IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 1
The Impact of Lean Accounting and Lean Manufacturing on Organizational Performance
Edmund Asare
School of Business, Liberty University
IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 2
Abstract
The rate of dynamism and competitiveness in today’s business environment, with short product
life cycles, rapid advancements in technologies, and changing consumer preferences has
contributed to the increasing adoption of lean manufacturing and lean accounting practices by
manufacturing firms. The dominant explanation for this trend is the quest for long-term
sustainability, organizational survivability and profitability by manufacturing and rendering
quality products and quality services respectively. Previous research has primarily shown that
adopting traditional production and traditional (full cost) accounting practices does not align with
goals such as increasing product flow and product quality, inventory reduction, improving
decision-making, waste reduction and inefficiency, and increasing profitability. This study
analyzes the correlation between lean manufacturing and accounting practices, and
organizational performance in the context of strategically allocating financial resources. The
findings indicate that organizations that implement lean manufacturing and lean accounting
practices experience improved financial performance, as evidenced by increased profitability,
reduced costs, and enhanced strategic financial resource allocation. Furthermore, the study
identifies several key factors that contribute to the successful implementation of lean practices,
including top management support, employee involvement, and effective communication, which
could potential steer the overall performance of an organization.
Keywords: lean manufacturing, lean accounting, profitability, organizational
performance, strategic financial resource allocation, waste, inefficiency, product quality
IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 3
The Impact of Lean Accounting and Lean Manufacturing on Organizational Performance
Globalization, emerging markets, market uncertainty, volatile market competition, and
increasing demands by customers are factors that shape up the current business environment.
These conditions serve as impediments to the survival of businesses and their ability to remain
competitive. Manufacturing companies faced with challenges of this nature tend to seek
solutions in these conditions by adapting their management styles to suit the terrain and look for
new manufacturing strategies. Lean Manufacturing (LM) and Lean Accounting (LA) methods
are the most widely manufacturing strategies in the allocation of financial resources and
management control styles accepted by firms worldwide to enhance their organizational
performance (Antony et al., 2021; Panigrahi, 2023) and boost their competitiveness (Ferreira et
al., 2023).
Organizational performance plays a key role in the survival of any organization, which is
the ultimate goal. In recent economic times, the urgency with which businesses are strategically
allocating their financial resources has increased dramatically. From waste elimination and value
streamline processes to improving efficiency in production and value creation to the consumer
with focus on quality products and services, various businesses in different industries,
specifically, the manufacturing industries are adopting lean (effective cost management)
practices. However, organizational structure and hierarchy coupled with cost and resource
constraints and industry-specific challenges, for example businesses operating in highly
regulated industries like healthcare or aerospace may face additional compliance requirements
that can hinder the adoption of lean practices. These reasons are among several others that keep
several firms deeply entrenched in traditional production and traditional (full cost) accounting
practices.
IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 4
While the benefits of LM and LA outweigh that of traditional production and traditional
accounting practices, and therefore the application of LM and LA have increased globally
(Bhadu et al., 2022) from firms in developed economies, specifically in United States and
Europe, to businesses in developing economies, specifically in Africa and Asia (Bhadu et al.,
2022), the costs associated with the implementation of LM and LA continues to pose a
challenge. (Blocher et al., 2022).
This study is essential to firms, particularly in the manufacturing industry because it
advances and contributes to organizations seeking pragmatic solutions to business problems
associated with strategically allocating financial resources and boost organizational performance.
This study explores the relationship that exists between LM, LA and organizational performance.
World renowned automaker, Toyota and global producer of shoes and athletic clothing
incorporated lean practices in their product development processes for many decades,
streamlining processes and reduced cycle times, empowering employees through engagement
and motivation, increased customer satisfaction etc. and achieved organizational performance
maintain dominance in their respective industries (Hallam et al., 2018; Panigrahi et al., 2023).
The purpose of this literature review is to examine the cost management strategy of Lean
Manufacturing (LM) and Lean Accounting (LA) in the context of manufacturing firms. I provide
overviews of both lean manufacturing and lean accounting, including theoretical foundations and
historical context. Then I examine lean manufacturing and lean accounting as used on their own
as well as in combination as part of cost strategy in allocating financial resources to enhance
organizational performance (see Rounaghi et al., 2021, for more). Throughout the review, I
highlight themes in the research. Finally, I end by pointing out limitations in the existing
literature and explore potential future research directions.
IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 5
Lean Manufacturing
Lean Manufacturing as a Cost Strategy
Lean manufacturing focuses on eliminating waste and improving efficiency in production
processes. Although the origination of lean concepts began in the manufacturing setting, its
principles have gained universal application (Marsilio & Pisarra, 2021). With inspiration drawn
from Toyota Motor Corporation, the concept of lean practices hinges on the examination of a
firm’s value stream and decimating all non-value adding activities while focusing on customer
satisfaction (Ferreira et al., 2023).Numerous studies have highlighted the positive impact of lean
manufacturing on organizational performance. For example, Antony et al. (2021) found that lean
manufacturing practices, such as just-in-time production and continuous improvement, lead to
improved quality, reduced lead times, and increased customer satisfaction. Similarly, Fullerton et
al. (2014) found that lean manufacturing practices positively influence operational performance,
including cost reduction and increased productivity.
Contemporary research shows the efficacy of lean manufacturing for improving
efficiency, and supporting other areas of the organization by freeing up financial resources that
would have been otherwise wasted, for example, funds saved from reduced inventory can be
invested in research and development or marketing activities to drive innovation and market
growth (Zhang, 2021). Lean manufacturing is often typically paired with lean accounting, and
uses value streams to assess the firm’s financial benefits of progress in implementation of lean
manufacturing (Blocher et al., 2022).
