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40 COST MANAGEMENT JANUARY/FEBRUARY 2018

T he Beat les’ 1969 hit , “ComeTogether,” sa id i t bes t : “Iknow you, you know me, onething I can tell you is you gotto be f ree ; come together,

r ight now, over me.” 1 While there aremany publications that highlight the dif-ferences between lean and standard costaccounting, whether through definingeach methodology or describing the spe-cific tasks performed, there are not manythat explore the areas where lean andstandard cost ing come together toachieve an organizat ion’s goa ls andimprove decision-making.

The focus of this ar t icle is to showthat the convergence of lean and stan-dard costing is to be more than believed.Instead of focusing on the differencesthat div ide the cost management com-munity, this art icle wil l focus on ways tobring the accounting community together.Over t ime, the accounting communitywil l f ind new ways to work together todevelop synergies for the advancementof accounting pract ices and improveddecision-making. As w ith lean’s focus

on the customer and respect for people,it is the tenant for lean professionals tounify the process for efficiency and effec-tiveness, bring the process under control,and al low everyone to work in the bestenvironment possible to complete theirtasks. This is our cal l to arms: Star t theconversat ion on what c an be donetogether to develop the best accountingpractices and decision-making processes.

This article will start with sharing theclassic v iews of lean and standard costaccount ing to set our baseline under-standing. The lean definit ion and iden-t i f i cat ion of muda, or was te , i s thenpresented to illustrate how lean and stan-dard cost ing can be ut i l ized together,which will be expanded into the 14 prin-ciples of lean based on the Toyota Pro-duction System (TPS).

Lean accountingIn lean accounting, direct costs are iden-t ified through the value stream of theprocess to improve flow and eliminatewaste.2 Lean accumulates all of the direct

THE CONVERGENCE OF LEAN AND

STANDARD COST ACCOUNTING

GARY KAPANOWSK I

G A RY K A PA N OWS K I i s a Ce r t i f i ed Lean S i x S i gma Mas te r B la ck B e l t and Ce r t i f i ed ASQ Bronze Lean p ro f e s s i ona l ,a s we l l a s a co s t a c countant f o r Moe l l e r Manufac tur ing , a l ead ing a e ro space par t s supp l i e r, and Lean S i x S i gmaMas te r B la ck B e l t L e c ture r a t Law rence Techno log i ca l Unive r s i t y P ro f e s s i ona l De ve l opment Cente r. Ut i l i z ing exp e -r i ence w i th me t r i c s and the Ba lanced S core card , Gar y ear ned the 2006 F inanc i a l Ex ecut ive o f t h e Year award f romRobe r t Ha l f Inte r nat i ona l and In s t i tute o f Management Accountant s . Hi s re c ent work p roduced the f i r s t rede f in i -t i on o f l ean a s a bu s ine s s s t rateg y and b e yond an op e rat i ona l e f f i c i enc y too l f o r imp l ementat i on .

This is a f irs t s tep to bridge the methodology gap that exist

between the practitioners of lean and standard costing

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costs charged to the process flow thendivides by the number of items shippedfrom the process to find an average prod-uct cost. Cost includes payroll, mater-ial, and facility costs; however, overheadis not applied to the product cost. Theemphasis here is on speed and quality overcost. Also, lean doesn’t assume full capac-it y but rather a marginal incrementalapproach for decision-making.

Lean attempts to optimize flow to meetcustomer demand and eliminate waste.Metrics used include throughput, cyclet ime, first-t ime quality, and inventoryturns. Lean routings are simple as mostgo through the same process or com-mon rout ing due to the emphas is onvalue stream mapping. To maximize flow,the sequencing of product flow is keptclose to allow for the flow to pass quickly,typical ly in days, to achieve low inven-tories. Thus, lean does not treat inven-tory as an asset.

