Integral Operations Finance: An introduction to Lean Accounting

NOTE: Over the last several years, the MACPA has collaborated with The Commons and The Performance Management Institute to develop Integral Operations Finance and Accounting (IOFA) tools and practices, including applying them to support managing the MACPA's performance. We have found that, in parallel to the more than 50 years of IOFA evolution beginning at IBM in the 1950s, there are 100 years of lean manufacturing development. We introduce you to the emerging lean accounting body of practice below.

Accounting has been a finance staple for as long as most can recall. But this has not always been the case in business, particularly in manufacturing. Present managerial and cost accounting methods do not provide the information actually needed in operations. They most definitely do not supply a lean manufacturer with information needed to properly manage flow operations.

The purpose of this series of articles (which will appear regularly in upcoming editions of Business and Industry E-ssentials) is to discuss the failure of traditional cost and managerial accounting methods using both current and historical context, to develop the importance of the relationship between the physical lean enterprise and accounting (or cost management), and to present specific methods and discuss how and why they function effectively for a lean enterprise.

Upcoming articles will provide an overview of flow manufacturing or lean manufacturing, along with an overview of why current managerial accounting methods fail and from where they evolved. Also, a review of performance measures will be presented. These are important parts of operations and significant reasons why management accounting techniques came into common use — particularly standards and overhead allocation. These overviews will create a context to better explain the methods that have been developed to support a lean operation with the information it needs to operate more successfully.

This series of articles will prove (or lean accounting perspectives prove) that traditional cost and managerial accounting does not fulfill the needs of a lean firm and that three main criteria must be established to develop and execute an effective cost management system for the lean enterprise. First is the absolute need to design, implement and establish flow manufacturing as a business practice and method of operation, with emphasis on understanding what is behind the "right-design" of a lean system.

The ideas presented in this series will be presented in a forthcoming book, Lean Cost Management: Accounting for Lean by Establishing Flow, due out in February 2007, and will lead up to the third annual Lean Accounting Summit in Florida in September.

For more information about lean accounting, contact Jim Huntzinger at (317) 813-5415 or jim@leanaccountingsummit.com. For more information on executive finance tools to support lean accounting decision-making, contact Jahn Ballard at the Performance Management Institute, (707) 829-3976 or jballard@financialdashboard.com.

Jim Huntzinger has more than 17 years experience developing lean enterprises through system design and development, implementation and guiding organizations both strategically and tactically through the transformation process. He began his career as a manufacturing engineer with Aisin Seiki (a Toyota Group company and manufacturer of automotive components) when it transplanted to North America to support Toyota. He spent eight years at Briggs & Stratton (a manufacturer of small engines) in a range of engineering and management positions, working to implement and evolve lean into its manufacturing operations and business practices. Huntzinger also spent more than seven years as a manufacturing consultant helping businesses (ranging from huge global corporations to small privately held companies) implement lean tools and strategies for the entire business enterprise. He has broad experience in lean implementation within machining, assembly and fabrication for a wide range of companies and products.

Huntzinger has also researched at length the evolution of manufacturing in the United States with an emphasis on lean's influence and development. He has researched and worked to redeploy TWI (Training Within Industry) within industry and uncovered its tie with the Toyota Way. He is also developing the history of Ford's Highland Park plant and its direct tie to Toyota's business model and methods of operation. Huntzinger graduated from Purdue University with a bachelor's degree in mechanical engineering technology and received a master's degree in engineering management from the Milwaukee School of Engineering.

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