Statements on Management Accounting

BUSINESS PERFORMANCE MANAGEMENT

TITLE

Lean Enterprise
Fundamentals

CREDITS

The IMA would like to acknowledge the work of based, and Dr. Peter Brewer of Miami University and
Dr. Frances A. Kennedy of Clemson University and Brian Jean Cunningham, Business Consultant, who served as
H. Maskell of BMA, Inc., on whose work this SMA is reviewers.

Published by
Copyright © 2006 in the United States
Institute of Management Accountants
of America by Institute of Management
10 Paragon Drive
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Montvale, NJ 07645
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Statements on Management Accounting

BUSINESS PERFORMANCE MANAGEMENT

Lean Enterprise Fundamentals

TABLE OF CONTENTS

I. Introduction . . . . . . . . . . . . . . . . . . . . . 1 Exhibits
II. Scope . . . . . . . . . . . . . . . . . . . . . . . . . 2 Exhibit 1: The Five Principles of Lean
III. Why Implement Lean Processes . . . . . . . .2 Thinking . . . . . . . . . . . . . . . . . . . .4
IV. Framework for Lean Processes . . . . . . . .3 Exhibit 2: Example of Value Stream
Principle 1: Value . . . . . . . . . . . . . . . . .3 Current and Future Maps . . . . . . . .8
Principle 2: Value Stream . . . . . . . . . . .5 Exhibit 3: History of Setup-Time Reduction
Principle 3: Flow and Pull . . . . . . . . . .10 in a Canadian Company . . . . . . . .12
Principle 4: Empowerment . . . . . . . . .13 Exhibit 4: Lean Practices Implementation
Principle 5: Perfection . . . . . . . . . . . .13 Phases . . . . . . . . . . . . . . . . . . . .15
V. Implementation Phases . . . . . . . . . . . . .15 Exhibit 5: Customer-Supplier
Developing a Conceptual Design . . . . .16 Relationships . . . . . . . . . . . . . . .22
Creating an Organizational Structure to
Channel the Value Streams . . . . . . . . .17
Installing Business Systems to
Encourage Lean Thinking . . . . . . . . . .19
Completing the Transformation . . . . . .21
VI. Challenges to Implementing
Lean Production . . . . . . . . . . . . . . . . . .23
VII. The Role of Management Accounting
within Lean Organizations . . . . . . . . . . .26
VIII. Conclusion . . . . . . . . . . . . . . . . . . . . . .28
Glossary
Resource List
 BUSINESS PERFORMANCE MANAGEMENT

I. INTRODUCTION that many diverse manufacturers—Boeing,

The world of manufacturing has reached a turning Porsche, Pratt & Whitney, Danaher Corporation,
point. Reeling from seemingly unending waves of Wiremold Company, Pella Windows, the Genie
change, manufacturing companies and those who Industries division of Terex Corporation, and
advise them have redefined what it means to be Lockheed Martin, to name a few—are imple-
a manufacturer. New rules have been developed menting and modifying for their own purposes.
for inventory policies, plant floor layout, optimal
flow patterns of products through the plant, sup- As lean concepts took hold in manufacturing, a
plier relations, and cost constraints. These new broader realization began to occur. This realiza-
rules have led to new competitive strategies tion is that lean is not something to be “done to
fueled by quantum improvements in throughput, manufacturing,” but it is a way of thinking that
effectiveness, and responsiveness. applies beyond the production floor and can
apply to any and all processes, including the
At the heart of this onslaught of change to the administrative support to manufacturing, new
basic tenets of manufacturing lies the concept of product design, sales & marketing processes,
lean. Being lean is based on three simple but finance & accounting, and corporate offices—
radical concepts: eliminate waste, continuous anywhere there are processes containing waste-
improvement, and respect for people. ful work. Companies in the service sector also
Eliminating waste leads to removal of wasted began to recognize that any product that is the
activities in every aspect of the business. Waste result of a process can be viewed through a lean
is defined as any use of resources that does not lens. Thus the common term “lean production”
in turn create value in the eyes of the customer. is considered too narrow to incorporate the
Continuous improvement is a business culture impact and scope of lean concepts. The term
where the entire workforce of the company is “lean enterprise” more appropriately describes a
involved daily in making beneficial changes to way of thinking about manufacturing, service,
the operation that increases customer value. and support processes that is now used increas-
Respect for people runs counter to the typical ingly across a wide variety of companies and
business culture of command and control man- product offerings. Service-oriented companies
agement, where all changes are largely driven that employ lean practices include Bank of
from the top through middle managers, and America, Park Nicollet Health Services in
lower-level employees are expected just to do as Minneapolis, Minn., Jefferson Pilot Financial
they are told. In lean organizations, everyone in (Insurance), and Fujitsu Services (Technical Help
the organization is involved in continuous Desk Services).
improvement and waste reduction, and employ-
ees are assured that improved productivity will Many opportunities exist to improve operations
not result in job losses. performance in manufacturing, services, educa-
tion, healthcare, and financial services through
Invented by Toyota, lean production is rapidly the use of lean concepts that identify and elimi-
becoming the dominant paradigm in manufactur- nate waste. These improvements benefit all of
ing, driving many of the performance improve- the stakeholders of the organization, from the
ments now taking place around the world. The shareholders who provide capital to the cus-
Toyota production system has become a model tomers who buy its goods and services. Society

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also benefits as the waste traditionally embed- als with a basic understanding of lean process-
ded in the operating processes is removed, free- es and its applicability to their organization and
ing up scarce resources for other uses. Lean its unique challenges. Greater detail on account-
manufacturing and other lean methods are the ing for lean processes may be found in two sep-
key to unleashing these improvements. arate SMAs. Additional resources on lean funda-
mentals are provided at the end of this SMA.
II. SCOPE
This Statement on Management Accounting III. WHY IMPLEMENT LEAN
(SMA) is addressed to financial professionals PROCESSES
and others who may lead or participate in efforts Lean processes provide a way to do more with
to implement lean concepts and processes in less—less human effort, less equipment, less
their organizations. The concept discussed in time, and less space—while coming closer and
this document apply to: closer to providing customers with exactly what
● large and small organizations; they want, when they want it, where they want it,
● enterprises in the manufacturing and services and at a price that meets their cost/value
industries; and expectations.
● public and private ownership.
After years of benchmarking and observation in
The information in this SMA will help financial organizations around the world, Womack and
professionals and others: Jones have found that converting a classic
● comprehend the underlying principles of lean batch-and-queue production system to lean pro-
production and lean thinking; duction helps an organization achieve the follow-
● understand the various elements of lean oper- ing results for manufacturing:
ational systems; ● Labor productivity is doubled all the way
● determine the uses and benefits of lean oper- through the system for direct, managerial, and
ations for their own organizations; technical workers and from raw materials to
● learn about core tools and techniques to delivered product. At the same time, produc-
improve the effectiveness of lean practices; tion throughput times are cut by up to 90%
● introduce the roles and responsibilities of with a subsequent reduction in inventory in the
financial professionals in lean enterprise system by up to 90% as well.
implementation projects; ● Errors reaching the customer and scrap within
● understand the key obstacles in implementing the production process are typically cut in half,
lean concepts; and as are job-related injuries and other undesirable
● broaden employee awareness and obtain their side-effects of a nonlean production process.
buy-in for lean processes and techniques. ● Time-to-market for new products is often
halved, meaning that a wider variety of prod-
While this SMA cannot provide comprehensive ucts within product families can be offered at
knowledge of these concepts, the information in very modest additional cost.
this document serves as a starting point in the ● The capital investments required to implement
exploration and implementation of lean con- the lean approach are very modest, even neg-
cepts. The discussion will illustrate core ideas ative, if facilities and equipment can be freed
and provide finance and operations profession- up and sold.

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● Organizations that have completed the radical are actually sophisticated practices built around
realignment of their processes can typically several key conceptual and physical tools.
double productivity again through incremental
improvements to the product and process with- Implementing lean concepts means breaking old
in two to three years, with a similar reduction patterns and installing new ones. To accomplish
1
in inventories, errors, and lead times. this, an organization needs a whole new set of
tools and a framework for applying them. Lean
Similarly, Swank describes the lean transforma- processes merge several elements to form an
tion of Jefferson Pilot Financial and offers the fol- integrated whole, which aligns the various parts
lowing results for the financial services company: of an organization to make a change of great
● 70% reduction in turnaround time from receipt magnitude.
of applications to issuance of policy;
● Reduced application processing labor by 26%; Derived from Womack and Jones, the five principles
and of lean processes provide a framework for the lean
3
● Reduced reissues due to processing errors by enterprise (Exhibit 1). These principles are:
2
40%. ● Value;
● Value Stream;
While the identified performance improvements ● Flow and Pull;
should be more than enough justification for why ● Empowerment; and
a company should implement lean processes, ● Perfection.
one more reason exists: Global competition
requires the high-quality, low-cost products and Principle #1: Value
services that only lean processes can provide. Lean starts with a definition of what constitutes
An organization that fails to become flexible, value from the customer’s standpoint in terms of
responsive, and effective in every area of its the features and characteristics of the compa-
operations will not be able to compete with the ny’s product, services, and other attributes.
lean enterprise. Becoming a lean producer is not Customer focus and leadership are two key ele-
an option—it is a requirement for survival in the ments of the value principle.
customer-driven global economy.
Customer focus
I V. F R A M E W O R K F O R L E A N Customer focus refers to feedback processing
PROCESSES methods that inform an organization what cus-
A mass production company cannot become a tomers want and ensure that it is delivered.
lean one overnight; a rushed and superficial man- Improving performance against customer
agement effort will not yield the desired result. To requirements is the driving force behind lean pro-
support lean processes, management must duction. Customers define both the beginning
build, nurture, and support the logic and machin- and end of the operational cycle, setting perfor-
ery that drive lean production. Lean processes mance requirements and prices based on the
amount of value embedded within a product/
service bundle delivered by the entire supply

1 Womack and Jones, 1996. 3 The principles have been modified from Womack and
Jones’ original five by the inclusion of “respect for people”
2 Swank, October 2003: 123-129. through empowerment.

