Best Practices in Lean Six Sigma Process Improvement: A Deeper Look

Chapter 6. The Metrics Trap

When JIT and TQC first lapped up on western shores, it quickly became clear: Our management accounting systems were wrong—three times wrong.

1. Wrong costs. The system spread overhead costs evenly among easy work (high-volume standard products) and taxing stuff (low-volume specials), warping pricing, resource allocation, and profit determinations.

2. Wrong motivation. Fed by wrong cost data, the cost-variance system drove work centers to produce in excess of and oblivious to usage at the next process, also to neglect training, maintenance, and safety in order to produce more and avoid negative cost variances.

3. Wrong locus of control. Centers of control were remote, in place and time, from where the work was done: Control was in the hands of accountants and other distant staff, and relied on well-after-the-fact reporting. (The accounting data is the batch-and-queue information equivalent to batch-and-queue production.) Problem signals were outdated by a week or a month, so that symptoms of problems could not be tied to specific causes.

Lean accounting aims at righting those wrongs. Those prominent in lean accounting see process improvement as the driver of cost reduction, rather than the other way around. Lean accounting's early (1980s) innovation was activity-based costing, which greatly improves cost accuracy and precision. But does that accuracy serve any valid purpose, given the common misuses of cost information? There is just one purpose that scarcely anyone ...