor space of your factory for production?
_______________________________________________________________
THANK YOU
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RESEARCH PAPERS PUBLISHED
1. Exploring the Role of Lean Accounting: A Step Ahead from

Traditional Costing. Management Trends. June-December 2013.
ISSN: 0973-9203, 34-43.
2. Exploring the Role of Value Stream Costing in a Lean

Manufacturing Enterprises- A Case Study. Eduved International
Journal of Interdisciplinary Research. June 2014. ISSN: 2348-6775,
1-12.
EXPLORING THE ROLE OF LEAN ACCOUNTING:
A STEP AHED FROM TRADITIONAL COSTING
Vineeta Arora1 and Prof. G. Soral2

1
Lecturer, S. D. Govt. College, Beawar
2
Professor, Dept. of Accountancy and Statistics,
Mohanlal Sukahdia University, Udaipur, Rajasthan
Today’s worldwide open competition in market has raised expectation of more

heterogeneous product choices to be offered to them at high quality level, low
prices and reasonable delivery times. That is why companies now seeking the
movement which provide best customer focus and would be able to sustain a good
competitive position, requires the cooperation of both the company’s operating
and accounting systems (Kennedy and Widener, 2008). Over the past two or three
decades there managers are now found themselves as warriors of accounting battle
which is bubbling up around the world that has broad implication for how to run a
business. The battle begins when a manager starts to think that which accounting
method is best. Because there are lots of costing techniques and methods available
like cost plus pricing, standard costing, activity based costing etc., which claim to
provide accurate cost of product and by using this cost, company could fight the
battle of incredible throat cutting competition.
Traditional costing method use apportionment and absorption of overhead on

some appropriate basis. Standard costing was developed to suit the needs of mass
manufacturing. (Manjunath H. S. and Andrew Bargerstock, 2011). After great
complexity of Activity based Costing as lots of activities are there, accountants
are looking for a new cost management technique which is suitable and not very
much complex. Lean accounting may be the solution of this problem. Lean
accounting viewed as a systematic approach to identify and eliminate the waste
(non-value adding activities) through continuous improvement that focus on
perfection (quality) in the pursuit of manufacturing excellence (S S Mahapatra and
S R Mohanty, 2007). Hennery Ford’s philosophy of mass production is no more
fascinating managers because it results in various kinds of wastes in an industrial
enterprise (Imai M, 2002). Lean accounting is a production strategy for
organizational effectiveness focusing on waste reduction and improving
productivity through Value Stream Costing, Box Score reporting, Plain English
Income Statement, Plan Do Check Act (PDCA), 5S etc.
Lean Accounting being a new and emerging concept of accounting, this paper
seek with major concept of lean accounting and concentrates that how lean
accounting is better decision making technique. This is done through conducting a
case study of a world leading company where standard costing technique is
applicable for determining the cost of product.
Objectives:
The purpose of the present study is to contribute an understanding towards the

emerging dimension of accounting i.e. lean accounting. For this purpose, this
paper has been divided into three parts:
(1) To focus on the conceptual review of Lean Accounting and its major
aspects.
(2) To review the literature available on Lean Accounting to identify the
current state.
(3) To analyze a case study based on lean principle for the problem facing in
traditional standard costing.
Research Methodology:
This research is derived from a specific challenge facing by the companies that
what kind of costing and accounting approach is required to support the accurate
product costing. In order to address the issue, an extensive literature survey has
been done to understand that what is lean accounting and what are its tools,
principles and practices. Also this literature survey identified the problem created
by the continued use of traditional costing and accounting methods.
To capture the last objective of the study, a case study is conducted of a world
leading company of US where standard costing is using as its decision making
technique. The name of the Company is kept anonymous as per agreement with its
management to keep it confidential. Consequently, the studied company is
referred to as Anonymous Inc. It is a leading manufacturer and exporter company
of US. The required data have been collected through convenient sources like e-
mails, e-resources available and annual reports of the company.
(I)-CONCEPTUAL REVIEW
Lean is getting the right thing, to the right place, at the right time, in the right
quantity to achieve the right work flow while minimizing waste, being flexible
with greater customer satisfaction. Lean accounting is a support to the business by
controlling the waste, loss and defects. (Ross Maynard, 2009).
In simple words Lean Accounting:

 Will provide accurate, timely and understandable information to motivate
and increased customer value, growth, profitability and cash flow.
 It uses lean tools to eliminate waste from the accounting processes while
maintaining thorough financial control.
 It is fully comply with generally accepted accounting principles (GAAP),
external reporting regulations, and internal reporting requirements.
In short, Lean Accounting is a Japanese approach that focuses all activities that do
not add value to the production process such as holding of stock, repairing faulty
product and unnecessary movement of people and product around the plan with
Continuous improvement by the shortest, fastest route possible is the ultimate goal
of lean accounting (D. Muthamizh Vendan Murugavel, 2011).
Principles of Lean Accounting:
The five steps process for guiding the implementation of lean techniques is shown
in figure 1. These principles are easy to remember but not always easy to achieve.
1. Identified
value
5. Seek 2. Map the