Lean accounting has an aspect of con-tr ibution margin analysis that is famil-iar to al l accountants. This simple andeasy approach al lows for company-wideunderstanding of good business deci-s ion-mak ing . Other features used tomanage bus iness inc lude ident i f y ingwhat makes the cash flow increase in thevalue stream and what bottlenecks are pre-venting unused capacity from being usedto produce product.

Standard cost accountingStandard cost is the efficient utilizationof machinery and people to provide the

lowest averageproduct cost . 3

Under e f f ic ientoperations, stan-dard cost repre-sents the process

in control. Best used in mass production,s tandard cost places emphas is oneconomies of scale to drive lower costs.Standard cost assumes full capacity andfull absorption of costs. In a standardcost routing, each product will have its ownrouting, which may place it anywhere onthe plant floor. Cost is the accumulationof all individual routings. This processmoves slowly, typically weeks to months,

creating high levels of inventory. Thus,inventory is treated as an asset.

Metrics used for monitoring and con-trol involve both cost and volume vari-ances to validate if the manufacturingprocess is operat ing according to plan,validating appropriate allocation of over-head, and ensuring cost per part is real-ized. Metrics used in standard cost inginclude labor eff iciency, machine ut i-lizat ion, and cost var iance. Therefore,in a standard cost environment, our goalis to make the most product as possible,build inventory, optimize our resourcesand department efficiencies, track labor,and a l locate o ther cos t s . Due to theemphasis on cost , s tandard cost ing isconsidered contrary to lean.

The convergence of lean and standardcost accountingBoth approaches have a common goalto reduce any variance. In lean, this is calledwaste reduct ion. In standard cost ing ,this is used for operat ional ef fect ive-nes s . To br ing each c loser toge ther,reviewing variances as a weekly or dailystandard routine wil l produce quickerresults for improvement, provide a time-lier rev iew and better understanding ofthe variance than at month’s end, whenthe variance occurred more than 30 daysago, and sustain cont inuous improve-ment act iv it ies. This is a lean approachto a standard cost pract ice.

Continuing the variance discussion,variance is waste. Without variances, theprocess is considered in control. In lean,this is the state needed for implement-ing improvement w ithin the process .With this in mind, standard costing useslean principles for improvement.

The marginal approach for decision-making is common in every make–buyanalysis for al l accounting methodolo-gies. With this understood, many appli-cat ions for lean are ut i l ized in standardcos t ing measures , such as make–buyanalysis and contribution margin analy-sis. Several types of contribution mar-gin analyses include rev iewing profit-ability of production without indirectcost and reviewing direct versus indi-rect costing. This common analysis indi-

41LEAN AND STANDARD COSTING JANUARY/FEBRUARY 2018 COST MANAGEMENT

LEAN ATTEMPTS TOOPTIMIZE FLOW TO MEETCUSTOMER DEMAND AND

ELIMINATE WASTE.

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cates another focus area for the method-ologies to unify best pract ices.

Many have argued against full absorp-tion costing. When full absorption cost-ing was developed in the 1900s, laborrepresented about 60 percent of the costs;today it ranges f rom 5 to 15 percent. 4

This difference in the application of indi-rect cost has changed the landscape of prod-uct costing. The 45 percent divergence ofcost requires some method of overheadabsorpt ion. Since no appl icat ion w i l lreplicate the true cost for the manufac-tured part, the increase in overhead to beapplied will misrepresent cost more so thanin the past. Both methodologies can agreethat overhead appl icat ion can distor tcos t and that reduc ing the overheadimpact is beneficial for everyone.

Lean definitionOne of the first approaches to finding wasteis to evaluate the culture of an organi-zation or society. An easy way to view thisis through the “lens of lean” and under-standing the lean definit ion. Lean is theidentificat ion, elimination, and reduc-t ion of waste or non–value added act iv-it ies within a process as perceived by thecustomer.5 Lean has two concepts that makeit completely different from other processimprovement my thologies: respect forpeople and continuous improvement toeliminate process wastes with the knowl-edge that nothing is perfect. In Jim Wom-ack’s book, Lean Thinking , he describes

this thought process as “a way to do moreand more with less and less” to providecustomers w ith what they want or arewil ling to buy. 6 The intention of lean isnot to starve a process into control, butto enhance the process to be in control,or to be effect ive and efficient.