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EXHIBIT 1. THE FIVE PRINCIPLES OF LEAN THINKING

Value
Value Flow
Flow
&
& Pull
Value
Stream
Stream
Empowered
Empowered Perfection
People
People

chain. For instance, Case Corporation used organize their products—both physical products
extensive customer input in the design of its and service products—so they are made avail-
most recent tractor line. This input was used to able when the customer requires them. Lean
focus the design team, ensuring that minimal companies refer to takt time; the rate of demand
resources were wasted in the pursuit of product from the customers. If a product has a one-hour
options that provided little incremental value to takt time, this means that (on average) the cus-
customers. Some features, such as the type of tomers need one per hour throughout the work-
seat used, were ultimately driven by customer ing day. The significance of takt time is that lean
input as ergonomics were used to address organizations establish their processes so that
customer-defined needs. products and services are made or provided at
the same rate as the customer is requiring (or
Lean companies speak of the “voice of the cus- pulling) the products. This takt time applies not
tomer” as the driver of everything they do. This just to the primary processes but all support
differentiates lean organizations from their tradi- processes, including order entry, engineering,
tional counterparts. It is common to find tradi- purchasing, scheduling, and so forth.
tional manufacturers and service providers that
implement some lean methods. It is rare to find Lean companies work cooperatively with their
such companies truly embracing customer value customers. Creating high levels of value often
as their yardstick. These companies often con- requires close relationships with the customers.
tinue to focus on stock-price and short-term prof- Value is often added more by the additional ser-
itability. Lasting success for a lean enterprise vices and close cooperation than by the attrib-
requires a primary focus on the value created for utes of the products themselves. For example,
the customers. Parker Hannifin Climate Systems Division (CSD)
in New Haven, Ind., significantly increased sales
In lean organizations, customer demand sets the to one of their major air-conditioner customers
pace of demand fulfillment. Lean companies by providing services to deliver their own prod-

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ucts—air-conditioner valves and regulators—in Principle #2: Value Stream

kits directly to the production line. These kits are A value stream consists of all the activities
pulled daily with very short lead times and in the required to create customer value for a product
sequence required by the assembly line. The kits family or service offering. In manufacturing this
contain parts made by CSD and parts made by would include all the processes needed from
other companies—including their competitors. selling the product and taking a customer order
These logistics (and other additional services) through making and delivering a product to col-
create so much value for their customer that lecting the cash. There are also value streams
both companies profit enormously by the that create customer value by designing new
arrangement. products, from idea to concept to completed
design ready for production. Lean organizations
Lean concepts let the customers pull the prod- carefully identify their value streams and orga-
uct as needed rather than pushing products onto nize their operations to maximize the value cre-
the customer. Dramatic reductions in setup time ated for the customer and minimize the waste in
provide reductions in lot size and inventory levels these processes.
as well as production lead time, so the factory is
flexible enough to respond to changing market Normally, production value streams are defined
demand. The goal of customer focus is zero cus- by a group of related products that employ the
tomer dissatisfaction. same process steps. Traditional organizations
focus on optimizing units rather than the whole
Leadership organization. Value stream management seeks
Leadership is the management team’s ability to to redefine the operating unit into a group of
translate customer requirements into concrete comprehensive value streams. It requires reor-
policies, organizational structures, and produc- ganization into value stream teams, fostering a
tion strengths. In the pursuit of competitive culture for continuous improvement, mapping
advantage, an organization must be able to target current and future states, and reconfiguring into
its improvement and waste elimination efforts. work cells to speed up the flow.
There must be some scheme for putting priorities
on where to expend time, effort, and resources in Value streams are extended (as far as possible)
improvement and waste reduction efforts. The to include all the support processes. For exam-
relationship of leadership to value creation is crit- ple, a company manufacturing electric motors for
ical in providing direction and support for overall OEM customers includes sales and marketing,
company development, improvement in cost, purchasing, customer service, design engineer-
quality, speed, and innovation. Lean producers ing, materials handling, equipment maintenance,
have the ability to adapt creatively to challenges. and other processes in the value stream organi-
The success of lean companies such as Toyota, zation. This enables a team focused on creating
Hewlett-Packard, and Dell is founded on their abil- value for the customer, eliminating waste, and
ity to renew themselves again and again as they growing their part of the business.
skillfully face the changes that inevitably come
their way. The goal of leadership in a lean produc- Value streams in service industries are set up
tion organization is zero misalignment between similarly. Take the process of obtaining a person-
strategy and human resources. al mortgage from a bank. The process in a tradi-

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tional bank will pass through many departments and services provided to the customer for the
and will often be required to travel to more than range of products contained within his/her value
one office building. This process leads to delays, stream. All the processes required for the sales
waste, and a feeling on our part that we are order, production and delivery of the product or
being treated as a problem rather than a valued service, and collection of cash are organized
customer. A lean organization brings together all under one value stream manager who takes an
of the tasks required for mortgage processing entrepreneurial role. In reality, it is often impos-
into a single customer-focused and cross-trained sible—in the short term—to create a “perfect”
team. This leads to fast response, much less value stream organization that includes unim-
waste, and a customer that is genuinely served. peded linkage between all the processes; but
that is the objective of a lean value stream
Lean Organization organization.
In traditional organizations, problems often exist
at organizational boundaries. This is because Improvement Culture
each organization focuses on optimizing its Lean producers equip teams and individual
self-interest rather than trying to optimize the employees to analyze strategic gaps and quality
total organizational needs. Typical symptoms of problems to find root causes and then conceive,
this are accumulated inventories on the shop implement, and standardize effective solutions.
floor and piles of paperwork in the office, both of Searching for the root cause of a defect or prob-
which indicate a lack of communication, coordi- lem is an integral part of lean production. The key
nation, and cooperation. In contrast, lean pro- to discovering and eliminating defects is self-
ducers are process oriented and customer con- inspection procedures that give accurate and
scious. To that end, lean producers restructure timely information about causes of defects.
jobs to put workers in contact with their cus- Everybody is responsible for perfect quality within
tomers and suppliers, whether internal or exter- their own work, whether this is perfect production,
nal to the company. Lean organizations eliminate perfect invoicing, perfect order entry, and so on.
bureaucracy, minimize overhead, and promote
responsiveness to market conditions. Senior Self inspection can take many forms. The most
management no longer presumes to regulate the basic approach is to include an inspection step
minute details of functional relationships. into the process, but poka-yoke (mistake proof-
Instead senior management identifies issues ing the process), jidoka (responsive processes
that require cross-functional communication and alerting variations), and statistical process con-
cooperation, choose team members from the trol (SPC) are more sophisticated lean methods
functions concerned, and gives the teams power The lean requirement for single-piece flow is also
to inform and even to act on behalf of the com- helpful because single-piece flow and self-
pany as a whole. The goal of a lean production inspection ensures that problems are identified
organization is continuous improvement focused on the first occurrence and can be eliminated
on the customer. before the error affects another product or docu-
ment in the process. While fixing errors at the
The role of the value stream manager (VSM) is source may initially appear to be an inefficient
very important in lean organization. The VSM is response, it actually improves the effectiveness
responsible for the entire flow of the products of the entire production process. It is easier and

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cheaper to detect and correct a problem at its The key elements of lean production provide a
source than to undertake all the activities and structured system for analyzing an organization’s
costs required to fix an upstream problem with capabilities to determine which might provide a
downstream effort. The further along in the pro- basis for competition in marketplaces. For each
duction process the problem is found, the more quarterly or annual improvement cycle, lean
cost and effort are added. Waste grows exponen- organizations select two or three critical ele-
tially in this setting. ments as the target for their focused efforts. The
initial value mapping serves as a baseline for
At Hewlett-Packard, the lean production view of later rounds of improvement. Exhibit 2 illustrates
defects—to never pass them on to the next per- current and future state value stream maps for
son in line—can lead to the shutting down of a the Customer Order Processing part of an order
line when a major problem is detected. The vari- fulfillment value stream.
ous lines are linked into a smooth, uninterrupted
flow, and the operators are expected to stop the Work Cells
process when they detect a defect. The defects As a product-oriented layout is developed and
are not sorted out for later attention. They are operators become capable of handling multiple
addressed and rectified. processes, organizing the layout in a U-shaped
form or work cell often becomes the least waste-
Mapping Value Streams ful production method. Cellular manufacturing is
A value stream is the set of all the specific manufacturing done in a work cell. A work cell is
actions required to bring a specific product a group of dissimilar operations formed to pro-
(whether a good, service, or combination) from duce a product family. Benefits of cellular manu-
concept to launch (new product development facturing, including high quality and efficiency,
value stream) or from order to delivery into the result from the work cell’s lack of material move-
hands of the customer, and collecting the cash ment, small batches, quality at source, flexibility,
(order fulfillment value stream). Value stream and self-correcting processes. Workers and
mapping is a technique that assists the visuali- equipment are clustered together and dedicated
zation of the entire process, documenting time, to producing a family of outputs on a repetitive
waste, and cost. The objective of value stream basis. Flexibility is also a benefit since it is easy
mapping is to find waste, quantify throughput for work cells to change product volume and the
time, determine value-added ratio, and provide kind of product produced. The output rate of a
baseline for a future state map. It is a method work cell is easily modified by changing the num-
for helping the value stream team and senior ber of workers and machines, and a work cell
management understand the company’s level of can efficiently produce output for virtually any
attainment in the key elements of lean produc- batch size, even one. A work cell can produce all
tion development. The knowledge gained through the items in a product family; some can even
this approach supplements the executives’ gen- produce multiple product families. By linking
eral understanding of the company’s core capa- work cells, it is possible to produce complex
bilities. It clarifies areas of strength as well as end-items. The goal in cellular or work-cell man-
weaknesses that must be addressed in a lean ufacturing within a lean production system is to
enterprise.