perfection value stream Figure 1:
Principles of
lean
accounting
4. Establish
3. Creat flow
pull
1. Specify value from the standpoint of the end customer by product family.
2. Identify all the steps in the value stream for each product family,
eliminating whenever possible those steps that do not create value.
3. Make the value-creating steps occur in tight sequence so the product will
flow smoothly toward the customer.
4. As flow is introduced, let customers pull value from the next upstream
activity.
5. As value is specified, value streams are identified, wasted steps are
removed, and flow and pull are introduced, begin the process again and
continue it until a state of perfection is reached in which perfect value is
created with no waste.
Lean principle if followed and lean program if implemented properly will add to
the profit and profitability of an organization through all-round improvement in
the whole cycle from manufacturing to product delivery with less inventories, less
wastage, less space utilized, less cost on the one hand and better quality and
greater customer satisfaction on the another hand.
Tools of Lean Accounting:
The fundamental assumptions of traditional mass production are contrary to the

assumption of Lean Accounting. Lean accounting is not only a set of interesting
and useful shop-floor tools but it is a very different way to manage the business.
Yet in many companies embarking on lean accounting, these radical changes do
not move outside of the production floor. Sure, some companies are applying lean
flow in the offices, and others are using lean-style methods in product design, but
there is a much bigger cultural impact to changing the way we think about the
accounting, measurement, control, decision-making, and management of the
enterprise (Brain H Maskell, 2004). Figure 2 shows an overview of the primary
tools of Lean Accounting.
Visual Value Stream Continuous

Management Management Improvement
Cell
Value Stream
Performance
Measurement
Measurement Box Score
Elimination of Financial
Transaction Benefits of
Lean Change
Value Stream
Plain English Value Steam Cost &
Financial Costing Capacity
Statements
Lean Decision Features &

Making characteristic
costing
Figure 2: Tools of
Sales, Target Costing
Lean Accounting Operations &
(Source: Brian H. Financial Plan
Maskell, 2005)
Life Cycle Capital project
Costing justification
Lean accounting reports and tools actively support the lean transformation. The
accumulation of all of these tools creates continuous improvement. The financial
and non financial reporting affects the overall value stream flow, not individual
product, job or process. Lean Accounting focuses on measuring and
understanding the value created for the customers and uses this information to
enhance customer relationship, product design, product pricing and lean
improvement (Brain H. Maskell and Bruce L. Baggley, 2006).
( II )- REVIEW OF LITERATURE
A brief review of work already done on the subject reveals the following findings:
D. Muthamizh Vendan Murugavel (2011) comparing Traditional

Manufacturing to Lean Manufacturing and concluded if the lean production is
carried out through efficient planning and effective management, the
manufacturers would surely achieve competitive advantage of this global market.
Manjunath H.S. Rao and Andrew Bargerstock (2011) exploring the role
of standard costing in lean manufacturing enterprises. The author indicates a three
stage path to lean transformation that should be accompanied by corresponding
changes in accounting. Ideally in stage second of lean transformation, the
company must move away from traditional standard costing accounting and
variance analysis.
A. Lakshminarasimha and Vivek Krishna K. (2010) provide an

introduction to lean concepts and discuss the impact of target costing on lean.
Suggestions and pointers for further study are indicated, which would go a long
way in practical sustained implementation of lean practices. A research is has also
been conducted to study the practices of “Lean and Target Costing” in India and
they found that to gain competitive advantage in the global market place is only
through lean and target costing combined.
Dan Woods (2009) examines the implications of lean philosophy with

standard cost accounting and got the core difference i.e. Lean Accounting
attempts to find measures that predict success and standard cost accounting
measures results after the fact.
P.K. Chakraborty (2008) highlights different aspects of lean thinking as a
way to success. He concluded that lean implementation aims at getting the right
things, to the right place, at the right time, in the right quantity to achieve the right
work flow while minimizing waste being flexible with greater customer
satisfaction focusing on more cash flow, more profit and profitability and delivery
of better value added products and services.
Brian H. Maskell and Frances A. Kennedy (2007) explain why do we need

lean accounting and how does it works. They said that since those companies
choosing lean principles as their basic business model will want to do everything
they can do succeed. This article offers six reasons why accounting methods need
to be change before companies can fully realize the benefit of their lean
transformation.
S S Mahapatra and S R Mohanty (2006) revel in their article that lean

accounting is a strategy for organizational effectiveness focusing on waste
reduction and improving productivity through application of various tools. This
article find out the reasons for sparse adoption of the concept of lean in Indian
manufacturing organizations through a cross-sectional survey study which
highlights knowledge and lead to its adoption, benefits derived thereon and
application of lean tools looking into operating environments.
Brian H. Maskell (2005) reveals in his article “What is Lean Accounting?”

that there are several tools included in Lean Accounting and they each work
together to create a framework for the control & management of a lean enterprise.
In his article he tried to give the answer of the question “What will Lean
Accounting do for us?” by using simple examples with the help of Lean
Accounting tools.
Mike Rother and John Shook (1998) introduced Toyota’s concept of

