Many researchers have identified the negative impact that
accounting methods have on reported profits as inventories
are being rapidly reduced. This research explores the magnitude
and duration of the negative impact on reported profits
experienced during a lean manufacturing implementation.
The effect on reported profit is evaluated under five accounting
methods (full absorption costing, activity-based costing,
direct costing, throughput costing, and order activity
costing) and three levels of inventory reduction rate.The findings
reported here indicate that the period-by-period gains
in operational efficiency, resulting from process improvements
brought by a lean program, will not counteract the negative
impact from the accounting system on the income statement
while inventories continue to be reduced. This could lead to
the early termination of a lean program that is, in fact, bringing
operational improvement in the present time, but the improvement
is being erased by poor inventory control practices
from past periods.
This research uses a multi-period simulation model of a
production operation that incorporates a manufacturing planning
and inventory tracking system. A hybrid simulation approach
is employed using MicrosofP Excel to model the
Manufacturing Resource Planning (MRPII) function, while
ProModel simulation software is used for the development
and operation of the model production environment.
Microsoft e Visual Basic ® is used to create a bridge between
systems for schedule dissemination and inventory updates.
The integrated computer simulation modeling approach developed
to conduct this research is novel in the sense that
multi-period simulation, incorporating MRP, has not been
widely used based on available literature.