Essay: Effects of Lean Manufacturing on Financial Statements

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Essay: Effects of Lean Manufacturing on Financial Statements

Sample Essay

Lean manufacturing strategies have significant effects on the financial statements of the food company in question. To begin with, the opportunity cost is improved in that the future costs are reduced since space is conserved and therefore there is no need of building new buildings to help in the production. By reducing space costs, and depreciation costs, cash is utilized well than before. Inventory turnover and inventory are reduced and this helps in positively affecting the cash flow and thus improved capital utilization.

The effect will be more pronounced in the balance sheet than in the income statement although debt interests reflected in the income statement will be reduced. Starbucks uses lean manufacturing strategies and through this, they are able to keep their costs very low but production steady. Because of implementation of TPM, machine uptime will be improved and this will eventually lead to capacity utilization improvement. Quality improvements will automatically lead to reduction in wastes, which could have resulted from return of goods and this further leads to less material costs as shown in the income statement of the company (Heymans).

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