At one point in time the lean manufacturing profit equation looked like this:
Cost + Profit = Price
It worked pretty nice. You simply added "cost" to your desired "profit" to calculate your asking "price" (and people paid it!). Well, those days are long gone.
Today, the new lean manufacturing profit equation looks more like this:
Price - Cost = Profit
The reality is the drastic increase in competition (and globalization) gives buyers more choices than ever before. The days of "brand loyalty" and simple selling are over – today, the company with the best product (and the best price) wins.
As a result, the marketplace forces a "price cap" – an upper limit buyers are willing to pay for your products. And the trend isn't likely to change anytime soon. So, with prices capped, the best way for you to increase "profit" is — you guessed it — to cut costs!
Depending upon how you look at it, this is good news or bad news.
It's bad news if decide to continue with business as usual. The chances of you remaining "king of the hill" are slim to none.
So what's the good news?
The good news is you have the opportunity to capitalize on change – right now. This is your chance to look inwards and turn over every stone to find ways to eliminate manufacturing waste and inefficiencies and ways to build and deliver the best product possible to your customers using lean manufacturing practices.
Role of Cost accounting and Cost auditing plays very important role in implementation of Lean manufacturing system. Without proper Costing system it can not be possible to get data to take decision on elemination waste.
Pl. discuss on this subject
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