7
 Customer Order Process
Current State Map Customer: Petroleum ,
Customer : Petroleum,
Aeronautical Companies
Aeronautical Companies

Expectations: Orders
Expectations : Orders
processed within
processed within 11day
day

3x Daily
1x Daily

Phone Orders
Schedule (Expedites )
8:00; 11:00; Order
3: 00 Acknowledgements

Faxed Orders

Central Mail Check Part Central Mail

8 hrs Sales Mail Sort 4 hrs 4 hrs 2 hrs Assign 1 hrs Verify Order 4 hrs Sales Mail Sort 4 hrs 8 hrs
Room Initiate Order Num bers Sort
Delivery Date
Sort by Verify Part #
Review Order
Sort Orders /5s Sort/ 30s Post /302
Customer /5s Keys order in /10 s pl Assign Delivery
15s
Place in Out Computer Date /30 s pl
Date Stamp / 2s Attach Revisions /
Box /5s 45s pl 10 s pl
Place in Cust Returned F ile Hard Copy
Sort by
Rep Folders / Work /4m 15 m
Custom er /10 s pl
10s Expedite
Order /10m Check Part
Num bers / 15 s pl

Establish Price
60 s pl
480 240 240 120 60 240 240 480

. 16 .28 11.25 23.75 .9 3.75 5 5

BASELINE
BASELINE DATA
DATA:: Exception
Total Order
Total Orderlead
LeadTime
Time= 2149. 19 min or
= 2149.19 min days
4. 5or 4.5 days Processing
Total Order Cycle Time = 49. 19 min
Total Order Cycle Time = 49.19 min
Value Added Percent = 2.3% ( 2149. 19/ 49.19)
Value Added Percent = 2.3% (2149.19/49.19)
s = seconds Electronic Hand Queue
Mail Customer Kaizen
Pl = per line item Process Delivery Time
EXHIBIT 2. EXAMPLES OF VALUE STREAM CURRENT AND FUTURE STATE MAPS

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BUSINESS PERFORMANCE MANAGEMENT
 Customer Order Process
Future State Map Customer: Petroleum ,
Customer : Petroleum,
Aeronautical Companies
Aeronautical Companies

Expectations: Orders
Expectations : Orders
processed within
processed day
within 11 day

3x Daily
Phone 1x Daily
E -mail
Schedule Orders
Acknowledgements
(Expedites )
8: 00; 11:00;
3: 00

Kanban
Order
Schedule
Faxed Acknowledgements
Orders Load every 2
hrs

Central Mail Customer Service

Room Supervisor
Order Processing Cell
Sort Orders / Keys order in
5s Runner Computer /1m
Kanban
3x Daily

U-
Standard
Shaped Central Mail
Work
Cell Sort
Process 3 Workers : 40. 9 m Cycle Time
Runner 5m
4x Daily
Kanban Exception
Folders Processing

Kanban .25 Worker

145 min / day

15 120 120

. 16 1 40.9 5

Exception
Processing
BASELINE
Proposed:DATA:
Total
TotalOrder
OrderLead
leadTime
Time =297.56
= 297.56min hours
minoror55hours Queue
s = seconds Electronic Hand Mail Customer Kaizen
Total
TotalOrder
OrderCycle
CycleTime
Time == 42.56
42.56min
min Pl = per line item Process Delivery Time
Value
ValueAdded
AddedPercent
Percent ==14.
14.3%
3% ( (42.56/297 56)
42. 56/297..56)
EXHIBIT 2. EXAMPLES OF VALUE STREAM CURRENT AND FUTURE STATE MAPS

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BUSINESS PERFORMANCE MANAGEMENT
 BUSINESS PERFORMANCE MANAGEMENT

produce at the rate of customer demand without steps and transactions are removed, increasing
excess motion, materials, inventory, time, or the responsiveness and flexibility of the supply
other waste. chain.

Cells are designed so they can manufacture at a For example, in a baked goods company, cost
cycle time that matches the takt time of cus- was reduced and quality improved when the com-
tomer demand. Similarly retail, banking, insur- pany realized that the chocolate supplier could
ance, and medical processes are designed to ship liquid chocolate rather than chocolate bars.
meet the demand of the customers. The supplier was incurring extra cost, time, and
effort turning the liquid chocolate into bars,
Principle #3: Flow and Pull which then had to be melted by the baked goods
Lean organizations seek to maximize the flow of company for use in its products. Coordination
materials, information, and cash. The production across the value chain removed cost from the
process is designed to maximize the flow of the total process and improved the performance of
product through the value stream, initiated by the two affected organizations.
the pull of customer demand. A smooth flow
necessitates partnering with customers and sup- Lean producers also apply partnering to employ-
pliers, single-piece flow production, setup time ees. Lean producers develop a mutual trust and
reduction, pull production system, and a goal of a shared understanding of the business as the
perfection. Lean administrative processes are way to achieve co-destiny with employees.
designed to similarly maximize the flow of infor- Employees are the people who do the improve-
mation and cash using the same tools of flow, ment work irrespective of hierarchy or functional
setup reduction, pull processes, and perfection position. Lean producers extend the involvement
goals. of employees from shop floor to strategic plan-
ning. Through employee involvement at the
Partnering shop-floor level, senior managers learn in detail
Effective lean production requires the effective about their operating conditions and acquire cre-
deployment of a set of cooperative, trust-based ative insights for improvement. Employee
relationships between employees and suppliers. involvement in strategic planning works in much
Instead of maintaining an arms-length contractu- the same way. It helps senior managers gather
al relationship with suppliers, lean manufactur- detailed information about the company’s overall
ers think of suppliers as an extension of the fac- strategic condition from the frontline sources.
tory or office. All the steps taken along the value Likewise, it permits a company to capture inno-
stream are transparent so each participant can vative ideas from individuals throughout the
verify that the other organizations are behaving organization, ideas that may be developed into
in accordance with the agreed principles and strategic advantages in the future. The goal of
objectives. Partnering allows a company to partnering in a lean production environment is
extend the knowledge and gains of lead produc- zero stakeholder dissatisfaction.
tion to the entire flow of materials and products,
from the raw materials to the final goods in cus- Single-Piece Flow Production
tomers’ hands. As the linkages between trading Lot sizing affects manufacturing competitive
partners are improved, waste from unnecessary advantage because it influences the cost, quali-

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ty, lead time, and flexibility of manufacturing. other lean improvements—halved the total time
Traditionally, U.S. managers favored larger lot for the procedures, more than doubled the num-
sizes—primarily because of the large expense ber of procedures per day, and enabled the doc-
associated with setting up production, placing tors to spend 15 minutes with each patient
orders, and making deliveries. The drawback of instead of less than 10 minutes. Better service,
large lot sizes is that even when they minimize lower cost, much fewer errors, and less waste;
dollar costs, they lead to greater nondollar costs this is what lean service processes look like.
associated with increased production lead
times, hidden defects, and reduced scheduling Setup-Time Reduction
flexibility. Lean production acknowledges the Simplified setup and reduced setup time permit
problems and wastes connected with using large reduced-lot-size production and result in
lot sizes. Small-lot production is achieved by giv- increased production capacity, flexibility, and
ing more purchasing responsibility to shop-floor resource utilization, as well as improved product
workers, by reorganizing the facility layout to quality and customer satisfaction. Although
reduce material transfer distances and cost, by setup procedures vary widely with type of equip-
locating materials at the point of use, and by ment and equipment application, the methodolo-
working with suppliers to find ways to increase gy to improve setups developed by Shingo, called
the frequency of deliveries, reduce the need for single-minute exchange of dies (SMED), can be
incoming inspection, and reduce the costs of applied to virtually any setup procedure. The prin-
handling, purchasing, and transportation. To the cipal objective of improvement is to reduce the
extent that large lot sizes and buffer stocks are internal setup time—that is, the setup time dur-
maintained to absorb process variability and ing which the machine or operation must be
allow continued production in the face of prob- stopped. Setup-time reduction is one of the most
lems, lot-size and buffer-stock reduction is a sig- important foundations of lean production. Exhibit
nificant enabler of lean production. The goal of 3 shows setup improvements in a Canadian
small-lot production in a lean production environ- automotive company.
ment is to eliminate nonvalue work.
It originally took four different skilled trade per-
Similar methods are also adopted in administra- sonnel 14 hours or more to carry out a rather
tive and service value streams. Processes such complicated setup operation. Communication
as order taking, purchasing, accounts payable among the personnel was considered a big prob-
check runs, and invoicing are done one at a time lem. When, as an experiment, everybody involved
instead of being delayed and completed in one in the setup was present at the machine, howev-
large batch. A Minneapolis hospital significantly er, the setup was completed in three hours and
reduced the amount of time it takes for their 45 minutes. After holding one brainstorming ses-
patients to complete endoscopic tests by sched- sion and developing better communication, the
uling their arrival times in 10 minute increments people involved reduced the average setup time
instead of hourly. When patients were scheduled by almost 10 hours within one month. The goal
hourly they had to wait an average of 30 minutes of setup-time reduction in a lean production sys-
for their procedure. By scheduling in 10 minute tem is to eliminate nonvalue-adding work.
increments the average wait time fell to five min-
utes. This change—together with a number of

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 BUSINESS PERFORMANCE MANAGEMENT

EXHIBIT 3. HISTORY OF SETUP-TIME REDUCTION IN A CANADIAN COMPANY

Source: Suzaki, 1987: 35.

