If I said that the Standard Cost of a product increased from $55/unit to $63/unit after Lean Improvements, would you say that the Lean countermeasures were a failure? In a Standard Cost Accounting world, I would agree with you---however, what if I said that;
Well still, we might say that the Lean Improvements didn’t ultimately reduce the unit cost, so these benefits are great, but we are in business to make money, so maybe the Lean improvements didn’t help us make money.
Let’s take a closer look at the Standard Unit Cost and how this metric hides other improvements listed above. For example, before and after Lean Improvements, the Sequential Operations of a product is as follows:
Drill 12 min 12 min
Insert 5 min 8 min
Tape 6 min 7 min
Inspect 3 min 2 min
Pack 4 min 5 min
Total 30 min 34 min
If the following stays the same:
We can see that the Standard Cost will actually go up because after the Lean improvements, the total time increased by 4 minutes---what? How is that good?
In Standard Cost accounting, it is not good when the unit cost went from $55/unit to $63/unit. Standard Cost Accounting adds process times sequentially. However, in Lean and reality, time isn’t sequential. Lean would look at the drilling operation and say that is our bottleneck at 12 min, so no matter what we will only produce 5 units/hour (unless we are able to improve the drill cycle time).
Now after seeing it in this light, if the above bulleted improvements are shown, I would say without a doubt that the Lean improvements were extremely successful and invisible to Standard Cost Accounting. Standard Cost Accounting has the following limitations:
If you want to learn more about Lean Accounting, come join the ATAC team next year at the beach.