Lean Manufacturing and Organizational performance
IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 6
Lean manufacturing promotes the concept of just-in-time production, where products are
produced based on customer demand (Ferreira et al., 2023). Organizations operating in this
regard are typically more responsive to customer needs and markets changes. By reducing
inventory levels and lead times, organizations can quickly adapt to changing demands, resulting
in improved customer service and increased competitiveness beneficial to the organization.
Hadid (2019) underscored two such benefits of lean manufacturing to organizational
performance by showing (a) involving employees in problem-solving and decision-making
processes, organizations can tap into their knowledge and expertise which does not only improve
employee morale and job satisfaction but also leads to innovative ideas and continuous
improvement initiatives, ultimately enhancing organizational performance, and (b) the
importance of quality at every stage of the production process.
Empirical research focused on lean manufacturing supports the efficacy of the cost
management strategy within the manufacturing settings, with positive outcomes for auto-makers,
and healthcare industries (Marsilio & Pisarra, 2021). Lean manufacturing have even been found
to increase “utilize resources effectively which is regarded as fundamental to success in today’s
competitive environment (Rounaghi et al., 2021, p. 2). For example, Marsilio and Pisarra (2021)
examined the effect of cost management in 10 healthcare firms. Firms practicing lean
management reported higher efficiency of financial resources being strategically allocated in
areas of the business that were much needed, elimination of non-value added activities and
overall improved organizational performance. Marsilio and Pisarra concluded that lean
management contributed to organizational performance.
Lean Accounting
Lean Accounting as a Cost Strategy
IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 7
Lean accounting is a management accounting approach that aligns with lean
manufacturing principles, providing financial information that supports lean initiatives and helps
in making informed decisions. Several studies have examined the impact of lean accounting on
organizational performance. For instance, Nguyen and Ngo (2023) found that lean accounting
practices, such as value stream costing and performance measurement, can improve decision-
making and enhance financial performance. Similarly, Blocher et al. (2022) argued that lean
accounting can provide more accurate and timely financial information, leading to improved
decision-making and performance.
The integration of lean manufacturing and lean accounting can further enhance
organizational performance. By aligning financial information with lean initiatives, organizations
can make more informed decisions on resource allocation. For example, lean accounting can
provide insights into the financial impact of lean manufacturing practices, enabling organizations
to allocate resources to areas that generate the highest return on investment (Bhadu et al., 2022).
This integration can also facilitate the identification of waste and inefficiencies in financial
processes, leading to cost reduction and improved financial performance.
Lean Accounting and Organizational Performance
Limited, but compelling, research has explored lean accounting and organizational
performance. Lean accounting has been used in conjunction with lean manufacturing to evaluate
operational efficiency based on lean thinking, elimination of waste and breaking down direct cost
aggregation associated with value stream to boost efficient productivity, quality and customer
service (Nguyen & Ngo, 2023). For example, Nguyen & Ngo stated the interest of the
Vietnamese government in improving productivity and product quality by instituting a national
program under the theme, “Improving productivity and product quality of Vietnam’s goods by
IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 8
2020”, depicted the gradual shift from traditional mass production and adoption of lean
accounting as strategy to enhance organizational performance.
Similarly, Zhang (2021) analyzed the production and cost management modes of a
manufacturing enterprise which showed non-productive resources of employees, re-work time
and handling time accounts for 36.37%, 61.05%, and 23.26% respectively. Zhang concluded that
in comparison with traditional cost management, lean accounting is more suitable for managing
lean enterprises.
Integration of Lean Manufacturing and Lean Accounting
Combining lean manufacturing and lean accounting practices as a cost management
strategy have been shown to improve organizational performance (Fullerton et al., 2014; Hadid,
2019). The research supports the existence of immediate and long-term positive effects of
combining lean management and lean accounting in manufacturing firms (Hallam et al., 2018).
For example, Ditkaew (2022) examined the relationship between lean management, lean
accounting and continuous improvement, followed by strategic decision-making. The regression
analysis model explained a high positive relationship of 89% between lean accounting
implementation and continuous improvement, 63 % of that existed between lean accounting
implementation and strategic decision-making. Findings showed that when an organization
practices “lean”, its control, accounting and measurement systems undergo change, reiterating
the failure of which may depict the shortcomings of lean manufacturing and lean accounting
unsustainable in the long term.
Conclusion
Limitation of Existing Research
IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 9
Research on the use of lean management and lean accounting methods to achieve
organizational performance is compelling but has significant limitations. Manufacturing firms
that implement lean management and lean accounting typically consist of both start-ups and
corporations and have a main purpose to solve problems cause by traditional accounting systems
(Panigrahi et al., 2023). Future research should address organizational hierarchy structure,
industry-specific challenges, and regulations that complicate the implementation of lean
management and lean accounting principles.
Future research should further examine the integration of lean management and lean
accounting practices and processes. The majority of the research on lean management and lean
accounting and its impact on organizational performance has used manufacturing but in the
context of automotive and healthcare industries. However, semi-conductor industry, which
recently faced a supply chain crisis offers potential advantages and limitations (Ditkaew, 2022).
For example, firms adopting lean production must simultaneously implement lean accounting to
assist in securing optimal information and ensuring strategic long-term and future organizational
performances (Zhang, 2021). Empirical research assessing these interventions is limited, and
further research is recommended.
IMPACT OF LEAN MANUFACTURING AND LEAN ACCOUNTING 10
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