Lean accounting could give profit advantage to UK manufacturers says new research

Only 14 per cent of UK manufacturing companies have adopted the principles of lean accounting, according to joint research* undertaken by accountants and business advisers BDO LLP and The Manufacturer.

Tom Lawton, Head of Manufacturing at BDO, said: “UK manufacturing continues to make great strides in adopting ideas around lean manufacturing, and we believe that this has been one of the reasons that the sector has been so successful in recent years.”

“However, lean accounting, which provides strong support to the lean manufacturing process, has not been widely adopted, meaning that manufacturers are not using the right financial metrics in measuring and monitoring their improvements under lean manufacturing.  As a result, it could be reducing the benefits available under continuous improvement processes,” he continues.

“The survey shows that the principles of lean accounting are not well understood by most UK manufacturers and this may be the reason for the low take up.  But at its heart lean accounting is about establishing a financial reporting system that supports, complements and enhances lean manufacturing – and therefore helps improve a company’s profitability and working capital management. In the current difficult times this focus on profit and working capital management, particularly the reduction of inventories, is fundamental to the well managed manufacturing business,” Lawton clarifies. 

The biggest barriers to implementation were a lack of understanding of the approach (60 per cent) and a lack of understanding of the benefits (51 per cent).  However, a surprisingly high percentage (42 per cent) said that company culture was a barrier in preventing lean accounting.

On a more positive note, a quarter (24 per cent) of manufacturers planned on introducing lean accounting into their businesses within the next two years and 42 per cent said they would consider it in the long term.

“Lean accounting provides measures that are far more suited to today’s lean manufacturing methods than the more established methods based around standard/absorption costing. It can also help drive profitability and cash flow. Therefore it is pleasing that the survey shows that the use of lean accounting by manufacturers is expected to increase considerably in the next couple of years. Hopefully, this wider usage will help UK manufacturing as it seeks to maintain its competitive edge in the global market,” concludes Lawton. 

ENDS

* The research canvassed 101 UK manufacturers across the automotive, electrical/electronic, aerospace & defence, food & beverage and petrochemical & pharmaceutical sectors on their opinions of lean accounting.

For more information, or a full copy of the report, please contact Dee Crooks at BDO on 020 7893 2761/07815 172 051 or email dee.crooks@bdo.co.uk

Notes to editors:

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