The manufacturing firms that adopt the lean thinking ideas are trying to apply lean production thought because this topic is a discussion that includes common concepts of lean thinking (Ahakchi et al, 2012). Since the 1980s, numerous companies in different sectors of industry had introduced programs to develop quality and decrease wastes through achieving lean production (LP) approach. The main objective of this study is to scrutinize the impact of applying lean production techniques on the financial performance through introducing five lean production practices as these practices are related to cost reduction and continuous improvement. LP requires applying a set of practices that change the production processes in the company’s production system, so the company need essential modifications in the process of managing, evaluating, and controlling the accounting processes to encourage lean philosophy (Ahakchi et al, 2012), hence lean accounting should be understood and applied.
Background and Literature Review. (2)
2.1 The lean production (manufacturing)
Lean manufacturing (production) is a business approach which was created and established in Toyota Motor Company, Japan. After citing the concerned literature, the lean production is mainly based on shrinking costs and eliminating different categories of wastes through applying a variety of tools and techniques (Rose et al 2011, Bhatia and Drew 2007, Petterson 2009, Shah and Ward 2007). These studies explained several tools and techniques that can be adopted and developed under lean production approach, for instance; set up time reduction, just-in-time, value stream mapping, 5S, Kaizen, quality circles, Kanban, standard operation, continuous improvement, total quality management, cell layout, training, team work, and preventive maintenance. In Egypt, Salaheldin and Eid (2007) studied the application of World Class Manufacturing (WCM) techniques in the Egyptian manufacturing firms. They, found out that the most crucial variables that promote the application of WCM tools are "reduced operating costs (marketing and production)" and global issues "environmental – market". The outcomes of this study discovered that poor planning and lack of knowledge are the most substantial troubles5 to world class manufacturing application in the Egyptian manufacturing sector.
2.2 The Lean Accounting
Moving to lean thinking and lean production forced a vital question "why is traditional accounting not needed?" they discussed a number of answers for this question. First; traditional accounting systems are large, complex processes demanding a lot of non-value work, second; traditional accounting systems have no way to examine the financial impact of the lean improvements in the company, third; traditional accounting reports use technical words and methods such as "overhead absorption", "gross margin", lean company will look for to empower the entire workforce in improvement processes and decision making.
(3) Research limitations
This study focuses on five practices (Kanban, Kaizen, 5S, VSM, and JIT production) for a number of reasons: these techniques – to some extent – are contemporary in the Egyptian business environment, they focused on cost reduction, they are related to the continuous improvement which is very essential in the Egyptian industries, and finally they are comprehensive techniques that accomplish different goals simultaneously.
(4) Research Methodology
The sample (thirty managers) was selected from three segments of the textile sector which represent the target respondents; the production managers, the purchasing managers, and one member from the senior management (if available). The research approach is deductive in order to explain the causal relationship between the main variables (lean techniques and financial performance) through conducting a survey as a research strategy. The survey depends on a questionnaire that was developed to collect data from the sample stated above. To develop the questionnaire, a pilot study was planned to modify and/or eliminate the number of variables and questions, the comments and feedback were collected from academics (especially managerial accountants) and few managers from industries. The empirical research results use two ways: (1) Friedman test that was used to measure the relative significance for each item of all research variables, (2) the simple regression analysis which examines the influence of each independent variable on the financial performance. The following figure shows the basic research model.
Independent Variables Cofactors Dependent Variable
(5) Research Hypotheses
H1: Firms that adopt Kanban system are more likely to develop its inventory control system and achieve financial savings.
H2: Firms that have the philosophy of Kaizen approach are more likely to achieve continuous improvement and then improve the financial performance.
H3: Firms that implement the 5S system are more likely to improve its quality, increase its productivity, and reduce its production costs.
H4: Firms that adopt VSM are more likely to reduce or eliminate wastes, improve the product quality, and then enhance the financial performance.
H5: Firms that adopt JIT are more likely to reduce costs of inventory, reduce the level of wastes, and can increase financial savings.
H6: Firms that have strong support from the top management concerning the lean approach are more likely to adopt lean tools and techniques.
H7: Firms that have a relative focus on pursuing a differentiation strategy are more likely to implement lean tools and techniques.
H8: Organizational values and beliefs have a significant impact on the implementation of lean production techniques.
(6) Research Findings and Recommendations
(A) The most important findings
Kanban (KB)
The outcome emphasizes that the application of Kanban system (fully or partially) in the industrial firms has an influence on improving the financial performance through numerous actions: saving the transportation time and cost among production locations, providing accurate production information through the withdrawal and production cards, determining the precise quantities required for the production that results in avoiding overproduction and excessive transport operations, which sequentially lead to cost savings, serving as a work order which focuses on the necessary costs and avoiding the needless costs, saving the costs of defective parts, and finally this system reduces the inventory to its lowest level which leads to releasing of funds maintained in inventory for other purposes that create a return of investment (ROI) to the firm.
Kaizen (KZ)
The study proved that there is a strong tendency among the respondents towards the deployment of the continuous improvement philosophy within the company to overcome the problems faced by the company. These problems may include problems in production or manufacturing space, as well as throughput time (lead-time). In addition, the good application of Kaizen system may develop the financial performance indirectly through fulfilling the balanced scorecard (BSC) by the subsequent order; innovation and learning, internal processes, customer satisfaction, and financial perspectives.
5S System (5S)
These empirical outcomes emphasized the vital role of the 5S system in enhancing the financial performance of the company through the five pillars of 5S as indicated in the following figure.
This figure is generated by the researcher
Value Stream Mapping (VSM)
The perfect application of VSM can enhance the financial performance through the second step in the BSC (second step is the internal business processes) through identifying the target product or service and drawing /evaluating the current state value stream map which results in describing the value added and non – value added activities in the firm. Thus, classifying the activities into value added and non–value added helps discover the basic sources of wastes in the internal production system; these sources may include overproduction, transport, unnecessary inventory, unnecessary motion, and defective products.
Just-In-Time (JIT)
The study found out that there is almost an equivalent interest from the respondents towards the reduction of inventory to a minimum level and the importance of customer satisfaction. These outcomes emphasized the fundamental objective of JIT system which is reducing the inventory investment so that inventory carrying cost, insurance and go down cost can be reduced. This reduction in inventory leads to reduction in raw materials, work in process, and finished goods inventories.
Cofactors for the success of the relationship
(1) Top management support can be achieved through numerous activities; preparing several training courses for the workforce so as to inform them the benefits and returns that will be fulfilled from approving and applying lean techniques, and finally the firm should launch supplementary efforts to involve the labor force in the decision making process.
(2) The differentiation strategy is a proper strategy for the firms that adopt and apply lean techniques because it generates customer value by presenting high quality products reinforced by good service, it also depends on the balancing between product benefits and product costs for the customer.
(3) The organizational structure in the selected sample does not markedly emphasize the positive impact of organizational values and beliefs on the successful application of lean production practices.
(B) The most important recommendations
The study suggests more research on additional lean production techniques in order to develop a stronger theory and also encourage its adoption by firms.
Even though there are apparent problems with surveys in this field, but it also gives a broad perspective of what is going on and allows us to do some empirical analysis on different variables.
There is a crucial need for future research on the role of organizational values and beliefs on the adoption and implementation of lean production practices.
There is a dire need for further research on fundamental changes on the accounting systems to adapt with lean thinking and lean production.
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