material and information flow diagrams, in the book “Learning to See”, which
now called value-stream maps. This is a simple, direct and accurate way to create
financial reports with very few transactions.
Womack and Jones (1996) in the book “Lean Thinking”, provide a simple
description of lean principles-value, value stream, flow, pull, and perfection-along
with stories of companies beyond Toyota that are applying them successfully in
North America, Europe, and Japan. The final section presents an action plan for
any company to follow toward a lean transformation.
Susan lilly and Nick Katho (1995) compared lean accounting with volume
based traditional accounting and specify how can we solve any problem using the
Plan, Do, Check and Act process. Lean accounting focusing on more cash flow,
more profit and profitability and delivery of better value added products and
services.
After this background in view, we can say that with launching of the concept of
lean accounting during the mid 1990’s, most of the organizations, irrespective of
their capability and understanding of the concept, wanted to jump on the
bandwagon in an attempt to trim the excess out of their organization and improve
their bottom line. Now it become a magical costing and decision making
technique with no indirect cost, which are going to improved and adopted by the
society of world. Finally there is a broad implementation framework for
application of lean accounting
(III)- CASE STUDY
The transparency of lean accounting is helpful in demonstrating the benefits of

lean manufacturing initiatives and optimizing day-to-day business operations.
Because standard cost accounting rewards overproduction, using standard
methods to try to demonstrate the value of lean processes that eliminate
production waste would be futile. Lean accounting, on the other hand, reveals
savings and costs that might otherwise be misinterpreted or hidden — the true
cost of labor and machinery, for example a study reported several years ago in the
Harvard Business Review concluded that 50% of executive decisions are made on
intuition. Surely that is cause for alarm. Is business decision-making necessarily
that much of an art? Are executives not well trained in the use of decision-making
tools? Or is it that executives sense that their information and data is skewed for
some reason, and so go on gut feel in order to arrive at a comfortable decision?
To show how lean accounting rather than standard costing can lead to better
decisions, a case study undertook of Anonymous Inc.
Manufacturing Anonymous inc. had purchased a large new plant. Its existing
product base would use only 10% of the capacity of the new machine, so the sales
force was asked to approach new customers to capture business that would utilize
this plant. After diligent efforts, the sales people returned to the corporate office
with several new opportunities that would be manufactured using the new plant.
However, they were soon told the orders would not be accepted because the gross
margin percentage for the orders based on standard cost accounting was only 16%
– less than its target margin of 25%. So the controller decided to reject the orders.
After the controller had made the ‘thumbs down’ decision, the sales force decide
to insight lean picture to uncover what impact these orders would really have. A
statement arranged like this is called a ‘plain English’ or ‘lean’ financial
statement. Table 1 to Table 4 is showing summary of the statements.
Table 1: Traditional decision factors
$30/unit
Quoted price
$25/unit
Standard cost
$5/unit
Gross margin
16.67%
Gross margin %
23%
Current gross margin %
Table 2: Lean Profit Statement for existing business
Direct cost ($)
Shared cost ($) Total cost ($)
Sales
100,000 -- 100,000
Material
20,000 -- 80,000
Direct costs
18,000 -- 18,000
Shared cost
-- 39,000 39,000
62,000
Total (39,000) 23,000
Table 3: Analysis of new order

Incremental impact of new 10,000
units
Revenue
300,000
Material
60,000
Variable margin
240,000
Direct cost
40,000
Profit
200,000
67%
Gross margin %
Table 4: Lean Profit Statement showing old and combined business
New total with
Lean profit statement of existing
10,000 additional
business
units ($)
Direct ($) Shared ($) Total ($)
Sales
100,000 -- 100,000 400,000
Material
20,000 -- 20,000 80,000
Variable
margin 80,000 -- 80,000 320,000
Direct cost
18000 -- 18,000 58,000
Shared cost
-- 39,000 39,000 39,000
Gross margin
62,000 (39,000) 23,000 223,000
Gross margin
% 57.5%
Anonymous incorporated’s controller had been used to seeing lean financial

analysis, he almost certainly would have approved the new orders. The advantages
in profit and margin would have been obvious, and the need to apply intuition
would have been minimized – at least, relative to financial impact. So, finally new
order has been accepted.
Conclusion:
While traditional statements may account for a fixed-dollar amount of overhead

for every dollar of inventory spent, lean accounting looks at these costs as
variable, assessing the true costs of labor and overhead on a case-by-case basis.
Statements should also align with value-stream maps, visual representations of the
end-to-end production process which can give owners and executives a clear
picture of their companies’ financial situations. Even though lean accounting can’t
replace traditional accounting practices, it can go further in helping owners and
executives make accurate, informed business decisions. It’s also a necessity for
manufacturers who want to see the true financial effects of their lean
manufacturing initiatives. Lean accounting may not be right for every
organization, but manufacturers that are committed to and invested in lean
manufacturing practices should consider supporting them with simplified, lean
accounting processes.
References:
 Baggaley, B. and B. Maskell. (2003). Value stream management for lean
companies, Part I. Journal of Cost Management (March/April): 23-27.
 Fullerton and Kennedy. (2009). Lean manufacturing: costing the value stream.
Industrial Management & Data Systems. Vol. 113, issue 5
 Kennedy and Brewer. (2006). The Lean Enterprise and Traditional
Accounting-Is the honeymoon over? Journal of Corporate Accounting &
Finance. Vol. 17
 Kennedy and Widener. (2008). Functional lean: A new approach for

optimizing internal service function value. Journal of Cost Management
(July/August): 5-14.
 Maskell, B. H. and B. L. Baggaley. (2006). Lean accounting: What's it all

about? Target Magazine 22(1): 35-43.
 Mahapatra, S S and Mohanty, S R. (2007). Lean manufacturing in continuous

process industry: An empirical study. Journal of Scientific and Industrial
research, Vol.66.
 Manjunath H. S.; Bargerstock, Andrew (2011). Exploring the role of standard

costing in lean manufacturing. Management Accounting Quarterly, Vol. 13.
 Ross Maynard, (2009). What is Lean Accounting. Chartered Institute of

