Implementation of Lean Accounting Watlow Electric Manufacturing Company introduced lean principles in 2005 and reported a successful implementation in 2008. Watlow began with the implementation of...

Implementation of Lean Accounting Watlow Electric Manufacturing Company introduced lean principles in 2005 and reported a successful implementation in 2008. Watlow began with the implementation of lean principles and then adopted value-stream management (VSM) using the value-stream income statement. As expected, the use of VSM achieved better decision making (previously the firm had treated direct labor as a purely variable cost that varied with volume; after VSM it was clear that the behavior of labor costs was far more complex), reduced inventory, reduced manufacturing cycle times, and improved communication and coordination among employees. It was this latter result—better communication—that surprised Watlow management as employees began to work as teams that focused on the key success factors for the firm. The steps taken by Watlow to implement lean included: ∙ Identify the main value streams of the company (Watlow selected value streams consisting of 25–150 employees each; more than 90% of the company’s employees were assigned to a value stream). ∙ Determine the key measures for achieving the company’s strategic goals (these included measures of quality, safety, on-time delivery, and cost). ∙ Adapt the accounting system to VSM (this included changes in the accounting for direct materials, direct labor, and overhead). Required Given the implementation of lean as described above, what do you see as the challenges ahead for Watlow? What features of lean accounting have yet to be implemented? (Hint: Among other items, the following articles may be accessed and used as the basis of in-class discussion: Jan P. Bosnahan, “Unleash the Power of Lean Accounting,” Journal of Accountancy, July 2008, pp. 60–66; Brian Maskell and Bruce Baggaley, “What’s Lean Accounting All About,” accessible at: https://www.aicpa.org/interestareas/ businessindustryandgovernment/resources/operationalfinanceaccounting/downloadabledocuments/leanaccountingwhatit’sallabout.pdf.)