Health Care -- Lean Philosophy on Cost Research Paper

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Health Care -- Lean Philosophy on Cost Reduction and Quality Improvement

Lean Philosophy is initially traced back to Henry Ford's innovative assembly line, revolutionizing manufacturing while failing to provide true variety. Building on Ford's concepts Toyota management established a Lean Philosophy in the 1930's and 1940's that focused on production flow and waste elimination, resulting in rapid, low cost and high quality processes, along with simpler and more accurate management. These concepts were further elucidated by authors including James Womack, who established the Lean Enterprise Institute in 1997.

The essential elements of Lean Philosophy are 5 principles including: defining the value sought by the customer; specifying the value stream of the product satisfying that value while challenging wasted steps; making a continuous flow of product through refined steps; creating "pull" (essentially meaning "customer demand/expectation") from step-to-step for continuous flow wherever possible; continually improve and refine the process to cut the steps, time and information required in the production process. Based on these principles, proponents of Lean Philosophy established a Lean Action Plan consisting of initiation; reorganization; installation; and completion of transformation. This philosophy ideally creates a customer-oriented human system that defines value from a customer's perspective, reducing effort, cost, time and space while improving customer service.

Companies using the Lean Philosophy often found that traditional accounting concepts were anti-lean. Consequently, a Lean Accounting method was developed, also stressing customer-oriented, value-centric processes. Defined by the Lean Accounting Summit in 2005, Lean Accounting has a vision dedicated to quality improvement and cost reduction. Accordingly, Lean Accounting employs the 5 principles of: lean and simple business accounting; accounting processes supporting lean transformation; clear and timely communication; planning from a Lean perspective; and strengthening internal accounting control.

Due to the notable success of Lean Philosophy and Lean Accounting, they have spread globally to non-manufacturing industries, such as the health care industry. While the health care industry has many complex processes that benefit from Lean Philosophy and Lean Accounting, one example of muda (source of waste) that is readily responsive to Lean Accounting is the medical supplies area. Applying lean and simple business accounting, accounting processes supporting lean transformation, clear and timely communication, planning from a lean perspective and strengthening internal accounting control, Lean Accounting is able to streamline supplies processes, significantly reducing costs and improving quality.

Outline

Introduction

Analysis

Lean Philosophy

Background of Lean Philosophy

Essential Elements of Lean Philosophy

Lean Action Plan

Initiation

Reorganization

Installation

Completion of Transformation

Benefits of Lean Philosophy

Lean Accounting

Background of Lean Accounting

Vision of Lean Accounting

Principles, Practices and Tools of Lean Accounting

Lean and Simple Business Accounting

Accounting Processes Supporting Lean Transformation

Clear and Timely Communication

Planning from a Lean Perspective

Strengthen Internal Accounting Control

Application of Lean Accounting to Health Care: Supplies Areas

Lean and Simple Business Accounting

Accounting Processes Supporting Lean Transformation

Clear and Timely Communication

Planning from a Lean Perspective

Strengthen Internal Accounting Control

Conclusion

Introduction

Lean Philosophy, established and refined in the 20th Century, revolutionized manufacturing. Focused on customer-oriented value, Lean Philosophy proactively defines and eliminates waste in order to continually provide higher quality while lower costs. Though Lean Philosophy was initially attempted with traditional accounting methods, Lean proponents found that traditional accounting is bloated and anti-lean. Consequently, Lean Accounting was developed to enhance the Lean Philosophy. Due to the success of Lean Philosophy and Lean Accounting in manufacturing, these concepts have spread globally to government and service industries, including the health care industry.

Analysis

Lean Philosophy

Background of Lean Philosophy

Historians trace the Lean Philosophy's origins back to Henry Ford's innovative assembly line, invented in 1913 (Lean Enterprise Institute, 2009). Integrating the entire production process with his "flow production," consisting of interchangeable parts, standard work and moving conveyances, Ford revolutionized manufacturing. Nevertheless, Ford's flow production had a major drawback in that it did not provide true variety (Lean Enterprise Institute, 2009). Refining Ford's flow production from the 1930's through the 1940's, Toyota's Japanese management identified 7 mudas (sources of waste) in manufacturing: conveyance, motion, waiting, overprocessing, inventory, defects, and overproduction (Jimmerson, 2010, p. 3). Concentrating on eliminating waste, Toyota management placed even greater stress on the concept of flow through tailoring machines for needed volume, using self-monitoring machines, arranging machines in order of process, originating rapid set-ups to enable machines to make several parts in low volumes as necessary, and authorizing each step to notify the prior step of needed materials (Lean Enterprise Institute, 2009). These innovations resulted in rapid, low cost and high quality processes, along with simpler and more accurate management (Lean Enterprise Institute, 2009).