Management Accountants.
 Schiemann, W. and J. Brewton. (2009). Functional lean: A new approach for

optimizing internal service function value. Cost Management (July/August): 5-
14.
 Staats, B. R. and D. M. Upton. (2011). Lean knowledge work: The "Toyota"
principles can also be effective in operations involving judgment and
expertise. Harvard Business Review (October): 100-110.
 Tracey, D. L. and J. E. Knight. 2008. Lean operations management:

Identifying and bridging the gap between theory and practice. The Journal of
American Academy of Business 12(2): 8-14.
 Womack, J. P. and D. T. Jones. (1994). From lean production to the lean

enterprise. Harvard Business Review (March-April): 93-103.
ISSN 2348-6775
International Journal of Interdisciplinary Research
EXPLORING THE ROLE OF VALUE STREAM COSTING IN A LEAN MANUFACTURING

ENTERPRISES – A CASE STUDY
Mrs. Vineeta Arora Lecturer, S.D. Government College, Beawar
Abstract
In today’s global market, a change in strategic and manufacturing practices to a more customer
focused system such as the lean manufacturing/lean management system becomes crucial to help
companies achieve a good competitive position. At the same time, the current traditional costing
system is almost obsolete with respect to lean manufacturing systems. The development of a lean
accounting system may have resolved the problems faced by lean firms due to their traditional
costing systems. However, the suggested lean accounting Value Stream Costing (VSC) tool
proposes another dilemma with respect to the conditions required for its effective implementation
especially when it comes to the necessity of eliminating shared resources. Also, very few has
been written on the management accounting tools to be used in a lean environment, which
indicates that the management accounting literature seems to lag behind lean transformation
specially in India. This study sets a framework that integrates Value Stream Costing (VSC) in a
lean environment in a condition where shared resources are still present. This has the objective of
computing accurate product unit costs in order to assist a lean manufacturing system enhance
organizational competitive stand. A case study is conducted on one kind of a manufacturing
company operating in Ahmadabad (Gujarat) which has recently moved to lean manufacturing.
The suggested VSC framework is used to compute the product unit cost for one of the factory
product. Within the implementation of the suggested framework different approaches of lean
manufacturing are being compared with before conditions and also various empirical
implications are being discussed. The findings of the study gives positive implications of the use
of lean manufacturing and VSC in the studied factory - given a condition of shared resources –
that the effect of lean implementation improves the efficiency and productivity of company and
the integration of Value Stream Costing system in a lean company results in more accurate
product cost given a condition of shared resources which shall help the studied factory to achieve
a good competitive position.
Key words: Lean Accounting, Lean manufacturing, Value stream costing, 5s.
Introduction
Today’s worldwide open competition in market has raised expectation of more heterogeneous
product choices to be offered to them at high quality level, low prices and reasonable delivery
times. That is why companies now seeking the movement which provide best customer focus and
would be able to sustain a good competitive position, requires the cooperation of both the
company’s operating and accounting systems (Kennedy and Widener, 2008). Over the past two
or three decades there has been a tremendous development in terms of managerial terminologies,
methodologies and productivity tools in trade and commerce both. Managers are now found
themselves as warriors of accounting battle which is bubbling up around the world that has broad
implication for how to run a business. The battle begins when a manager starts to think that
1 Vol. 01 Issue 03 June 2014

ISSN 2348-6775

which accounting method is best. This study mainly focuses on the role of the accounting system
which provides accurate product cost to help companies enhance their competitive position.
Lean manufacturing may be viewed as a systematic approach to identify and eliminate the waste
(non-value adding activities) through continuous improvement and synchronizing the production
flow to such an extent that flow of the product can be possible at the pull of the customer with
emphasized focus on perfection (quality) in the pursuit of manufacturing excellence (S S
Mahapatra and S R Mohanty, 2007). Hennery Ford’s philosophy of mass production is no more
fascinating managers because it results in various kinds of wastes in an industrial enterprise (Imai
M, 2002). Lean manufacturing is a production strategy for organizational effectiveness focusing
on waste reduction and improving productivity through application of various tools like Value
Stream Costing. The Value Stream is defined as “the set of all costs incurred to produce a
product from the receipt of a sales order till order shipment”. Using VSC, all cost incurred to
produce a product from receipt of sales order till order shipment – are directly charged to
production (Kennedy and Brewer, 2006). However, the effective implementation of Value
Stream Costing requires the presence of certain conditions. The aim of VSC is to expose wasteful
activities (muda) that currently exist in the process of delivering a product to the customer and
take action to eliminate wastes (Maskell and Baggaely, 2004).
This study investigates the effect of lean manufacturing in a traditional costing based firm and
tries to explore the role of value stream costing and compare it to the traditional costing based
results. The study presents a framework that suggests the use of VSC as an overhead allocation
method in lean firm in which production resources are still shared. This is done through
conducting a case study on one of the factories of a national level company operating in Gujarat
which has recently moved to lean manufacturing.
Literature Review
A brief review of work already done on the subject reveals the following findings –
D. Muthamizh Vendan Murugavel (2011) comparing Traditional Manufacturing to Lean
Manufacturing and concluded if the lean production is carried out through efficient planning and
effective management, the manufacturers would surely achieve competitive advantage of this
global market.
Manjunath H.S. Rao and Andrew Bargerstock (2011) exploring the role of standard
costing in lean manufacturing enterprises. The author indicates a three stage path to lean
transformation that should be accompanied by corresponding changes in accounting. Ideally in
stage second of lean transformation, the company must move away from traditional standard
costing accounting and variance analysis.
A. Lakshminarasimha and Vivek Krishna K. (2010) provide an introduction to lean
concepts and discuss the impact of value stream costing on lean. Suggestions and pointers for
further study are indicated, which would go a long way in practical sustained implementation of
lean practices.
Dan Woods (2009) examines the implications of lean philosophy with standard cost
accounting and got the core difference i.e. Lean Accounting attempts to find measures that
predict success and standard cost accounting measures results after the fact.
P.K. Chakraborty (2008) highlights different aspects of lean thinking as a way to success.
He concluded that lean implementation aims at getting the right things, to the right place, at the
right time, in the right quantity to achieve the right work flow while minimizing waste being
flexible with greater customer satisfaction focusing on more cash flow, more profit and
profitability and delivery of better value added products and services.