In the lean rev iew of processes, askthese questions to complete a lean assess-ment (you can substitute environment orculture for a macro v iew of lean):• Is the process efficient, effect ive,and in control?

• Was there a t ime when the processwas in control? If so, what’schanged?

• Are there any variances? If so, howmany and how large?

• Is this process customer focusedthroughout?

• Is the environment promoting orusing continuous improvementtechniques and are they sustainingthis process?

• Does the process have respect forthe people in the process?

• Does the process al low the opera-tors to make adjustments forimprovement?

• Does the process overburden onegroup over another based on diffi-culty, r isk, or t ime?When you have a lean process, things

move quickly as if they are done withoutthinking, completed automatically by theprocess operator. When everyone looksat the sun, they agree the color is yellow,

42 COST MANAGEMENT JANUARY/FEBRUARY 2018 LEAN AND STANDARD COSTING

EXHIBIT 1 Eight Wastes: The Real-life Obstacles Preventing an Organization fromProfitability

1. Transpor tat ion Unnecessary movement of mater ial or product

2. Inventory Mater ial or product that is used to cover for ineff ic iencies

3. Motion Unnecessary movement of people; mult iple hand-offs

4. Wait ing Elapsed t ime between processes when no work is being performed

5. Overproduct ion Producing in excess of customer requirements; service not needed

6. Overprocessing Adding unnecessary steps to a process; redundancies between processes

7. Defect Anything that does not meet the accepted customer requirements

8. Resources Demotivat ing the workforce by not asking for input or recognizing success

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without question or hesitation. Your heartbeats without you knowing or doing any-thing. In sports, the players say they are“in the zone,” everything works as plannedand without fai l . Another way to v iewthis is through the telephone game.7Witheach process (or person) connec tedsequentially, a word is spoken to the firstprocess and then repeated throughoutthe chain until the information stops atthe end of the process (i.e., the customer).In our lean analogy, the word wil l notchange, and the process will become fasterand faster for continuous improvementwithout defect.

This i s good prac t ice to recognizewhen a process is in a lean state andwhen it’s not . When the process is notlean, you w i l l be able to ident if y wasteor muda (see Exhibit 1) . 8 It is impor-tant to identify the type of waste encoun-tered to properly el iminate it f rom the

process . By el iminat ing waste, we pro-v ide the customer a product or ser v icew i t h more v a lue by cont i nuou s l yimprov ing to sat is f y the customer, andal low respect for the process operatorso that they can complete their processefficiently and effectively without prob-lems prevent ing them f rom per form-ing their task, which a l lows for processimprovement.

In any cost ing system, everyone canpar t ic ipate in unders tanding lean byusing their “lean lens” or “lean eyes” toident ify when the process is not lean,and, when observed, to select the typeof waste to be eliminated. This type ofwaste elimination task is for al l employ-ees to undertake in any cost ing system.With an e s t imated 90 percent of a l lprocesses containing waste, it should beeasy to find.9 Thus, all organizations canimplement lean to reduce costs.

