Lean production: Mistakes and limitations of accounting systems inside the SME sector

Purpose: Implementation of lean production introduces the problem of what kind of management accounting to use. The purpose of this paper is to analyse aberrations that are typically created when traditional accounting is used in a lean organisation. Furthermore, the purpose is to discuss whether activity-based costing (ABC) and value stream accounting are suitable for lean production. These three accounting systems are compared under the particular conditions of a small-to medium-sized enterprise (SME) that is in an early stage of lean implementation. Design/methodology/approach: The paper is based on a case study carried out within a SME illustrated by three examples. In the first and second examples the SME analyses how the introduction of improvements, by the means of lean production, can lead to cost product mistakes when traditional accounting calculations are used. The second example deals with a comparison benchmark between traditional accounting and ABC. The third example analyses value stream accounting as an alternative to ABC and discusses the implications and limits for the SME. Findings: The results of the examples show first, the possible mistakes introduced by traditional accounting, and second, how the costing of a manufacturing lot varies when using traditional accounting and ABC. In addition, the results illustrate the interrelationships between lean production, ABC and value stream accounting. In particular, ABC seems to introduce some difficulties in terms of IT automation, and there are difficulties with value stream accounting because it requires a particular value stream-based organisation not particularly suitable for this SME. Research limitations/implications: The generalisability of the research findings is limited because of the use of a case study within a SME in which lean production is in an early stage of application and has a particular flexible organisation. This implies a need for further studies on other SMEs in different organisational situations. Practical implications: The implications are useful for SMEs that are implementing lean production and are thinking of achangeover from traditional accounting. The results can guide SMEs in the selection of the most effective accounting system considering particular factors such as the state of lean implementation, whether the organisation is value stream oriented or type of products manufactured. Originality/value: The paper discusses for the first time the implications of ABC and in particular of Value Stream Accounting inside a SME that is implementing Lean Production