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Brian H. Maskell and Frances A. Kennedy (2007) explain why do we need lean
accounting and how does it works. This article offers six reasons why accounting methods need
to be change before companies can fully realize the benefit of their lean transformation.
Frances A. Kennedy and Peter C. Brewer (2006) describe a fortune 500 company’s
transition from mass to lean production and how it transformed its accounting information
system to support this change. It points out some of the limitation of traditional accounting
practices that emerged as a result of its lean transaction.
Sunitha K. Ravi and P. Thirumalvalavan (2006) describe the lean accounting approach
that supports lean manufacturing. They said that, Lean management is an applied philosophy that
many manufacturing, service and government organizations must be adopt to acquire the
flexibility needed to meet new competitive challenges-eliminating waste, enhancing production
speed and pushing innovation.
Brian H. Maskell (2005) reveals in his article “What is Lean Accounting?” that there are
several tools included in Lean Accounting and they each work together to create a framework for
the control & management of a lean enterprise. In his article he tried to give the answer of the
question “What will Lean Accounting do for us?” by using simple examples with the help of
Lean Accounting tools.
Christophee B. Lippincott (2004) conduct a case study on lean manufacturing company
“Solectron Corporation-SLR” and showed its dramatic impacts by using Lean tools. He
mentioned benefits of lean accounting when it’s well executed.
However, viewing the literature availed, requires the establishment of almost a perfectly hundred
percent lean tailored manufacturing environment to achieve a better market position through
Value Stream Costing.
Objectives:
In order to test the postulations of the study framework presented, the study proposes the
following objectives:
(1) To test the effect of lean implementation that improves the efficiency and productivity of
company.
(2) To explore the role of Value Stream Costing system in a lean company that result in more
accurate product cost given a condition of shared resources.
Research Methodology:
As already mentioned that Value Stream Costing requires almost perfect condition of lean
manufacturing system and this study also attained an environment of shared resources. In order
to address the issue, a case study is conducted on one company operating in Ahmadabad
(Gujarat). The name of the Company is kept anonymous as per agreement with its management
to keep it confidential. Consequently, the studied company is referred to as Company X.
Company X is a leading manufacturer and exporter of water handling pumps. It manufactures
varieties of water handling pumps. This condition best serves the research objective of shared
resources. The Company has adopted Kaizen, Kan-ban and the 5S system of management. The
supply of raw materials / components is streamlined with adoption of two-bin system. The
workplace is designed in such a way that the operators need minimal supervision and gain
expertise in the work assigned to them in no time. This company has chosen for conducting the
study because this is the manufacturing factory that has moved to lean manufacturing.
The data collection process takes two stages; the first stage includes conducting interviews with
the factory plant head. In order to collect information on the manufacturing process flow, the
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movement to lean manufacturing and organization of the plant’s value streams. The second stage
involves conducting other interviews with the chief accountant controller and accounting
controllers team of company X to gain an understanding that how the company computes the unit
costs for its produced pumps. Thus the data analysis process includes two phases; a
manufacturing data analysis phase and a costing data analysis one.
Findings and Analysis:

To test the first objective of this study, a Before-After analysis has been done i.e. the efficiency
and productivity of company has been measured before the lean implementation and the same
measurements has been identified after lean implementation. This plan has been elaborated in
Table (1) and Table (2) which shows the conditions before lean implementation and need of lean.
Also Figure (1) shows flow management after applying lean manufacturing and figure (2) shows
visual management in the company.
Table 1: Diagnosis before lean implementation
Sr. No. Parameter Per month (in units) Per month (in Rs.)
1 Production/Productivity 1800 (1000 V3 & -
V4)
2. Space Utilized 2100 Sq. Ft. -
3. WIP / Total Inventory - 3.25 Cr.
4. Manpower 148
Table 2: Issues faced by the company & need of Lean
S.No Type of Waste Issues Comments

