The IUP Journal of Operations Management
Lean Manufacturing and Performance Measures: Evidence from Japanese Factories

Article Details
Pub. Date :May, 2021
Product Name : The IUP Journal of Operations Management
Product Type : Article
Product Code : IJOM10521
Author Name : Kohei Arai
Availability : YES
Subject/Domain : Management
Download Format : PDF Format
No. of Pages : 24



This study investigates the relationship between information asymmetry and both financial and nonfinancial performance measures in the context of lean accounting. The author used survey data from 135 random Japanese manufacturing factories to construct a structural equation model. The study shows that lean manufacturing increases information asymmetry through the delegation of authority to employees, and the use of both financial and nonfinancial measures increases accordingly. The increased use of financial measures encourages the adoption of shop floor accounting systems, such as microprofit centers or value stream costing, and promotes the use of simplified management accounting practices. The increased utilization of nonfinancial measures facilitates the use of simplified management accounting practices and visual performance measures. Further, visual performance measures correlate with nonfinancial performance. The findings suggest that the delegation of authority in lean manufacturing causes information asymmetry and that both financial and nonfinancial measures are used, thus clarifying why management accounting practices such as lean accounting are effective in lean manufacturing.


Some of the firms that implement lean manufacturing, such as Just-In-Time (JIT) production, have adopted an accounting system called 'lean accounting.' Lean accounting is a system formalized as 'box scores' that addresses both financial and nonfinancial measures. This paper claims that if decision-making authority is transferred to shop floors employees under lean manufacturing, information asymmetry and the use of performance measures will increase. For instance, Ohno (1988), who proposed the JIT production, suggested to delegate the authority to stop the production line to shop floor employees and promote multi-tasking. Womack et al. (1990) conceptualized JIT production as 'lean manufacturing' and pointed out that the delegation of authority to employees is implemented at Toyota as opposed to General Motors (GM). As suggested by the Agency theory, increasing delegation increases the asymmetry of information and may require moral hazard control through monitoring (e.g., Milgrom and Roberts, 1992). Therefore, monitoring through performance measures is particularly important under lean manufacturing, being characterized by the transfer of authority to employees.


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