Pull-Production System requests; in effect, material is pulled through the

At one time, manufacturers could offer a single process by each stage, producing only what is
product of a standardized size and shape. But demanded of it from the next stage. This con-
with increased world competition and diversified trasts to push production wherein every stage
user needs, a manufacturer’s ability to respond produces according to a preplanned schedule
quickly to the market can become an issue of then pushes material to the next stage, whether
survival. Turning to the final assembly line where that next stage is ready for it or not. Pull produc-
the finished goods come out, one still finds that tion requires a shift for production control to
many such lines all over the world operate in a worker teams. The goal of pull production sys-
fashion similar to batch-processing machines. tems in lean production is to eliminate
The same kind of product may be produced for a nonvalue-adding work.
day, a week, or longer before the next product
comes out. To keep materials moving smoothly, Lean Equipment Management
organizations hold enough inventory between the One of the outcomes of lean production is the
stages of the process to buffer against any prob- recognition that reliability is an essential ele-
lems. In contrast, pull production is a way of con- ment of a stable, effective flow. Total preventa-
trolling a process and reacting quickly to tive maintenance (TPM) or the scheduled analy-
changes without relying on inventory. In a pull sis, repair, and adjustment of machines are used
system, each stage of a process produces exact- to reduce the risk of unscheduled downtime.
ly what the immediate downstream stage Unplanned work stoppages due to machine prob-

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 BUSINESS PERFORMANCE MANAGEMENT

lems are always an issue of concern, but when ing on the nature of the project. A multidiscipli-
every process in a facility is linked in a lean sys- nary team approach often helps in dealing with
tem, the impact of unplanned downtime ripples cross-functional problems.
through the entire facility. The cost and produc-
tivity impacts of unplanned downtime are so Empowerment is not used for purely altruistic
large that a significant investment in preventing purposes. There is so much change required to
these problems can be justified. Machines are transform an organization to lean that everyone
maintained to achieve a 100% on-demand utiliza- must be engaged in concerted continuous
tion rate for immediate use as required by the improvement. Lean organizations recognize that
next process. Having zero machine troubles is the process experts are very often the people
achieved effectively by involving operators in who perform the processes. To get the fastest
maintaining normal machine operating condi- and most effective improvement, the company
tions, detecting abnormal machine conditions as must engage these people’s talents and ideas.
early as possible, and developing countermea- For many companies this leads—over time—to a
sures to regain normal machine conditions. TPM radical change in management style: from com-
represents a commitment to equipment perfor- mand and control to empowered teams.
mance beyond original equipment design param-
eters and a move to make equipment a source For empowerment to be effective, the team mem-
of competitive advantage. One goal of TPM in bers must have a clear picture of the company’s
lean production is zero breakdowns and the vir- goals and strategies. There must be alignment
tual elimination of equipment malfunction and of purpose. The team members must also be
equipment-related sources of product defects. A well trained and educated in their own process-
second goal is equipment restoration and es, in lean principles and methods, and standard
redesign so that equipment performs better than improvement methodologies. Third, the people
new and in ways competitors’ equipment cannot. must be empowered to make the changes
required to improve their processes, create more
Principle #4: Empowerment value, and eliminate waste. Fourth, the team
Empowerment involves the system of measure- must be accountable for their activities, often
ments and controls that provides each employee using ongoing measurements and periodic
with the information and authority to take neces- reviews.
sary action at the time it is required so as to add
value for the customer and eliminate waste from By definition lean processes can never be com-
the process. pletely mastered. A true world-class competitor
will always strive to improve, refine, and surpass
Empowerment today’s achievements. The zero-waste goal of
The involvement of line and shop-floor workers is each key element is continuously moving on.
fundamental to lean production initiatives. For
this reason, companies should elicit and listen Principle #5: Perfection
to workers’ ideas about improvement and The pursuit of perfection is fundamental to lean
empower them to make more decisions and per- thinking. The objective is not to make sporadic
form tasks that are improvement related. The leaps of improvement to overtake a competitor in
people involved in the project may vary depend- the marketplace. The purpose is for everyone in

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 BUSINESS PERFORMANCE MANAGEMENT

the organization to focus on making incremental a response-horizontal decision-making system;

improvement in their own processes day in and ● motivate workers and managers through visu-
day out. While few of these improvements will sig- al information and involvement;
nificantly change the process, the collective effect ● identify and eliminate waste;
of these changes is radical improvement in quali- ● measure what is important to customers;
ty, cost, service, flow, and customer value. The ● accelerate organizational learning and accept-
goal is nothing less than perfection. Everyone real- ance of change in customer expectations; and
izes that perfection is unlikely to be achieved; but ● translate company flexibility into specific
that is the goal. This is very different from the tra- measurements.
ditional company’s attempts to balance their
objectives using such tools as economic order Standard Operations
quantities or inventory rationalization. Without standard operations, improvement
potential is very limited. Things will fall back into
The goal of lean processes is zero waste, zero lost a chaotic state. Standard operations are the
information, and zero defects. It is critical that work procedures, sequences of tasks, and times
workers receive information concerning customer prescribed for production of a unit of output. The
requirements and current process performance in main elements of standard operations are the
order to strive for perfection. Information architec- standard completion time per unit, standard
ture and standard operating procedures are key to operations routine, and standard WIP. The com-
providing necessary information. pletion time per unit is the average time required
to complete a task or an operation (group of
Information Architecture tasks). A group of operations combined in a par-
Lean processes necessitate the creation of a ticular, prescribed sequence is the standard
framework that supports a team-based lean orga- operations procedures (SOP). The standard WIP
nization and distributes information efficiently. is the minimum in-process inventory necessary
Architectural features include improvement- for a process to function effectively. All informa-
oriented performance measures and management tion about completion times per unit, the opera-
accounting systems as well as the use of visual tions routine, and standard WIP is summarized
control techniques such as hand-posted measure- on a standard operations sheet (SOS). The SOS
ment boards or lighted electronic displays. These is prominently displayed so workers at each
boards, which are visible from every workstation, operation and work cell can readily refer to it.
show hourly production targets, takt-time achieved, Standard operations serve vital functions in lean
equipment breakdowns, personnel shortages, and production. They are essential for communicat-
overtime requirements. Information architectures ing and teaching standard times and proce-
are tied to improvements in cost, quality, delivery, dures, and they give planners and schedulers
product-development innovation and lead times, accurate, up-to-date information about cycle
and process flexibility. Specifically, lean production times and operations capacity.
information architectures seek to achieve the
following: Standard operations and standardized work is
● link daily operations to strategic objectives; similarly essential for lean administrative
● provide visual management; processes. Visual work instruction and standard
● balance financial with nonfinancial measures; process flows are commonly used. Visual perfor-
● transform the organization from a rigid-vertical to mance measurement boards and posted contin-

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 BUSINESS PERFORMANCE MANAGEMENT

uous improvement projects provide control and zation’s implementation plan will likely include
motivate ongoing analysis of problems leading to most of or all four phases outlined in Exhibit 4,
waste reduction, improved productivity, and although not necessarily in the exact order pre-
faster, better service to the customers. sented. Keep in mind, the four basic steps to
Improvement cannot be sustained without visual lean production implementation are:
standardized work, and additional improvement ● developing a conceptual design;
cannot be made without a clear understanding of ● creating an organizational structure to channel
the “current state.” the value streams;
● installing business systems to encourage lean
V. I M P L E M E N TAT I O N P H A S E S thinking; and
By examining successful lean production trans- ● completing the transformation.
formations across the world, a specific
sequence of steps and initiatives can be identi- While organizations can modify the sequence
fied that produce the best results. This and emphasis placed on these phases to meet
sequence has four key phases. These four phas- the needs of a particular situation, these activi-
es represent a standard work plan, a framework ties are recommended as a guide for implement-
for training, and a basic structure for the imple- ing lean-production-based initiatives. Exhibit 4
mentation of lean production. While each lean exemplifies phases and activities typical of lean
production implementation is unique, an organi- practices implementation.

EXHIBIT 4. LEAN PRACTICES IMPLEMENTATION PHASES

Phase Steps

Developing a conceptual design Confirm objectives and scope

Find burning platform
Map value streams

Creating a new organization to channel the value stream Reorganize by product family and value stream
Create a lean business function
Devise a policy for excess people
Develop a growth strategy
Instill a “perfection” mindset

Installing a business system to encourage lean thinking Introduce lean management accounting
Implement transparency
Deploy right-sized machines

Completing the transformation Apply these steps to suppliers and customers

Make transition from top-down to bottom-up
improvement initiatives

Source: adapted from Womack and Jones, 1996: 270.

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 BUSINESS PERFORMANCE MANAGEMENT

Developing a Conceptual Design team members then work with the people who
work directly for them to develop Hoshin charts
During the first six months of implementation, for each aspect of their responsibilities, and the
the typical objectives of the lean production ini- primary objectives are moved down to the third
tiative are to ensure that a sound design and level of the organization. Unlike MBO, these
focus for the effort are developed and communi- goals are not imposed on the managers. The
cated to key stakeholders. Steps that must be development of the Hoshin charts is a collabora-
completed at this stage include: tive process using what is called catch-ball. The
● confirming objectives and scope of the project; managers “tosses the ball” to the next person
● creating the “burning platform”; and who reviews and makes changes to the plan. The
● organizing and educating value stream teams. “ball” is then tossed back to the manager who
reviews it again and tosses it back. This contin-
Confirming Objectives and Scope of the ues until both a consensus is reached. The
Lean Transformation Process “ball” is also tossed to other related managers
Lean organizations use Hoshin Strategy who are developing their own plans to ensure
Deployment to drive the strategic goals of the that each person’s plans are consistent with oth-
company into daily reality. Hoshin was developed ers in their area. This process continues until
by Japanese companies in the 20th century from there is full agreement among the people.
a platform of management by objectives (MBO).
These companies recognized the power of coor- While the process may take some time to com-
dination through MBO but also recognized that plete, the outcome for each person is a Hoshin
the weakness of MBO was its top-down chart that details the changes he/she is respon-
approach. Hoshin combines the cross-company sible for over the next 12 months. These respon-
coordination of MBO with a collaborative devel- sibilities have been built up—within the frame-
opment method that creates consensus and work of the company’s overall goals—by a highly
commitment rather than imposing manage- cooperative and collaborative process. The out-
ment’s goals onto people. come of this process is:
● a clearly defined set of tasks and goals for
The Hoshin process starts at the top of the com- each part of the company;
pany as a direct outcome of strategic planning. ● the people responsible for the achievement of
The senior executives determine the three or four these tasks are fully committed to their
primary breakthrough goals for the company this achievement; and
year and document these goals onto formal ● appropriate resources have been made avail-
charts that are a key method for the communica- able to ensure the success of these
tion of Hoshin planning throughout the company. improvements.