1 Transportation Major As company has 2 different manufacturing
Tranposration of locations, Upper Floor & Lower Floor. It is
material observed considerable transport of the
resources (material & worker)
2 Motion Medium motion Company is operating in two different floors

of worker and store is on Upper Floor & Lower Floor,
hence higher muda of motion is observed in the
plant
3 Inventory Rs. 3.25 cr Company keeps enormous amount inventory to
support its manufacturing process.
This area has considerable opportunity of
improvements.
4 Over Quntified figure Company keeps FG stock of standard model.
production of the over However, the Stock keeping numbers for each
production is not variety of standard product has not decided on
available scientific calculations.
5 5S & Visual Area wise Need Visual, Plant will become visually very
cleaning and strong to the customer and visitor.
control

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Lean Strategy
Traditional manufacturing system serves only cost of product. It is almost obsolete current
manufacturing innovations that are customer oriented, such as lean manufacturing (Fullerton and
Kenney, 2009). Based on above diagnosis, following road map has used to overcome above
issues-
1. Flow Management – To reduce the Muda of Transportation & Muda of Motion.
2. 5S and Visual Management – To improve work environment, control WIP, Search free,
count free ergonomically improved store and work place.
(1) Flow management- Flow management is the movement of material from first process to last
process. It is the result of perfect flow of material which reduces wasteful activities from the
production process (Tracey, D. L. and J. E. Knight (2008).
Figure 1*: Flow layout of Company X before and after lean implementation
Flow Layout Before Flow Layout After
(*Figure adopted from the concerned company)
This figure shows that company was using very haphazard flow of material process which
consuming much time for production but after implementation of lean manufcturing, a systematic
process of material flow has been designed that make the production process flowing like a river.
(2) 5S Assessment: lean manufacturing principle ultimately targets in waste elimination. This is
the aim of 5s technique i.e. Sorting, Setting in order, Shining, Standardizing and Sustaining
(Schiemann, W. and J. Brewton, 2009). Simply 5s system will find unnecessary things in the
system. Then it will sort and sorted items will be kept in order. Then there will be a regular

ISSN 2348-6775

cleaning process then the system will be standardized and at last the system will become the way
of life (Comm, C. L. and D. F. X. Mataisel. 2000).
Table 3: Before and After assessment of 5s

5S Assessment
(After)
(Before) Systematic
Level Beginner Basic 2 Visual 3 Preventive 5
Baseline 0 4
1
Unsafe Needed Needed Red tag area List of Un-needed
items in and un- /un-needed created, all needed items are
work area. needed items un-needed items not allowed
Sort
items separated, items developed, in area.
found in un-needed removed. maintained,
work area. tagged. posted.
Placement Needed Needed Needed Needed Method for
of items and un- items items have items can adding/deleti
causes needed stored in an dedicated be ng indicators
unsafe items are organized positions retrieved for needed
conditions. placed manner. that are within (cell items
Set in
randomly clearly target)
Order
throughout indicated. seconds
the and (cell
workplace. target)
number of
steps.
Spills, Work area Area and Standard Daily Root cause
waste, and equipment work layout inspection sources of
trash, etc. machines cleaned posted and of plant dirt, grease
Shine produce are not daily. maintained. and area & spillage
unsafe cleaned on occurs. have been
conditions. a regular eliminated.
basis.
No work Methods of Methods of Methods of Methods of Methods of
methods or work not work work posted work work are
procedures completely documente and consistentl regularly
Standard
documente documente d but not consistently y used by reviewed and
size
d. d. consistentl used by all cell improved.
y used. some cell team
members. members.
No routine Occasional, 5S 5S 5S Root causes
review/corr unschedule activities assessment assessment of problems
ection of d 5S conducted conducted conducted revealed by
unsafe activity. on regular occasionally on a 5S
conditions. basis. and results regular assessment
Sustain
posted. basis and are identified
recurring and
problems eliminated.
are
identified.
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(3) Visual management: “The visual language is capable of disseminating knowledge more
effectively than almost any other vehicle of communication. Visual Communication is universal
and international; it knows no limits of tongue, vocabulary, or grammar. Visual language can
convey facts and ideas in a wider and deeper range than almost any other means of
communication” (György Kepes ,1944). This quote applies in lean approach which defines the
visual symbols for systematic work. Visual management is a cornerstone of lean management.
Lean accounting requires visual presentation of both financial and non financial measurements
(Brain Maskell and Bruce Baggaley, 2006). Figure 2 shows some visual changes made in
company X after implementation of lean manufacturing as explored the real situation.
Figure 2: Before and after analysis of visual management of company X
Before After
No Visual, No labeling, No segregation of color Visual marking on the floor to fix position
and Metal scraps color coding for each items

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No visual, no fix location for the attachment color coding, size wise leads to search
No fix place & fix quantity for material Visual marking on floor to fix place & WIP
No visual & marking for FG stock Visual marking on floor with FG stock control
The traditional accounting system gives results that contradict the improvements achieved by
lean manufacturing (Brosnohan, 2008; Crandall and Main, 2007). It even motivates various non
lean behaviors that are grounded in the mass production (Maskell and Baggaley, 2004). As the
solution of above problem table 4 concluded the result of Before – After analysis. It shows the
impact of lean manufacturing on productivity, utilized space, rework reduction as well as
manpower of company X.
Table 4: comparison of result before and after lean implementation
Sr. No. Parameter Before After Benefit
1 Production/Productivity 1000 Pump (V3, 1200 Pump Production
V4) (V3, V4) Increased By
20%

