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Lean Accounting vs Throughput Accounting

While hashing through the concepts of Lean Accounting and Throughput Accounting, I came across this presentation that seeks to outline the two concepts, compare and contrast them. The presentation is available for free on the web and was prepared by Peter Milroy of Constraints Management Systems Inc. So let’s dive into the presentation right away:
Peter summarizes Throughput Accounting the following way:

  • Measurement and decision-making tools that align analysis with bottom-line results
  • Simple, common-sense financial categories aligned with generating sales (throughput), improving cash flow (investment) and providing capacity (operating expense)
  • All measurements and decision-making approaches are based on ‘relevant cash flows’ – no allocations are used
  • The system constraint(s) provide the basis for our understanding of which cash flows are relevant at any time

He then goes on to outline a hypothetical case of TA measurements on a month to month basis:


So how does one make ongoing decisions on the basis of Throughput Accounting?
Since there are only three basic variable outlined above, it follows that changes can be made in three main categories namely delta(Througput), delta(Investment) and delta(Operating Expense). As opposed to traditional cost accounting, the decision are not made on the basis of unit costs. I had made an earlier post that talked about Time as a fourth variable in Throughput Accounting and the role that is played by time is in the calculation of profit rate (which is calculated as Throughput per unit/Time per unit).
The essential difference, according to Peter, between Lean Accounting and Throughput Accounting is captured in the slide below:

And further more,

Very interesting, to say the least.

Categorized as: Throughput Accounting_, Lean_, Theory of Constraints_
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Category: Lean, Theory of Constraints

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