43LEAN AND STANDARD COSTING JANUARY/FEBRUARY 2018 COST MANAGEMENT

EXHIBIT 2 Toyota Production System (TPS) 14 Principles of Lean – 4P Model: The IndustryLean Standard

1P: Phi losophy: Long-term Phi losophy (1)

1. Long-term Focus Hoshin kanr i - long-term meet shor t- term goals

2P: Process: The Right Process Wil l Produce the Right Results (2−8)

2. Create Flow Br ing issues to the surface

3. Pul l Produce only what is needed to avoid overproduct ion

4. Level ing Heijunka - balance out demand

5. Do I t Right Jidoka - qual i ty r ight the f i rst t ime - stop, f ix, do i t r ight

6. Standardize Bui ld improvement phi losophy to ensure cont inuous improvement

7. Visual Control Do not hide anything

8. Technology Rely on proven technology to serve the people and process

3P: People and Par tners: Add Value to the Organizat ion by Developing Your People and Par tners (9−11)

9. Leadership Grow your own leaders and embrace the TPS

10. Teams Develop people and teams who fol low the TPS

11. Help Others Extend lean to par tners and suppl iers, respect

4P: Problem Solving: Continuously Solving Root Problems Dr ives Organizat ional Learning (12−14)

12. See for Yourself Gemba Walk - go and see yourself to understand the situation

13. Decision-making Nemawashi - make decisions slow, implement fast

14. Reflect ion Hansei - ref lect and kaizen – cont inuously improve

*Adapted from Liker, J.K., The Toyota Way: 14 Management Pr inciples from the Wor ld’sGreatest Manufacturer (McGraw-Hil l , 2004).

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TPS: 14 principles of leanThe next lean aspect to consider is the14 principles of lean based on the TPS(see Exhibit 2). I have found this is agreat way of identify ing the organiza-tion’s lean culture and maturity scale forwaste (or variance) reduction. Each prin-ciple wil l identify how well the organi-zat ion is implementing, sustaining, andgrowing lean throughout each process.I have used this 14-principle model as alean Balanced Scorecard with the eightwastes to ident i f y this aspec t of leanmaturity for variance reduction. 10 Thisarticle will discuss several of these prin-ciples to find commonality within bothcost ing methodologies.

TPS 1: Long-term focusBoth lean and standard cost ing have, insome aspect, a tool used to understandthe process . In s tandard cost ing , therouter for operations provides the processflow. In lean, a value stream map is neededto view the process and metrics to locatewaste, understand the production process,and indicate any unused capacity thatcan be used for growth. 11

Value stream mapping and standard costcan be combined to assist w ith under-standing the production process. By uti-lizing standard cost for hours and dollars,we can populate the value stream map todetermine the waste incorporated withinthe process. This will identify the value-added and non–value added act iv it ies,place a cost on these act iv it ies, and cal-culate waste (or var iance) w ithin theprocess . This is somet imes ca l led thecost of poor quality in the current state.With the company forecast, this cost canbe extended to reach an annualized value

44 COST MANAGEMENT JANUARY/FEBRUARY 2018 LEAN AND STANDARD COSTING

EXHIBIT 3 Five Steps of Lean: Understandthe Overall View of Implementing Lean inan Organization

1. Ident i fy value

2. Ident i fy value stream

3. Flow

4. Pul l

5. Perfect ion

for waste reduct ion and capacit y ut i-lization to identify growth opportunities.Another aspect of waste is the differ-ence between planned and actual cost.This is identified when the actual valuefor cost is either better or worse thanplanned. This wil l aler t management toposs ible adjustments that need to bemade to meet the projec ted f inancia lmetrics for the organizat ion’s goals andobjectives. Any large variance is waste inthis process due to the work needed toadjust. Other uses for value stream map-ping with standard costing include elim-inat ing non–value added act iv it ies inthe operat ions router, a s s i s t ing w ithproduct cost ing for the bil l of materialsand routing, and using target cost ing toassist w ith quoting new work.