The primary objectives are developed by the sen- The Hoshin planning process is rolled down to
ior management team. Each of these team mem- the value streams, and the value stream man-
bers then develops Hoshin charts for his/her agers are typically the people to develop the
own area of responsibility. These charts trans- lowest-level Hoshin chart, although the process
late the primary goals into specific actions and may go to lower levels if the value stream is large
goals within each team member’s area. The and covers diverse processes. Other nonvalue-

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 BUSINESS PERFORMANCE MANAGEMENT

stream departments may also have their own introduced in the unit, the leaders of other units
Hoshin charts. can be invited over for hands-on learning and can
take ideas back to their units. The selection of
The final outcome of the Hoshin process is a this “pilot” area is important. The pilot must be
company that is thoroughly aligned to the a significant part of the business so that the
achievement of lean (and other) changes lean changes strike at the heart of the compa-
throughout the company and people who are ny’s problems. If an “easy” area is selected, the
committed to the achievement of these changes changes will not have the desired impact on the
owing to their participation in the development of organization; others can ignore it and get on with
the plan. business as usual.

Many successful lean organizations establish Even if no subunit of the organization is in crisis,
audacious goals for improvement. The Wiremold there may be an opportunity for dramatic change
Company set the following goals: if a lean competitor can be found. For example,
● 100% customer service; a small business unit of a key competitor may
● 50% reduction in defects every year; have made the transition to lean production with
● 20% productivity gain every year; striking results. By focusing on this instance of
● 20x inventory turns; superior practice it may be possible to introduce
● 20% profit sharing; significant change. Another common example for
● visual controls and 5S; and a growing company is the opportunity to meet
4
● double in size every three to five years. the growth need with existing resources to
improve profit position.
Creating the “Burning Platform”
It is difficult to find an organization that is willing As momentum is gained, the scope of the lean
to take the necessary steps to adopt lean think- initiative is typically expanded. Running counter
ing across the board in a short period of time. to most project management beliefs, this expan-
How can a change agent take a seemingly sion of scope allows the benefits of integration
secure organization (for example, Microsoft in of solutions and approach to take place from the
the 1990s) and introduce lean thinking? onset. This helps reduce costly rework down-
stream and ensures that a systems solution is
One approach is to take some subunit of the pursued.
organization that is in crisis and focus all the
energies on applying lean remedies to it. Ideally, Creating an Organizational Structure to
this would be a business unit with a set of prod- Channel the Value Streams
uct families, but it could be a single plant, one As the conceptual design is completed, attention
product development group, or even one product turns to creating a new organizational structure
line in a plant or one development team for a that will allow the objectives of the lean design
specific product. This is also the way leaders to be attained. Taking place from six months into
who are not near the top of their organization can the project through year two, the key objectives
take the lead on a lean breakthrough: apply lean of this phase include:
thinking to their own troubled business unit or ● reorganizing by product line and value stream;
facility. Then, once dramatic change has been ● devising a policy for excess people;

4 Emiliani, 2003.

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 BUSINESS PERFORMANCE MANAGEMENT

● developing a growth strategy; and the organization. As the organization demon-

● instilling a “perfection” mindset. strates over time that in fact everyone’s job
security is increased, employees gradually
Reorganizing by Product Line and become more cooperative and proactive.
Value Stream
Organizing around a value stream allows an Developing a Growth Strategy
organization to channel its flow of value to cus- Creating a growth strategy means that these
tomers and to avoid the reemergence of the var- “excess” people are immediately re-channeled
ious forms of waste that reduce overall perfor- into new positions for new products and process-
mance. This means identifying the organization’s es. The resources freed up by removing waste
product families and rethinking the organiza- need to be redirected to create more value for all
tion’s functions to realign marketing/sales, prod- stakeholders. If all of the improvements are
uct development, scheduling, production, and dropped straight to the bottom line, the organiza-
purchasing activities into coherent units. The tion will not achieve long-term growth.
exact way to do this typically varies with the Sustainable performance comes from investing
nature of the business, the sales volume for freed resources to create new sources of value
products, and the type and number of cus- and improvement. For example, some organiza-
tomers. But the basic idea can be applied in tions pass cost savings directly through to gain
most businesses. volume. Others speed up development of proj-
ects in the pipeline to spur sales and increase
Devising a Policy for Excess People market share. Others focus on shortening pro-
It is critical to create an effective policy to deal duction lead times, delivering exactly on sched-
with the reality that the removal of excess activi- ule, and making the configuration of product the
ties and waste from the process translates into customer wants to boost sales of products. Still
excess people. The rule of thumb is that when others convert their product from a good to a ser-
organizations convert from a batch-and-queue vice and add downstream distribution and ser-
activity to lean production techniques, human vice activities to their traditional production
effort typically is reduced by 75%. tasks. And some organizations integrate back-
wards, upstream, to consolidate previously scat-
Because the culture underlying lean production tered production activities into a single-piece
is based on cooperation, trust, and participation, flow.
people will not freely support this effort if it
results in the loss of their own jobs. Omark Industries announced that the company
Organizations implementing lean production usu- would not lay off its people through lean produc-
ally guarantee that no one will lose his or her tion improvement activities. One of Omark’s gen-
employment due to the introduction of lean tech- eral managers, for example, diversified into new
niques; although it is likely that many people’s businesses to utilize his factory’s increased
jobs will change and expand. And companies capability from Just in Time (JIT) and total quali-
must keep their promise, or improvements will ty management (TQM) activities.
be impossible to sustain. The correct approach
is to build momentum for change while sending
people no longer needed to other locations in

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Instilling a “Perfection” Mindset Introducing Lean Management Accounting

Creating a mindset that abhors waste and then As the organization changes structure, the infor-
building it into everything that the organization mation used to guide decisions and evaluate
does is a cultural change. Many organizations performance also needs to change. The content,
still operate as if improvement is solely the busi- format, and frequency of management account-
ness of managers, consultants, analysts, and ing information need to change to support a sys-
engineers. The effect of this behavior all but sti- tem that is now customer-focused.
fles improvement. When employees learn that
seeking out and suggesting improvements is the Information content changes from being predom-
sole responsibility of specialists, they will stop inantly financially-focused to including nonfinan-
looking for places that need improvement. If they cial data that support daily decisions. Customer-
see a problem, they will not tell anyone. Even if focused measures, such as dock-to-dock time
they do tell someone, few will listen because (i.e., receipt of raw material to shipping finished
“that is not their job.” Organization-wide, the product) and on-time delivery, are monitored
“experts-only” approach to improvement precon- daily by value stream and cell teams. As invento-
ditions everyone except the experts not to think ries reduce to low levels, standard costing and
about improvement. Since experts make up only associated reporting (e.g., manufacturing vari-
a tiny percentage of all employees (near zero in ances, detailed labor reporting) no longer provide
some cases), the realizable potential for useful information. In addition, as resources are
improvement becomes minuscule. The most dedicated to specific cells or value streams,
expeditious way to find improvement opportuni- more costs are able to be assigned directly to
ties is to make seeking improvement part of these cost objects, and there is less need to
everyone’s job. No matter what the task or situ- allocate across value streams. Indeed there is a
ation, the people doing the same tasks day-in concerted effort to not share resources whenev-
and day-out often see improvement opportuni- er possible.
ties or alternatives that the experts overlook.
Traditional production measurements are not
Installing Business Systems to Encourage only unhelpful, they are actively harmful to the
Lean Thinking company’s lean transformation. Measurements
As lessons and improvements in management such as labor efficiency, earned hours, machine
methods and structures are mastered, attention utilization, PPV, and overhead absorption vari-
can turn to creating the physical systems need- ance motivate insidious nonlean behaviors. All
ed to create a reliable, repetitive lean production these measurements motivate the employees to
process. The activities completed during years build high inventory levels by over-producing,
three and four to achieve this shift are driven by batching, “optimizing” machine changeovers,
several key objectives: buying economic order quantities, and building
● introducing lean management accounting; inventory to achieve month-end absorption budg-
● implementing transparency; and ets. These must be replaced by measurement
● deploying right-sized machines. systems that actively promote lean thinking and
motivate lean action.