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2. Space Utilized 2100 Sq. Ft. 1000 Sq. Ft. Rs. 1.2 L / Year
3. Rework Reduction Rework reduced by 30%, This has increased the TPT
by 8 to 10%
4. Manpower 123 116 Rs. 4 L / Year
5. TOTAL Throughput Total throughput time has been reduced. Earlier
time (TPT) company was making 1000 pumps. At present
production is of 1200. Hence, production is increased
by 20%.
This table shows the result that on applying the lean manufacturing, company has increased its
productivity by 20%. This result is positive towards the first objective i.e. the effect of lean
implementation improves the efficiency and productivity of company.
In order to develop an answer to the second objective that intended to test the effect of applying
Value Stream Costing (VSC) on product in a lean company, given a condition of shared
resources, manufacturing data are being analyzed to elaborate how the current manufacturing
status leads to the creation of a condition of shared resources. And for the convenience of the
study, only one product of different sizes i.e. submersible motor (3”, 4”, 5”, 6”, 8” and 10”) has
been analyzed. The value stream map for Company X is illustrated in Figure (3).The production
process starts at the receipt of a customer order. The purchase department sets quotations and
gives purchase order to suppliers. The production process includes the manufacturing of stator
and rotor which is the main component of product, through different process. All the motors from
3 inch to 10 inch go through the same production process. That is why – only one value stream
identified. At the same time the different power and size of the motor produced entail that they
actually take different processing time in each production process. This means that the different
types of motor use resources differently and as a result they cannot be assigned the same
production cost per unit as done by the company with the traditional costing method, after
observing by the interview of accounting authority.
The Company X is using traditional costing method which calculated almost all the overheads
cost on the basis of the production units. Due to the confidentiality of company, it provides only
cost data of 4 inches submersible pump, which is the highest sell product of the company, i.e.
87,100 Rs. During 2012-13, company X received a total of 600 orders of which constitutes 2,400
submersible pumps. During the year, 1800 pumps produced of which 1400 units were shipped to
customers.

ISSN 2348-6775
Figure 3: Value Stream Map for Company X Water pumps Factory
Deliver request request order

materials materials quote
Department of Sales &
Material suppliers marketing
designing, Customer order
inspection depatment
planning and
(QC)
purchasing
sets the quote
Quote
Preparation Final
of insulating testing
material (L)
(QC)
QC – quality control
(L) – labour based production process
Core slitting (M) – machine based production process
(L) (M) Complete
assembling
and furnishing
all parts
(L) (M)
Core cutting Pressin Machining Winding and Active parts
g stator and painting cable joining assembling
(L) (M) (M)
(M) (L) (L) (M)
Rotor fabrication and brazing Final Leakage Painting and drying

Brushing
and assembly test
(M)
balancing (M)
(M) (L) (M) (QC)
In order to test the second research objective, the cost of 4 inches submersible pump is first
computed using the Value Stream Costing method. The application of Value Stream Costing to
compute product unit cost results in an average cost per unit of Rs. 1,39,217.35 (Rs.
19,49,04,287*/1400 units ). Table 5 showing traditional and Value Stream Costing (VSC)
approach to product costing computed for Company X in 2012-13.
Table 5: Comparison of cost through traditional costing and VSC
Traditional costing Value Stream Costing Traditional – VSC
Cost per unit Rs. 87,100 Rs. 1,39,217.35 Rs. 52,117.35

Approx 37% decrease

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This implies that, the way VSC help support lean manufacturing principles can eventually help
Company X to better meet customer demands and achieve a good competitive market stand.
Because as the result shows, company is calculating its most selling product at 37% decreased
cost. It will strongly accept the second objective that the integration of Value Stream
Costing system in a lean company results in more accurate product cost given a condition
of shared resources.
6. Summary and Conclusion

This study intended to test the effect of integrating the VSC allocation method in a lean
environment to help enhance lean firm’s competitive position in a condition of shared resources.
From the applied case study it can be concluded that the application of lean manufacturing
improves the firm productivity and VSC approach to cost products in lean firms is not incorrect.
It is just that it may distort the product cost if it is applied in a condition where the company’s
resources are still interrelated. The integration of VSC in a condition of shared resources initiated
due to an ineffective value stream definition of the studied Company’s factory provides an
accurate product unit cost. This cost is more accurate than the cost developed by the Company
using the traditional overhead allocation method. VSC develops a cause and effect relationship
that links costs to their sources. Also the integration of VSC in the studied lean factory was found
to support various lean behaviors and lean manufacturing principles. Therefore, this suggests that
managers of the studied factory can better rely on their product costing data to improve the
Company’s competitive position. This also suggests that managers can become more motivated
to continue improvement for lean and become more matured with lean transformation. This way
both the operating system (Lean manufacturing) and the accounting system will be working hand
in hand to motivate a better competitive stand for the company.
7. Limitations and Directions for Future Research

The most limiting factor of the study is that the study tackled the use of Value Stream Costing
(VSC) only one product of the company out of the variety of products manufactured. The
generalization of the results obtained should be taken into consideration since they relate to one
empirical case study. The future research can be done on each and every product of the company
as identified value stream of each product and compared to the benefits achieved from its usage
in a lean environment. Finally this is in integration with a lean environment in order to help
provide accurate product unit costs.