TPS 2: Create flowThe basic theory behind standard costis that it al lows for mass production toachieve economies of scale at a reducedcost per part. Continuous flow behavessimilarly w ith an addit ional aspect ofmeeting customer demand, noted as takttime, to prevent waste such as inventory,defect, and wait t ime. As an example, themass produc t ion of the Henr y FordModel-T vehicle simulated a fast-paced,one-piece continuous flow due to a sin-gle product type without experiencingchangeover t ime. His term for this was“flow production,” the birthplace of lean.12

As the product mix increased, the prob-lem of f low was experienced in the pro-duction line changeover, causing a lossof t ime and production flow. Lean’s flowfocus assisted early lean leaders like Tai-ichi Ohno to greatly reduce changeovert ime, reduce cost of unnecessary equip-ment and related space , and improvequality for a reduction in cost. 13 By cre-at ing cont inuous f low, problems a rebrought to the surface to be resolved.With this focus, continuous flow can beeffect ive for production with high vari-ety, market volat i l ity, and short prod-uct l ives.

Basing the takt t ime to equal the cus-tomer demand wil l provide equilibriumfor the process. Any variance at this levelwil l indicate divergence from the con-

tinuous flow causing waste. This includesthe standard cost variances of volumeand cost. Volume wil l indicate the wastelevel of inventory experienced to eitherunderproduce for customer demand,result ing in missed sales, or exceed pro-duction of customer demand, creat ingexcess inventory. Thus, we can use thestanding costing system to visualize if weare mee t ing our cus tomer demand ,improv ing qua l i t y, and cont inuous lyimproving. As we accomplish these mea-sures, the standard cost ing detai l w i l ladjust. This includes documenting the newprocess, updating standard work, thenimplementing kaizen to make the changeofficial and implement the new processthroughout the organization. Thus, stan-dard cost using the current level of activ-ity can be used as a gauge to measurefor waste (variance) and improvement.

TPS 3: PullThe next step in lean is to understand thebasic five steps of the lean process (seeExhibit 3). In lean, every act iv ity in aprocess is identified as either deliveringor not delivering value to the customer.The goal is to eliminate, when possible,the non–value added ac t iv it ies . Af terth i s i s comple ted , the ac t iv i t i e s a resequenced into the process and com-bined to form a value stream. Each valuestream wil l then indicate how it f lowsfrom the customer order to the customershipment based on t ime metrics. 14 Theflow wil l then be put into act ion as thecustomer indicates they want the prod-uct or service, generating a pull demandto start the process to satisfy the customerdemand. As the organizat ion completeseach customer demand pull, they look toperfect the process by eliminating wasteas previously described. This is a con-t inuous cycle of act iv ity.

In either lean or a standard cost ingsystem, this process might slightly dif-fer in overal l execut ion, but both w il lst i l l perform every step, and both wil lrequire the act iv it ies performed to addvalue to the customer. The flow towarddel iver ing the product or per formingthe service must be as planned and with-out waste. Each wil l also look to perfect

the process to satisfy customer demand,improve quality, and reduce cost. Theexecution of each might be slightly dif-ferent due to the manufacturing processof either pull (make to order) or push(make to stock). I contend that standardcost ing can be used in a modified pullscenar io as long as the customer is atthe source of the demand and the pro-duction and standards are based on cus-tomer demand. This can be a difficultconcept to ut i l ize in a standard cost ingmodel, but it is expected to have differ-ent standard costs for the same productif the product is produced in differentvalue streams based on high or low vol-ume. This can be experienced when cel lmanufacturing the same part but in dif-ferent cel ls based on the customer.

TPS 4: LevelingOne of the lean concepts that is hard toresolve is the idea of one-piece flow in acontinuous flow with high product vari-ety or mix. The concept of heijunka, or levelproduction and scheduling, is used as analternative to the start–stop approachof batch production. The goal is tosmooth production. In this scenario,reducing batch sizes to equate withcustomer demand will improve cus-tomer relations and remove excessinventory or waste. There are manyillustrations for this in manufactur-ing, but the main idea is to reduce thesetup time to allow for balanced pro-duction. An illustration of smooth-ing production is to take the differentproducts and organize them to makea continuous production flow of allproducts. In the production flow of prod-uct A and product B, the product ionsmoothing is represented as A-B-A-B-A-B.15As we can see, production smoothingcan be incorporated into any methodol-ogy to reduce the risk of unsold goods,decrease inventory, and balance the use ofresources to be more effective and efficient.