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 BUSINESS PERFORMANCE MANAGEMENT

As decisions are made by teams rather than by understand the plant’s overall situation. In old-
managers and supervisors, the format of infor- fashioned mass production plants, managers
mation needs to be understandable by all users. jealously guard information about conditions in
Traditional labels such as “volume variance,” the plant, thinking this knowledge is the key to
“cost of goods manufactured,” and “under- their power. In a lean plant all information—daily
applied overhead,” make it difficult for users to production targets, units produced, equipment
understand what drives these numbers due to breakdowns, personnel shortages, overtime
allocations and aggregation of data. requirements, and so forth—are displayed on
Consequently, the information has little impact visual boards. Often the information is created
on decision making. Lean management account- and displayed by the people in the cells or
ing systems provide simple, “plain English” departments using the boards. Sometimes
financial information that everyone can under- andon boards (lighted electronic displays) that
stand and use. are visible from every workstation can be helpful
when the data are difficult to obtain by hand.
Traditional management accounting information
is provided on a monthly basis due to the month- Deploying Right-Sized Machines
ly close cycle. In lean systems, information is The functional or process-oriented layout in
provided to value streams on a weekly basis and which operators focus only on their own produc-
includes reports such as the value stream tion efficiency is one of the major obstacles to
income statement. This increased frequency developing a smooth production flow in the fac-
prompts changes and decisions on a more tory. This and other problems can be resolved by
immediate basis and enables better control of changing to a product-oriented layout. Machine
value stream costs. improvement, automation, and machine selec-
tion also play important roles in tying each oper-
If the content, format, and frequency of manage- ation to the total production system. Lean man-
ment accounting information needs to be ufacturers ask themselves what types of
changed, what specifically do finance profession- machines would permit them to switch instantly
als need to modify and when? A later section, between products so there would be no need to
“The Role of Management Accounting within make batches.
Lean Organizations,” provides an overview of
accounting practices. There are also two Criteria for machines traditionally consider the
Statements on Management Accounting that trade-off between a machine’s production rate or
expand on each of these accounting practices. multipurpose capability and cost. For plants with
focused factories, traditional acquisition criteria
Implementing Transparency need to be rethought since they can lead to
Truly lean plants have in place a system for results opposite those intended, such as a mul-
detecting defects that quickly traces each prob- tipurpose machine that decreases the plant’s
lem, once discovered, to its ultimate cause. This flexibility or a special high-speed machine that
in turn means teamwork among line workers and increases production lead times. For lean organi-
a simple but comprehensive information display zations, the alternative to costly multipurpose or
system that makes it possible for everyone in special-order machines is having many inexpen-
the plant to respond quickly to problems and to sive, slower, and fewer-purpose machines. Every

20
 BUSINESS PERFORMANCE MANAGEMENT

work cell that needs one gets one and can then products to market. Each company is con-
function autonomously. Although a multipurpose strained by other companies, even when it
machine offers high flexibility through quick comes to improvement efforts. Potential cost
changeover and rapid production rate, all else and lead-time savings and quality improvements
being equal, conventional fewer-purpose at an organization can be easily outweighed by
machines provide even greater flexibility when the cost, lead time, and defect increases of its
employed in a number of manufacturing cells. suppliers. Therefore, organizations will get only
Conventional machines are also simpler for so far along the path to lean production unless
workers to operate and less costly to maintain. they persuade their suppliers and customer
organizations to adopt lean production as well.
Similar considerations apply in service process-
es. While these are not usually driven by To make this approach feasible, lean organiza-
machines, there is often a narrow focus for each tions narrow down their upstream and down-
person’s work. Service organizations also stream partner list and are prepared to work with
cross-train people and create flexible, them a long time. Extending improvement
team-based organizations. Individual offices are beyond an organization requires that managers
abandoned in favor of rooms where people work take a new look at the costs and trade-offs of
together with a focus on customer needs and working with suppliers and that customer and
where information flows (using single-piece flow) supplier companies adopt new ways of working
through the cell. together. Instead of charging for help, savings
are shared. For example, Porsche and its suppli-
Completing the Transformation ers decided on a three-way split in which the sup-
Having completed the structural, management, pliers kept a third of the cost savings and
and process changes required to implement lean Porsche got two-thirds, with Porsche agreeing to
production, attention turns to sustaining the pass half of its savings on to the customer in
process. As such, by the end of the fifth year, key lower prices. Differences between a partnership
objectives of the implementation typically relationship approach and the traditional adver-
include: sarial customer-supplier relationship are illus-
● convincing suppliers and customers to imple- trated in Exhibit 5.
ment lean production methods; and
● converting from top-down leadership to Converting from Top-Down Leadership to
bottom-up initiatives. Bottom-Up Initiatives
The final change to making every line manager
Convincing Suppliers and Customers to and line employee a proactive process and prod-
Implement Lean Production Methods uct engineer, coach, and learner creates a sus-
Extending the education of the lean organization tainable structure not dependent on one manag-
beyond its current boundaries of time and space er or one set of insights. The improvements
and enabling a lean global strategy through become sustainable because they are part of
bottom-up initiatives are the hallmarks of sus- the culture of the organization, arising from
tainable growth. It is a rare organization whose shared vision, knowledge, and views.
internal activities account for more than a third
of the total cost and lead-time needed to get its

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EXHIBIT 5. CUSTOMER-SUPPLIER RELATIONSHIPS

Traditional Partnership

Purchase criteria Lowest bid Competency, ability, capacity, and

willingness to work with customer
to improve price, quality, and delivery.

Design source Customer Customer and supplier

Number of suppliers Several for each item commodity group One or a few for each item or
commodity group

Customer business volume per Limited: multiple suppliers share High: one or few suppliers get all
supplier business of the business

Type of agreement Purchase order; contracts to meet Contract plus agreement about working
immediate requirements relationship

Terms of Agreement:

Duration Short-term, or as needed by customer Long-term, multiple years

Price/cost Lowest bid, inefficiencies and waste keep Negotiated price/cost savings from
prices/costs high supplier improvements shared
with customer

Quality Variable; customer relies on incoming High; quality at the source;

inspection supplier uses SPC, TQM, etc.

Shipping frequency/size/location Infrequent/large/dock or stockroom Frequent/small/point-of-use

Order mechanism Mail or phone FAX, phone, EDI, or kanban

Customer-supplier interaction Formal information exchange limited to Frequent formal and informal
customer requirements; no teamwork; exchange of plans, schedules,
supplier service limited to minimal problems, ideas; teamwork and
requirements mutual commitment based on
trust; cooperation to resolve
problems and improve supplier’s
products and processes. This often
results in joint improvement
projects and sharing of
information.

Source: Nicholas, 1998: 680.

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 BUSINESS PERFORMANCE MANAGEMENT

To this end, lean organizations give their employ- experts in traditional manufacturing methods.
ees ownership over process data (data they They have usually built their career success on
record and use themselves to monitor and the application of traditional mass production.
improve the workplace) and reward them in ways The paradigms of mass production can be
commensurate with their contributions (pay, deeply engrained into the people and processes
prizes, stocks, job opportunities, public recogni- within a company. It is difficult for these people
tion, or a simple thank you). To erase the old dis- to truly embrace the principles of lean thinking
tinction between white-collar and blue-collar because they are counterintuitive to Western
workers, some lean organizations have abol- management.
ished the word “worker” or even “employee.”
Frontline employees are sometimes called asso- One important aspect of the traditional paradigm
ciates, and managers and staff are called facili- is the command and control management meth-
tators or Team Leaders. For example, at ods used in American companies for many years.
Electronics Control Company, anyone caught It is very difficult for traditional managers to
uttering “employee” is fined $1. understand the benefits of team-based empow-
ered improvement. They are concerned about
VI. CHALLENGES TO loss of control.
IMPLEMENTING LEAN
PRODUCTION Single-piece flow is very difficult for managers and
When examining the issues and obstacles that supervisors at every level of the organization to
stand between today’s operations and future grasp. They can grasp the ideas intellectually, but
implementation of lean concepts, several key it is a major challenge to apply it consistently.
concerns emerge. Macroeconomic or social
issues that may impede future progress include: Developing cooperative relationships with cus-
● lean thinking is counterintuitive for managers tomers and (particularly) suppliers is the oppo-
steeped in traditional mass production or site of the policies adopted by traditional manu-
bureaucratic service and administrative facturers. Sadly, this has become quite clear in
processes. the recent setbacks suffered by the Big Three
● cyclical patterns in key industries, such as sea- U.S. automobile manufacturers. All three have
sonality requiring companies to build up inven- attempted—with some success—to apply lean
tory, run counter to the lean philosophy and manufacturing methods in their plants. But all
approach; and three have taken a policy of harsh actions to
● North American notions of careers are often force their suppliers to reduce prices. These
incompatible with lean production’s key methods are sometimes graced with
emphasis on teamwork, incentives for learn- euphemisms like “strategic procurement,” but
ing, continuous improvement, and the reliance they result in hostile and combative relation-
on action versus results measurements and ships with their suppliers. Far from cooperating,
rewards. this has lead to poor quality, poor service, and
suppliers failing financially.
Counterintuitive Methods
Managers—especially senior executives—within Focusing on customer value is another aspect of
Western manufacturing companies are often lean thinking that eludes traditional executives.

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Many American companies have professed “lean ly. Cyclical sales make the flexibility and respon-
initiatives” that are supported by everyone in siveness of the lean production process even
senior leadership, yet the executive team more important. In fact, the removal of buffer
spends much of their time focusing on Wall inventories from the system and the movement
Street, the stock price, and the achievement of away from marketing- and sales-induced bulges
monthly and quarterly goals. While these issues in sales demand may reduce the cyclical nature
are important to any company, they reflect a of the North American economy. Many effective
focus on value to the owner rather than value to lean organizations such as Danaher Corporation,
the customer. The Wiremold Company, and Toyota Motors have
successfully used the methods of lean thinking
To transform an organization—large or small— to overcome—and even profit from—the cyclical
from traditional management to lean thinking nature of their industry. Energizer Corporation
requires the commitment, understanding, vision, was able to significantly improve their operations
and active involvement of the senior executives with certain customers by moving to manufactur-
of the organization. This is a major challenge to ing products based on point-of-use sales infor-
many American companies, particularly larger mation rather then the previous MRP-driven
public companies. The senior leadership is trying warehousing and distribution processes. This
to pursue a lean transformation but is unknow- customer-pull approach eliminated the huge
ingly undermining lean progress by continuing to swings in demand and also mitigated seasonali-
measure, manage, and motivate using tradition- ty because the level of seasonality was lower at
al methods. the final customer level than the MRP-driven
supply-chain-level planning.
Cyclical Patterns in Key Industries
Lean production emphasizes the identification North American Notions of Careers
and pursuit of smooth, balanced production that The concept of lifetime employment, loyalty to an
results in roughly the same number of units per organization that is experiencing trouble and may
day. Balance and synchronization of flows is dif- need to cut wages, and the desire to speed up
ficult when demand is uneven and sporadic. career progression by changing companies all
Lean production is inherently a system of recip- combine to create an unstable basis for the
rocal obligation. Workers share a fate with their knowledge capital integral to lean production and
employer. Suppliers share a fate with the assem- its successes. If individuals are not rewarded on
bler. When the system works properly, it gener- the basis of team and entity performance, their
ates a willingness to participate actively and to incentive to share knowledge and reduce their
initiate the continuous improvements at the very personal visibility and success may be limited.
heart of leanness. Management of the macro
economy may have a dramatic long-term effect Making changes to the incentive structure of the
on the fundamental quality of the domestic pro- organization is essential if lean production is to
duction system. be implemented effectively. If long-term perfor-
mance improvements are needed, then at least
While cyclicality may seem alien to some lean some element of each individual’s performance
enterprises, this is not the case for many of the and reward package must incorporate long-term
organizations that have adopted lean successful- metrics. If team efforts are a central element of