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Those concepts, which proved highly successful for Toyota, were applauded and further refined in The machine that changed the world: The story of lean production (Womack, Jones, Roos, & Carpenter, 1990), and then reduced by Lean thinking: Banish waste and create wealth in your corporation (Womack & Jones, 1996) into fundamental elements. Finally, James Womack, a co-author of both books, established the Lean Enterprise Institute in 1997. Since that time, the Lean Enterprise Institute has flourished as a non-profit organization dedicated to education, publishing and research in order to advance and deepen understanding of Lean Philosophy (Lean Enterprise Institute, 2009).

Essential Elements of Lean Philosophy

Lean thinking: Banish waste and create wealth in your corporation (Womack & Jones, Lean thinking: Banish waste and create wealth in your corporation, 1996) clarified Lean Philosophy into five basic principles: defining the value sought by the customer; specifying the value stream of the product satisfying that value while challenging wasted steps; making a continuous flow of product through refined steps; creating "pull" (essentially meaning "customer demand/expectation") from step-to-step for continuous flow wherever possible; continually improve and refine the process to cut the steps, time and information required in the production process (Lean Enterprise Institute, 2009). In sum, focusing only on steps creating products that satisfy a value sought by customers, this philosophy separates the useful from the wasteful and eliminates the wasteful, wringing the most productivity out of its workforce's time and resources.

Lean Action Plan

According to the Lean Enterprise Institute, conversion from a bloated philosophy to an effective lean philosophy requires significant changes in an organization's culture through four multifaceted, well-defined steps: initiation; reorganization; installation; and completion of transformation.

Initiation

Management must find a leader to take personal responsibility for the organization's conversion to Lean Philosophy. Then, with the assistance of this "change agent," the organization should use a consultant who can teach the system of Lean techniques and implementation. Armed with this knowledge, management must use or create a crisis faced by the organization and/or focus on a lean competitor, customer or supplier that is demanding significantly improved performance from the organization. Leaving aside a grand strategy, the organization must map its "value streams," tracing the current processes for information and material, then redrawing its value streams in a desired, leaner state and setting a timetable for implementation of those new value streams. The organization should then begin following the new value streams with a visibly important organizational activity, demanding immediate results from the new practice. Finally, the organization should use the momentum gathered from these new processes to spread and link the processes, extending beyond the "shop floor" to office processes (Lean Enterprise Institute, 2009). One of the Lean Philosophy tools used to accomplish initiation is the "Lean Event" or "Kaizen Event," a process-improvement workshop used by company cross-functioning teams to create, redesign and further refine processes. Though this tool is logically related to this step, it is obviously valuable at all further steps in the process. Kaizen, which is a system of control and improvement, may also involve a "5S Program," which focuses on visual order, cleanliness, organization, and standardization through the 5 S's of: "Sort," the initial step in cleaning up and organizing; "Set in Order," which entails organizing, identifying and arranging everything in the work area; "Shine," entailing regular maintenance and cleaning; "Standardize," involving standardization and simplification in order to make maintenance easier; "Sustain," involving maintaining the first 4 accomplishments (Lean Enterprise Institute, 2009).

Reorganization

After initiation, the organization must be restructured according to product grouping and the new value streams established during initiation. The reorganization focuses on constructing a new strategy for growth and eliminating: any step that does not comply with the new value streams; every employee whose job has been rendered unnecessary by the new value streams; every employee whose job performance tends to slow the process. In addition, management should focus on continual improvement of the system, settling for nothing less than improvement. Finally, management should assure remaining employees that their jobs will not be jeopardized by Lean techniques (Lean Enterprise Institute, 2009).

Installation

At the point of installation, management should create a Lean culture throughout the organization. This is accomplished by adjusting company policy according to Lean Philosophy, teaching the philosophy and skills to everyone within the organization, making performance measures clear to everyone, compensating employees according to the organization's performance, altering tools, machinery and information systems to their appropriate size for.....

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