TPS 5: Do it rightOne of the ma in concept s of l ean i sunderstanding the value proposit ion ofqual it y. For lean, qual it y is bui lt into

45LEAN AND STANDARD COSTING JANUARY/FEBRUARY 2018 COST MANAGEMENT

AS WE CAN SEE,PRODUCTIONSMOOTHING CAN BEINCORPORATED INTOANY METHODOLOGYTO REDUCE THE RISKOF UNSOLD GOODS,DECREASEINVENTORY, ANDBALANCE THE USE OFRESOURCES TO BEMORE EFFECTIVE ANDEFFICIENT.

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the process and culture. Some of theexamples include using quality assur-ance methods, detect ing problems bymachines and people, including supportsystems to quickly solve problems andimplement countermeasures (asking fivewhys), and allowing for stopping or slow-ing the product ion to get quality r ightthe first t ime to enhance productivity inthe long run ( i .e . , an andon system).This includes stopping the mentality of“move the metal.” 16

In either methodology, el iminat ingwaste will reduce cost and provide higherprofit . Eliminat ing rework of produc-t ion, essent ial ly complet ing a producttwice to ship to a customer, is waste alongwith the space and inventory needed tocomplete the rework. In many compar-isons, lean product ion has 67 percentfewer defects than mass production as wellas higher productivity.17 This formed thephrase in lean production that “qualityis free.”

For both methodologies, f ixing qual-ity issues at the point of occurrence isbene f i c i a l to the organ izat ion . Th i sreduces rework, inventor y, and spaceutilization. Implementing an andon sys-tem to stop production to eliminate anyaddit iona l rework in the sys tem w i l lreduce costs . Implement ing problem-solving teams using root cause solutionslike the five whys (i.e., asking the whyquestion five times to determine the rootcause of a problem) w i l l prevent theproblem from recurring.

Ano the r way to v i su a l i z e qua l i t yi s s u e s i s t o imp l ement t h e ro l l e dthroughput y ield metr ic. This is a greatmetric to show how production is work-ing or not work ing toward our cus -tomer demand . The d i f fe rence f romlean to s tandard cost i s that lean rec-ognizes the cur rent customer demandand makes to that schedule, while stan-dard cos t seeks to produce to a vol-ume that may or may not re f lec t thecurrent customer demand, of ten pro-ducing excess inventory. To assess qual-i t y, the ro l l ed throughput y ie ld w i l ldetermine how much waste is producedin the process .

For each operat ion, the standard fordefect (nonconformance) is known. For

production level quality, each of these oper-ations convert the defect level into a per-centage of conforming production, suchas 99.5 percent product ion. To obtainthe rol led throughput y ield, we simplymult iply al l the percentages from eachoperat ion together to obtain a s ing lepercentage yield. This percentage tells ushow many parts travel through the pro-duct ion process w ithout defect (non-conformance). The hidden plant is nowexposed and can be calculated based onthe cost for rework or scrap needed tomake the part conform to the customerspecificat ions.

This cos t i s usua l ly bur ied w i th inoverhead as an indirec t cost and notre v i ewed . By imp lement ing ro l l edthroughput y ield, this cost can be eas-ily seen, managed, and corrected. For anyaccounting methodology, correcting fordefec t , scrap, rework, war rant y, e tc . ,w i l l not only improve the bottom l inefor the organ izat ion’s cos t s but a l soallow for growth as we free up resourcessuch as people and machine t ime tomake more parts instead of fixing alreadyproduced par ts.

Due to the nature of defects, rol ledthroughput y ield wil l also indicate bot-tlenecks in the process due to the over-all flow of product not being in agreementwith the standard of defect, indicat ingissues in production to identify the defect,c aus ing a lo s s of produc t iv i t y. Theimproved business decision occurs dueto the identificat ion of inefficiency inmachine usage of producing good partsand underuti lized capacity that can beused for growth.