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the production strategy, then team rewards have American manufacturing turnarounds, there was
to supersede or match those provided for individ- more than one reference to the potential inter-
ual performance. The experience of successful vention of government in the decision process.
lean producers such as Caterpillar shows that, in Local, state, and federal government representa-
order for a U.S. company to gain the benefits of tives began to lobby for placing restrictions on a
lean production, it must create and modify incen- company’s freedom to move. At the same time,
tive systems to generate the appropriate motiva- many management teams felt that abandoning
tion needed to support the lean philosophy. U.S. the existing workforce and community to imple-
companies can overcome these cultural barriers ment a green-field solution would earn them the
by incorporating directly into their management dubious title of “poor citizen.” Concerned with
structure new incentives that will once again both the internal cultural impact and external
marry the goals and objectives of the individual threat of sanctions if green-field solutions were
with those of the entity and its core process pursued, Western companies have tried to
teams. Recognizing that financial improvement migrate their mass facilities to lean concepts. It
comes from thousands of small continuous is a much slower process, and it that can put the
improvements throughout the processes, many future of the organization at risk.
lean companies provide bonuses to their employ-
ees through simple profit sharing rather than Transplants
focusing on detailed outcomes. State governments are making it increasingly
simple and attractive for foreign producers, such
Politics on a National Level as the Japanese and German automobile manu-
Few managers would be surprised to hear that facturers, to locate in the United States. These
politics reigns supreme within any change transplanted lean structures place even more
process. What sets lean production apart, how- pressure on domestic organizations as they
ever, is the fact that macroeconomic policies and avoid the tariff and currency translation prob-
politics have to be accounted for in the imple- lems, further increasing their competitiveness.
mentation of the new management model. Key The time to respond is shortened as the compe-
issues that will need to be addressed include: tition is moved closer to home.
● green-field versus brown-field models;
● transplants; Unions
● unions; and Existing organizations have legacy relationships
● pressure on the supply chain. with labor that new lean producers often can
avoid. Large unions such as the United Auto
Green-Field versus Brown-Field Models Workers (UAW) often make it much more difficult
Some Japanese companies do not attempt to for a company to implement the multi-skilled, mul-
migrate traditional mass production facilities to titasking work structures that the lean enterprise
the lean model—every new launch or initiative is relies on to create flexibility and responsiveness.
by definition a green-field effort. In North In many industries, though, unions are beginning
America, closing existing facilities and creating to understand and accept that the future health
new ones causes instant tension and stress of the organization, and, hence, that of the peo-
within the affected communities. During the ple the union represents, depends on abandon-
height of the plant closing phase of North ing old methods and old assumptions.

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Pressure on the Supply Chain Today virtually all companies utilize standard cost
A lean enterprise is constantly putting pressure accounting systems for measuring and reporting
on its supplier base to help identify and imple- performance, but these systems, from an opera-
ment process improvements and cost reduc- tions perspective, rely on criteria that often are
tions. It may be easy to supply an organization outdated and worth little in gauging important
with its required materials, but if this comes at a areas of organizational performance. Worse, the
greatly reduced price, the result of more volume criteria used can give a distorted view of perfor-
of sales may be fewer dollars of profit. This phe- mance and, as in the automaker example, dis-
nomenon is being experienced in the retail mar- courage attempts to reduce waste, continuously
ket as Wal-Mart continues to push its suppliers improve, or otherwise heighten competitiveness.
for price concessions. At a certain point, organi- Guided by traditional criteria, managers may
zations are either forced out of an industry or make decisions that look beneficial but in actual-
withdraw voluntarily when profits disappear. ity are detrimental to the organization’s immedi-
ate well-being and long-term viability.
While these barriers and concerns remain, there
is increasing evidence that lean production con- Typically the management accounting system
cepts can be used to turn around existing mass that an organization chooses for gauging its per-
production facilities. In addition, it appears that formance reflects the organization’s general
incentive systems can be used to overcome cul- management philosophy, culture, and practices.
tural barriers and that integrated supply-chain To the extent that an organization measures only
management can improve the profits and perfor- what its management holds most dear, a manu-
mance of the entire trading alliance. facturer that actively adopts lean management
accounting principles is more likely to be one
VII. THE ROLE OF MANAGEMENT that has also embraced the goals, philosophy,
ACCOUNTING WITHIN LEAN and practices for attaining competitive advan-
O R G A N I Z AT I O N S tage. That is, it produces products better, faster,
Some years ago, one of the U.S. Big Three and cheaper using processes that are leaner
automakers pilot-tested ways to reduce waste by and more agile than the competition’s. The com-
producing solely to demand in small batches and pany is certainly also customer focused and driv-
changing layouts to reduce material-handling en to keep improving.
costs. There were many positive results, includ-
ing decreased inventories and greater plant flex- As the structure of the manufacturing system
ibility. The problem was that the company’s man- changes, the numbers used to guide decision
agement accounting system, which measured makers and evaluate performance should be mod-
results solely in terms of their effects on stan- ified. It falls to management accounting to ensure
dardized financial criteria, showed only bad that the right numbers are available, at the right
results, such as increased indirect-to-direct labor time, to support the management process.
ratios, nonproductive labor time (workers not pro-
ducing), and decreased overhead absorption. The role of the financial practitioner in lean pro-
Since the system had no way of accounting for duction extends far beyond the development,
the improvements, the experiment was consid- maintenance, and reporting of new cost and per-
ered a failure. formance metrics. Serving as part of the initial

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implementation team, financial practitioners ● Budgets and planning move away from the
help to quantify the costs and benefits of alter- complex and arcane annual budgeting process
native approaches and solutions. Once a lean to monthly rolling budgets incorporated into
manufacturing design has been chosen, atten- the company’s Sales, Operations, and
tion shifts to ensuring that the plans are execut- Financial Planning (SOFP) process.
ed effectively and within time and cost budgets. ● Transaction elimination becomes possible as
Financial practitioners provide the insight and Operations demonstrates better process con-
knowledge required to track the implementation trol through lower inventories, better customer
and ensure that it meets its defined goals. service, shorter lead times, and visual and
updated metrics. Areas typically affected
The involvement of the finance professional include inventory tracking, purchasing and
spans the entire life of the lean production initia- receiving, labor tracking, and standard cost
tive, from initial design through its ongoing use maintenance.
on the plant floor. Finance plays a vital role in ● Sales and Marketing price products based on
each of the following: the value they create for the customer and
● Value stream management requires taking a attempt to level orders from the customers by
more relevant and holistic view of how materi- eliminating demand distortion caused by large
al, information, and costs flow through the batch orders and month-end-driven sales pres-
organization. Traditional management by sure. Sales bonuses and commissions—when
department inhibits progress because it focus- used at all—are designed to motivate lean
es on optimizing the performance of the unit flow and increased customer value.
rather than the performance of the whole.
● Performance measurement changes not only Each of these topics relevant to finance profes-
include strategic alignment with company sionals is discussed in two other SMAs.
goals but also specific linkages among the Accounting for the Lean Enterprise: Part 1
cells, value stream, and facility that highlight includes discussion of value stream manage-
the key purposes and drivers of success at ment, decision making, features and characteris-
each level. tics costing, lean budgets and planning, transac-
● Decision making that concerns special orders, tion elimination, as well as providing guidelines
outsourcing, and insourcing incorporates for implementation. Part 2 discusses applica-
throughput and capacity as key considerations tions beyond manufacturing and includes apply-
to optimize resource usage rather than using ing the lean accounting concepts in accounting
traditional standard costs as a basis. organizations, service organizations, sales and
● Features and characteristics that require a marketing, and product development. It also out-
varying amount of process time at the bottle- lines a strategic mapping process to facilitate
neck process become the basis for calculating establishing performance measurements for all
differential product costs. types of lean enterprises.
● Target costing drives the creation of customer
value by establishing the maximum cost allow- As this list of topics suggests, the measurement
able within the value stream followed by an expertise of financial practitioners places them in
action plan to increase customer value and the center of the lean initiative. Many design and
achieving value stream profitability. implementation choices need to be made as the

