Academic journal article Journal of Managerial Issues

Managerial Accounting and Continuous Improvement Initiatives: A Retrospective and Framework

Academic journal article Journal of Managerial Issues

Managerial Accounting and Continuous Improvement Initiatives: A Retrospective and Framework

Article excerpt

With the explosion of new continuous improvement initiatives in the last three decades, the role of the accountant has evolved from measuring and reporting business activities to working on teams with management science, marketing, finance, and other professionals to implement modern management initiatives. Some of the more familiar initiatives include Just-in-Time (JIT), Total Quality Management (TQM), Statistical Process Control, Target Costing, Benchmarking, Process Re-engineering, Theory of Constraints (TOC), Activity-based Costing/Management (ABC/M), Balanced Scorecard (BSC), Six Sigma, and Mass Customization. Are these tools different from traditional methods used to understand and improve processes? Are they mutually exclusive? What are their common elements? We address these questions by examining the historical context that fostered the development of modern improvement initiatives.

Our purpose is to consider the broader issues and relationships among the initiatives for the purpose of gaining an understanding of problems central to success in the new competitive environment. The first section of our article examines the historical and environmental context in which modern improvement initiatives were developed and provides an overview of each initiative. We emphasize key objectives as well as provide insights into why each initiative should improve some aspect of performance. Next, we develop a classification framework that illustrates how each technique relates to other management initiatives. We then present our conclusions and lessons learned.


To understand how the various modern management initiatives relate to each other, we must understand the historical context that fostered their development. For example, the advent of modern manufacturing, known as the second industrial revolution, began in the early 1900s. Major developments in this period include assembly lines and the Ford concept of mass production (e.g., Black, 1991). By the 1940s, these concepts were fully developed. However, World War II devastated much of the industrial capability of Europe and Japan. After the conflict ended, Japan and Europe rebuilt their industrial infrastructure while experimenting with new approaches to production and asset management. Two important developments that emerged from post-war Japan were JIT and Kanban, coupled with an emphasis on quality. These techniques were central to the Toyota production system that set the global standard for production efficiency.

JIT, Kanban, and TQM

Following the Second World War, Japanese companies had limited access to capital. Thus, manufacturers could not afford to produce and carry large amounts of inventory nor could they afford to purchase large numbers of new machines. As a result, companies produced for demand, rather than for inventory. To fill customer orders in a timely fashion, companies devised ways to drastically reduce manufacturing lead times and machine setup times. In doing so, they also reduced inventory carrying costs. Small batch production resulted in lower investments in work-in-process and finished goods inventories.

Japanese manufacturers understood that another effective way to reduce costs was to increase quality by doing things right the first time. With limited production equipment and capital to invest in new equipment, manufacturers could not afford the luxury of time-consuming re-work or inefficient machine setups. Japanese manufacturers were able to reduce dramatically the number of products requiring re-work. Reduced set-up times permitted smaller batch sizes, and thus manufacturers were able to identify manufacturing problems before large quantities of defective units were produced.

Toyota founder, Kiichiro Toyoda (Porter et al., 2000), stressed the flow system known as Kanban and the concept of Just-in-Time. In 1950 Taiichi Ohno, a Toyota executive, improved the system to what is commonly referred to as "Lean Production" or the Toyota production system. …

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