TPS 6: StandardizeTaiichi Ohno indicated that standardsare required for lean production to work,and “without standards there can be nokaizen” or improvement.18 This is a strongstatement by one of the or ig inal leanleaders establishing that standards are thefoundation for continuous improvement.Fortunately, the most common aspect ofeach cost ing methodology is the use ofstandards. Both use standards to iden-tify the current state of costing and workinstruct ions. When there is a change to

46 COST MANAGEMENT JANUARY/FEBRUARY 2018 LEAN AND STANDARD COSTING

THE DIFFERENCEFROM LEAN TO

STANDARD COSTIS THAT LEAN

RECOGNIZES THECURRENT

CUSTOMERDEMAND AND

MAKES TO THATSCHEDULE, WHILESTANDARD COST

SEEKS TOPRODUCE TO AVOLUME THAT

MAY OR MAY NOTREFLECT THE

CURRENTCUSTOMER

DEMAND, OFTENPRODUCING

EXCESSINVENTORY.

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the s tandards, this is ref lec ted in thevariance and updated in the cost ing orprocess f low, represent ing cont inuousimprovement.

Standard cost applies a planned valuefor a l l products based on labor, mater-ia l , and overhead. To impose cont inu-ous improvement, utilizing improvementkata and coaching kata wil l assist w iththis process. Improvement kata is therev iew of the current condit ion againsta target condit ion for improvement andchanging one var iable at a t ime. 19 Usingstandard cost as the target condition, wecan t rack our approach for improve-ment , reduc ing h i gh v a r i ance . Th i srev iew of the data can be per formeddai ly, week ly, monthly, or year ly andcan be used by both methodologies forimprovement.

TPS 7: VisualizingIn any methodology, the control andmonitor ing aspect is needed to under-s t and i f t h e p ro ce s s i s work ing a sexpected, and when it is not working asexpected, where to adjust . One way tounderstand the process is to v isual izet he a c t i v i t y. Th i s i s a c compl i shedthrough cont rol char ts w ith the t aktt ime as the standard or average to beach ieved . Ut i l i z ing upper and lowercont ro l l im i t s c an de t e rm ine i f t h eprocess is in control or lean. Any thingouts ide of the control l imits is waste.Thus, this v isual ly ident if ies ac t iv it iesin normal and abnormal condit ions .Since the char t indicates the level ofac t iv i t y by date , we can ident i f y thetimes when this occurred to understandand fix the issue. This is another methodof identify ing the hidden plant or wastenot eas i ly seen.

Another v i sua l proce s s i s t he 5Smethod. The process of e s t abl i sh ingva lue and non-va lue in a proces s orworkplace is essent ial for any var iancereduction program. The 5S program canbe brought in to complete this act ion.In any process, 5S star ts by sor t ing theprocess for value-added and non–valueadded activities (seiri), setting the value-added act iv it ies in order (seiton), shin-ing or having the value-added act iv it ies

in the best possible condition (seiso), stan-dardizing the value-added act iv it ies forall to understand and use (seiketsu), andfinal ly sustaining the act iv ity to con-tinually remove non–value added activ-i t i e s or v a r i ance f rom the proce s s(shitsuke). 20 As we can see, this processcan benefit any methodology for var i-ance reduct ion.

