As companies transition from traditional management methods to a lean enterprise, their accounting, control, and measurement systems need to change. Traditional accounting systems— such as full absorption costing—were designed to support management principles like mass production, top-down command and control, departmental optimization and budgeting, and a focus on shareholder (or owner) value. The principles of lean thinking are quite different from those of traditional management methods. Traditional accounting systems can be detrimental to lean companies because they motivate behaviors that undermine the principles of lean thinking. Lean accounting methods are designed to support the transition to a lean enterprise.

    This Statement on Management Accounting (SMA) is the second of three SMAs addressing the impact of “lean” on organizations. The first, Lean Enterprise Fundamentals, serves as a starting point in the exploration and implementation of lean concepts. It illustrates core ideas and provides finance and operations professionals with a basic understanding of lean processes, its applicability to their organization, and its unique challenges. This SMA focuses on the information necessary for value stream costing, a product family view of costs, decision making, budgets and financial planning, and transaction elimination.

    A third SMA, Applying Lean Fundamentals beyond the Manufacturing Floor, expands the lean accounting principles to the entire enterprise and discusses performance measurements for lean organizations.