27
 BUSINESS PERFORMANCE MANAGEMENT

organization migrates to lean processes. Without G L O S S A RY

relevant economic and performance metrics, This glossary provides definitions of words com-
these decisions can deteriorate to personal judg- monly used within lean organizations. For a more
ments and intuitive guesses. Also, the failure to comprehensive lexicon of lean terminology, refer
change performance metrics to reflect the objec- to Chet Marchwinski and John Shook’s Lean
tives and assumptions of lean production can Lexicon: Graphical Glossary for Lean Thinkers, ref-
actually destroy a lean enterprise initiative. erenced in the Resource List.
3 REPORT. A standard method of summarizing
The changes initiated by lean concepts extend to problem solving exercises, status reports,
all corners of the organization. Understanding and planning exercises; a Toyota practice.
what lean processes are and how best to utilize ANDON BOARD. A visual control device in a pro-
them to improve the performance of the organi- duction area, typically a lighted overhead dis-
zation is essential knowledge for the financial play, giving the status of the production sys-
practitioner. This new environment requires the tem and alerting team members to emerging
finance function to increase their involvement problems.
with the rest of the organization as a business BATCH-AND-QUEUE. The mass-production prac-
partner rather than retaining the role of strict tice of making large lots of a part and then
financial historian. sending the batch to wait in the queue before
the next operation in the production process.
VIII. CONCLUSION CELLS. The layout of machines of different types
Lean production takes time to master. performing different operations in a tight
Organizations with prior experience in total qual- sequence, typically in a U-shape, to permit
ity management, Just in Time, or total productive single-piece flow and flexible deployment of
maintenance—strategies that build effective human effort by means of multi-machine
work cultures—will probably require at least working.
three years for successful implementation. CHANGEOVER. The installation of a new type of
Organizations without significant experience in tool in a metal working machine, a different
those strategies will require at least five years to paint in a painting system, a new plastic
become a full lean producer. Organizations with resin and a new mold in an injection molding
fewer than 500 hundred employees may require machine, new software in a computer, and so
less time. on. The term applies whenever a production
device is assigned to perform a different
Lean production is a model for the future—it may operation.
well become an essential element of a sustain- CYLCLE TIME. The time required to complete one
able global strategy. As Henry Ford so aptly cycle of an operation. If cycle time for every
noted, “Customers cannot be expected to pay for operation can be reduced to equal “takt
waste, nor can a worker be paid very much for time,” products can be made in single-piece
producing waste.” To be lean is to optimize the flow.
use of resources to create value for customers FIVE S (5S). Five related terms (each beginning
and stakeholders. It is a formula for success that with an S) describing workplace practice con-
is as old as it is new, as Western as it is Eastern. ducive to visual control: sort, straighten,
scrub, standardize, sustain. It is a method of

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 BUSINESS PERFORMANCE MANAGEMENT

achieving workplace orderliness to achieve relations with customers so that future pur-
visual management. chases can be anticipated by the production
FIVE WHYS. Taiichi Ohno’s practice of asking system.
“Why” five times whenever a problem was MATERIAL REQUIREMENTS PLANNING (MRP). A
encountered in order to identify the root computerized system used to determine the
cause of the problem so that effective coun- quantity and timing requirements for materi-
termeasures could be developed and als used in a production operation. MRP sys-
implemented. tems use a master production schedule, a
FLOW. The progressive achievement of tasks bill of materials listing every item needed for
along a value stream so that a product pro- each product to be made, and information
ceeds from design to launch, order to deliv- on current inventories of these items in
ery, and raw materials into a finished prod- order to schedule the production and deliv-
ucts in the hands of the customer with no ery of the necessary items. Rarely used in
stoppages, scrap, or backflows. lean production.
GEMBA. Japanese for “actual place.” Used to MONUMENT. A machine, person, or department
stress the importance of lean improvement of a large scale that must be shared across
being done at the place where the work is more than one value stream.
done using detailed visual observation. PACEMAKER. The process in the value stream
HOSHIN KANRI. Japanese term meaning “deploy- that sets the pace of production. The pace-
ment of the company’s strategy.” The Hoshin maker may be the bottleneck operation that
process is used to provide a formal method constrains the rate of flow through the value
for deploying the company’s strategy stream.
throughout the organization. The Hoshin PLAN-DO-CHECK-ACT. A systematic process
process seeks to create a high level of con- improvement methodology requiring the pro-
sensus through collaborative planning rather posal of a change, the implementation of the
than top-down change management. change, measuring the effect of the change,
JIDOKA. The part of the production system that and taking appropriate action. Also called
reacts and responds to abnormalities that the Deming Cycle.
arise in the production process. POKA-YOKE. A mistake-proofing device or proce-
KAIZEN. Continuous incremental improvement of dure to prevent a defect during order taking
an activity to create more value with less or manufacture.
waste. POLICY DEPLOYMENT. Management process that
LEAN PROMOTION OFFICE. A resource for a lean aligns—both vertically and horizontally—a
transformation. The team provides value firm’s functions and activities with its strate-
stream managers with technical assistance gic objective. A specific plan—typically
to use lean methods to transform the flow annual—is developed with precise goals,
within the value stream. actions, timelines, responsibilities, and
LEVEL SELLING. A system of customer relations measures. Sometimes called strategy
that attempts to eliminate surges in demand deployment or Hoshin.
caused by the selling system itself (for
example, due to quarterly or monthly sales
targets) and that strives to create long-term

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 BUSINESS PERFORMANCE MANAGEMENT

PULL. A system of cascading production and product while the manufacturer obtains an
delivery instructions from downstream to acceptable return on its investment.
upstream activities in which nothing is pro- THROUGHPUT TIME. The time required for a
duced by the upstream supplier until the product to proceed from concept to launch,
downstream customer signals a need. order entry to delivery, or raw materials into
QUALITY FUNCTION DEPLOYMENT (QFD). A visu- a finished product in the hands of the
al decision-making procedure for multi- customer.
skilled project teams; it develops a common VALUE STREAM. All the actions—both value-
understanding of the voice of the customer creating and waste—required to bring a
and a consensus on the final engineering product from concept to launch (new product
specifications of the product that has the development value stream) or from the sale
commitment of the entire team. through to delivery and collection of cash
SEVEN WASTES. Taiichi Ohno’s (Toyota manager, (order fulfillment value stream). These
the father of lean thinking) categorization of include actions to process information,
the kinds of waste within an organization: transform the product, move the materials
overproduction, waiting, transportation, and the product, and exchange cash.
unnecessary processing, inventory, motion, VISUAL MANAGEMENT. The placement in plain
and inspection. view of all tools, parts, production activities,
SINGLE MINUTE EXCHANGE OF DIES (SMED). A documentation, performance measure-
series of techniques for changeovers of pro- ments, and other aspects and methods for
duction machinery in less than 10 minutes. the control and improvement of the value
SINGLE-PIECE FLOW. A situation in which prod- stream. Visual management applies equally
ucts proceed, one complete product at a in administrative and service processes.
time, through various operations in design, WASTE. An activity that consumes resources but
order taking, and production without inter- creates no value for the customer. Muda
ruptions, backflows, or scrap. (vulgar Japanese word for “waste”) is divid-
STANDARDIZED WORK. A precise description of ed into Muda 1 and Muda 2. Muda 1 is
each work activity specifying cycle time, takt waste that creates no value but is unavoid-
time, the work sequence of specific tasks, able with current technologies and policies.
and the minimum inventory of parts on hand An example would be the payroll process.
needed to conduct the activity. Muda 2 creates no value and can be elimi-
SUPERMARKET. A stocking point for inventory nated. An example would be shop-floor labor
where low inventory is visually controlled and reporting.
is replenished using a pull system.
TAKT TIME. The available production time divided
by the rate of customer demand. Takt time
sets the pace of production to match the
rate of customer demand and becomes the
heart of any lean system.
TARGET COST. The development and production
cost that a product cannot exceed if the cus-
tomer is to be satisfied with the value of the

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Thinkers. Brookline, MA: Lean Enterprise Lean Enterprise: Value Stream Mapping for
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Nicholas, John. Competitive Manufacturing Productivity Press, 2004.
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Allen, John (ed). Lean Manufacturing: A Plant 123-129.
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Jackson, Thomas L., and Karen Jones. Challenge: Techniques for Continuous
Implementing a Lean Management System. Improvement. New York: The Free Press,
Portland, OR: Productivity Press, 1996. 1987.
Womack, James P., and Daniel T. Jones, and
Daniel Roos. The Machine that Changed the Toyota Production System and Just in Time
World. New York: Rawson Associates, 1990. Liker, Jeffrey. The Toyota Way: 14 Management
Womack, James P., and Daniel T. Jones. Lean Principles from the World’s Greatest
Thinking: Banish Waste and Create Wealth in Manufacturer. New York: McGraw-Hill, 2004.
Your Corporation. New York: Simon and Hirano, Hiroyuki. JIT Implementation Manual: The
Schuster, 1996. Complete Guide to Just-in-Time Manufacturing.
Womack, James P., and Daniel T. Jones. Lean Portland, OR: Productivity Press, 1990.
Solutions: How Companies and Customers Ohno, Taiichi. Toyota Production System: Beyond
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Liker, Jeffrey, (ed). Becoming Lean. The Inside Shingo, Shiego. A Study of the Toyota Production
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Gary, Conner B. Lean Manufacturing for the Small 1989.
Shop. Dearborn, MI: SME, 2001.
Rother, Mike, and John Shook. Learning to See: Cross-Functional Management
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Harris, Rick, Chris Harris, and Earl Wilson. Emiliani, Bob. Better Thinking, Better Results:
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Solution. Kensington, CT: CLBM, 2003. 1995.

Ishikawa, Kaoru. What Is Total Quality Control? Hirano, Hiroyuki. 5S for Operators. Portland, OR:
Englewood Cliffs, NJ: Prentice-Hall, 1985. Productivity Press, 1996.
Monden, Yasuhiro. Toyota Management System: Lean Accounting
Linking the Seven Key Functional Areas. Fiume, Orest, and Jean Cunningham. Real
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Quick Changeover Organization. Durham, NC: Managing Times
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Sekine, Kenichi, and Keisuke Arai. Kaizen for Associates, 2003.
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Waddell, William. Rebirth of American Industry: A
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Websites
Visual Controls www.lean.org, Lean Enterprise Institute
Galsworth, Gwendolyn. Visual Workplace: Visual www.superfactory.com, Wide-ranging website for
Thinking. Portland, OR: Visual Lean lean and other manufacturing methods.
Enterprise Press, 2005. www.NWLean.net, Network of companies assist-
Nikkan, Kogyo Shimbun (ed). Visual Control ing other companies to implement lean.
Systems. Portland, OR: Productivity Press, www.mep.nist.gov, Federally sponsored manu-

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facturing support network with local offices

nationwide to support lean manufacturing
and other improvement efforts.
www.maskell.com/LeanAcctg.htm, Website
devoted to lean accounting methods.
www.leanaccountingsummit.com, Nonprofit
organization organizing the annual Lean
Accounting Summit conference.

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