TPS 8: TechnologyAlthough automat ion is v iewed as animprovement to productiv ity, new tech-nology can be unreliable and difficultto standardize. It is of ten best to workout a process manual ly before addingtechnology to support the process.21 Thisstarts through small increments of capac-ity, installing in-process sequences, suchas cel lular layouts, and keeping them assimple as possible. The goal is to mini-mize the throughput t ime for the wholesequence of production steps while max-imizing machine capability and avai l-ability (cal led stability) as opposed tomachine utilization. Workers are typicallymore flexible than machines, so automa-tion is only considered if necessary. Seek-ing improvement through technology isnot discouraged, but the entire processmust benefit before that path is utilized.Since 1990, production manufacturershave not seen advancements in automa-tion for component and final assembly.22

For either methodology, consider theentire flow of the change to technologybefore installing, which includes test ingand validating the improvement of flow.There is a great quote by Ei j i Toyodaregarding the use of technology : “Wemust remember that in the end it is theindividual human being who must solvethe problems.” 23

ConclusionThis is a first step to bridge the method-ology gap that exist between the pract i-t ioners of lean and standard cost ing. Afuture a r t i c le w i l l comple te the TPSreview of the two methodologies usingprinciples 9 through 14. The goal of thisar t icle is to show commonality betweenthe lean and standard cost ing method-

47LEAN AND STANDARD COSTING JANUARY/FEBRUARY 2018 COST MANAGEMENT

THE PROCESS OFESTABLISHINGVALUE AND NON-VALUE IN APROCESS ORWORKPLACE ISESSENTIAL FORANY VARIANCEREDUCTIONPROGRAM.

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48 COST MANAGEMENT JANUARY/FEBRUARY 2018 LEAN AND STANDARD COSTING

ologies and not continue the divergenceof the cost accounting community. We canaccomplish more by working togetherthan separately. Let’s come together overthe opportunity for improving manage-ment accounting. n

NOTES1Lennon, J. and McCartney, P. , “Come together,”Abbey Road. Recorded by The Beatles, (United King-dom: Apple Records, 1969).

2Cunningham, J.E. and Fiume, O., Real Numbers:Management Accounting in a Lean Organizat ion .Adams, E. (Ed.) , (Durham, N.C.: Managing TimesPress, 2003).

3Fr igo , M.L . , Cost Accoun t ing . (Ha rcou r t B raceJovanovich Col lege Outl ine Series, 1986): 97–137.

4Op. Cit. note 2, p. 87.5Wolmack, J.P. and Jones, D.T., Lean Thinking: Ban-ishing Waste and Create Wealth in Your Corporation.(New York: Simon & Schuster, 2003).

6 Ibid .7Kapanowski, G., Lean strategy: Customer focus forgenerat ing competit ive advantage, Cost Manage-ment 30, no. 5 (2016): 37–42.

8Ohno, T. , The Toyota Production System: BeyondLarge Scale Production . (Port land, O.R.: Produc-t iv ity Press, 1988): 19–20.

9Liker, J.K., The Toyota Way: 14 Management Prin-c ip les f rom the Wor ld’s Greatest Manufacturer .(New York: McGraw-Hil l , 2004): 87.

10Kapanowski, G., Lean maturity assessment: Fromtheory to pract ical use, Cost Management 30, no.3 (2016): 28.

11Rother, M. and Shook, J. , Learning to See . (Cam-bridge, M.A.: Lean Enterprise Inst itute, 2009).

12Womack, J.P., Jones, D.T., and Roos, D., The MachineThat Changed the World. (New York: Simon & Schus-ter, 1990): 288.

13 Ibid . , p. 52.14Op. Cit . note 11.15Op. Cit . note 12, p. 296.16Op. Cit . note 12, p. 55.17Op. Cit . note 12, p. 83.18Op. Cit . note 12, p. 290.19Rothe r, M. , Toyo t a Ka t a : Manag ing Peop le fo r

Improvement, Adaptiveness, and Superior Results .(Rother & Company, 2010).

20Hirano, H., 5 Pillars of the Visual Workplace: The Source-book for 5S Implementation . Talbot, B. (Translator),(Port land, O.R.: Productivity Press, 1995).

21Op. Cit . note 9, p. 9.22Op. Cit . note 12, p. 292.23Op. Cit . note 21, p. 159.