ISSN 2348-6775
References :
 Baggaley, B. and B. Maskell. (2003). Value stream management for lean companies, Part I.
Journal of Cost Management (March/April): 23-27.
 Fullerton and Kennedy. (2009). Lean manufacturing: costing the value stream. Industrial
Management & Data Systems. Vol. 113, issue 5
 Kennedy and Brewer. (2006). The Lean Enterprise and Traditional Accounting-Is
the honeymoon over? Journal of Corporate Accounting & Finance. Vol. 17
 Kennedy and Widener. (2008). Functional lean: A new approach for optimizing internal
service function value. Journal of Cost Management (July/August): 5-14.
 Kennedy, F., L. Owens-Jackson, L. Burney and M. Schoon. (2007). How do your
measurements stack up to lean? Journal of Strategic Finance (May): 32-41.
 Maskell, B. H. and B. L. Baggaley. (2006). Lean accounting: What's it all about? Target
Magazine 22(1): 35-43.
 Mahapatra, S S and Mohanty, S R. (2007). Lean manufacturing in continuous process
industry: An empirical study. Journal of Scintific and Industrial research, Vol.66.
 Searcy, D. L. (2009). Using cost management and lean tools to improve AMG's rental
operations. Journal of Cost Management (November/December): 24-33.
 Schiemann, W. and J. Brewton. (2009). Functional lean: A new approach for optimizing
internal service function value. Cost Management (July/August): 5-14.
 Silvi, R., M. Bartolini and P. Hines. (2008). SCM and lean thinking: A framework for
management accounting. Journal of Cost Management (January/February): 11-20.
 Staats, B. R. and D. M. Upton. (2011). Lean knowledge work: The "Toyota" principles can
also be effective in operations involving judgment and expertise. Harvard Business Review
(October): 100-110.
 Tracey, D. L. and J. E. Knight. 2008. Lean operations management: Identifying and bridging
the gap between theory and practice. The Journal of American Academy of Business 12(2): 8-
14.
 Womack, J. P. and D. T. Jones. (1994). From lean production to the lean enterprise. Harvard
Business Review (March-April): 93-103.

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LEAN ACCOUNTING: A CASE STUDY OF

SELECTED ENTERPRISES IN INDIA

Under the supervision of

Department of Accountancy and Statistics

Roadlines, Sanderao Road, Falna (Distt.-PALI) hereby declared

that the research work incorporated in the present thesis entitled

“Lean Accounting: A Case Study of Selected Enterprises in

India” is my own work and is original. This work (in part or in

Degree or a Diploma. I have properly acknowledged the material

collected from secondary sources wherever required. I solely own

the responsibility for the originality of the entire content.

Date: (Vineeta Arora)

I feel great pleasure in certifying that the thesis entitled

(a) Course work as per the university rules

I recommend the submission of thesis.

Udaipur (G. Soral)

In today’s global market, a dynamic change is required in accounting and

Lean accounting being a new and emerging concept of accounting, the

The study seeks to conduct empirical analysis of selected Indian

Pursuing a Ph.D. is both, a painful and an enjoyable experience. It is just

Next, I would like to express my special appreciation and thanks to my

A special thanks to my husband Mr. Vinish Arora, whose co-operation,

I extend my sincere thanks to Mr. Aakash Patel, Executive Director,

No research work is accomplished without the help of the library. I

I convey my sincere thanks to Mr. D. P. Sharma, Rt. Sr. English Lecturer,

Besides this, several people have knowingly and unknowingly helped me in

1.2 Comparison between Lean & Traditional

3.2 Benefits of Cell Performance Measurements

3.3 Format for Calculation of Total Value Stream Cost

3.4 Example of a Box Score

3.5 Example of Box Score Using for Evaluating

3.8 Using Box Score in Product Validation

3.9 Using Box Score for Evaluating New Product

4.1 Issue faced by the Waterman Industries Pvt. Ltd.

4.2 Diagnosis Report before Lean implementation

4.3 5S Assessment of Waterman

4.5 Value Stream Performance Measurements for

4.7 Value Stream to Evaluate Value Stream

4.9 Waste Identified in Bhansali Industry

4.10 5S Methodology Applied at Bhansali Industry

4.11 Benefits Achieved by Bhansali Industry

4.12 Waste Identified in Reliance Chemotex Ltd.

4.13 5S Activities in Reliance Chemotex Ltd.

4.14 Cell Performance Measurements for Reliance

5.1 Summarized Results of Lean Effects in Selected

3.1 Maturity Path Levels of Lean Accounting

3.2 Toyota Production System House

3.3 Value Stream Structure for Customer Order

3.4 Cost included in Value Stream Costing

3.5 Formula for Target Cost

3.6 Overview of Target Costing Process

4.1 Process Flowchart of Waterman Industries Pvt. Ltd.

4.2 Current Material Flow Layout of Company

4.3 Revised Plant Layout

4.4 Visual Management in Waterman

4.5 Day-by-the-hour Report using by Waterman

4.6 Value Stream for Customer Order for Waterman

4.7 Manufacturing Process Chart of Bhansali

4.8 Current Layout of Bhansali Industry

4.10 Use of Kanban Card at Bhansali Industry

4.11 Performance Measurement Report of Bhansali

4.13 Visual Management in Reliance Chemotex Ltd.