Freudenberg is a family business privately owned by the Freudenberg family. The company is a private partnership consisting of nearly 300 members of the founding family. The company was formed in 1849 and Freudenberg led the company in the development of leather products. Later on his son discovered the tanning process which was much more efficient and effective and it became the first company in Europe to have that technology and became the leading tanner in Europe, with exports to other countries.
Freudenberg’s successful business encouraged the company to develop other new product lines, which included the non woven fibers which were used in clothing, bandages, diapers, etc. in 1949. The company began producing rubber which was used in floor coverings (Moser 2008).
In 1951, the company formed a partnership in the United States and opened markets in other states as well. Through the 1960s and 70s the company formed partnerships with other companies as well as acquired some companies through out south, central and North America. In 1976, Freudenberg & co. (Germany) formed a joint venture with NOK Corporation based in Japan to produce sealing products, lubricants, electric cables and other automotives. The Japanese brought in the keizen concept which means continuous improvement into the company which led to the development of the GROWTTH program (American Society for Quality 2007).
Freudenberg, together with its Japanese partners, worked together to form the GROWTTH (Get Rid of Waste through Team Harmony) program which coming up with effective and efficient ways of improving work processes in the company. In 1989, Freudenberg and NOK combined their operations to form a single body, Freudenberg NOK general partners, which has operations in Canada, US, Brazil, Malaysia and Mexico. The company produces luxury products such as shoes, Gucci, Cartier, etc. The company also produces leather products, IT products and some lubricants. Today, Freudenberg is one of the leading companies in sealing technologies and also one of the leading companies in lean production and manufacturing (Lansbury 1997).
Lean production, also called Toyota production, is an approach that focuses on minimizing wastes and ensuring quality production of goods and services to the customers. This approach cuts all the production processes that do not add value to the production or manufacturing process. This is by ensuring that only what is needed is produced and production is not initiated unless there is an order. This minimizes waste and overproduction of goods that are not needed by the consumers. For example, if a customer orders a company’s product it is only that time that production is initiated. This prevents production of goods which are not needed by the customers as well as minimizes on other production costs thereby minimizing the waste of raw materials and also reduces the costs that have to be incurred incase the product does not sell (Reinecke 2008).
Freudenberg NOK is a company that manufactures goods such as household products, nonwoven products, lubricants and IT services. The company markets these products directly to its customers. Production is only initiated when there are orders of the product. The company has also come up with a lean program called GROWTTH (Get Rid of Waste through Team Harmony) program which aims at minimizing waste of production, human labor and transportation costs. Freudenberg NOK has over a thousand employees in various professions that help in production. Each unit of production ensures that quality production and extemporary services are given to their customers.
The GROWTTH program at Freudenberg NOK aims at continually improving processes and improves attractive conditions for the customers. Through the GROWTTH program, teams from different departments come together and brainstorm on various solutions for the problems. Later, they come to an agreement on the most favorable solutions which they then implement and the success monitored. The teams are given autonomy to make certain decisions. This has a big significance as it acts as a source of motivation for the employees and it enables them to work at their best, as they know that they are liable to the decisions that they make.
This method of problem solving enables appropriate decisions to be made that are favorable to all the workers in the company hence everyone is able to work in harmony with each other (Shook 2007).
Lean Manufacturing and Managerial Decision Making
Lean manufacturing philosophy minimizes waste by getting rid of those processes that do not add value to production and ensures that only the goods needed by the customers are produced. This minimizes overproduction, unnecessary departments in the production sector, duplication of processes, etc. through this, production costs are minimized while inventory is maximized. This in turn helps the company’s management in resource allocation. That is, knowing where and how much to allocate in production.
Lean production ensures that quality products and services are offered to the customers hence there is no loss of customers and more new customers are attracted. Sales are, therefore, high and due to this, profits are made in the company. The managerial accountants can, therefore, forecast on the expected profits and sales of the company.
Practice of lean cost manufacturing helps in lean cost management. This means that the management is able to predict the budget of the company without going beyond their expected budget.
The typical production process involves creating a product, coming up with a sale and marketing methodology and pricing of the product. Whereas lean production involves coming up with a product that is value adding at the same time minimizes the costs (Kochan 1997).
Differences between the Accounting Practices in Lean Production and those of the Typical Production Company
Typical production does not aim at minimizing wastes unlike lean production where waste reduction is emphasized. In typical production, products are produced regardless of the fact that it may not be in demand by the customer. This, thereby, leads to overproduction of the products which may lead to waste in case the product is not demanded by the customers. This affects the accounting practices in the company as the expected number of sales may not have been attained leading to losses being made as the costs are greater than the benefits of the product (Thompson 1997).
In typical production, the products may be sold indirectly to the customers through wholesalers or retailers who then make the products available to the customers. Therefore, the products produced may not be of high quality since the manufacturers do not know exactly what the consumer wants. This is unlike in lean production where the customer first explains the product he or she wants and then the product is manufactured. Due to these prices may have to be changed in order to make the required number of sales. For example, due to less demand of the product, the prices may have to be decreased so that the demand and the supply may be balanced. This, therefore, makes it a challenge to forecast on the returns the product is likely to yield. This leads to over budgeting.
Lean production saves on time on production since the manufacturers are able to know the exact kind of product the consumer wants through interactions with their customers. This type of production saves on costs hence the accountants are able to predict the expected costs of the product as well as the benefits the product yields. In accounting decision making, the company is able to stick to the budget without incurring more costs (Freudenberg 2009).
The main purpose of a typical product is the end product, which is the product while the main purpose of lean production is the value of the product. In typical production the idea is rotating around the product, that is the product value to the customer. Production is initiated regardless of whether the customer wants the product or not. In lean production, the idea rotates around the customer. This means that the production mainly focuses on what the customer value of the product.
In both typical and lean production, production costs are involved while producing the products. It is the mode of production that differs (Chalice 2007).
Similarities between the Accounting Practices in Lean Production and Those of the Typical Production Company
Both approaches can help to come up with a quality product which the consumers might like. Both of these approaches can be used to predict the consumer behavior in certain products. For example, in lean production the customer orders what he or she needs so if there is a high number of orders for a certain product, the manufacturers are able to monitor these trends so as to make available the resources required for the production of that product. In typical production, the manufacturers assess the consumers through changes in the market demands for the products hence they are able to produce more of what is needed by most of the customers or the product that has a high market demand (Black 2008).
Lean production has been proven to be a successful method of production. It has helped many companies minimize on their costs. This process is significant as it also acts as a source of motivation for the workers who are able to work harder hence promotes a productive culture in the organization. Freudenberg NOK has been able to rise to greater heights using lean production methods to be a leading company in the production of sealing products all over the world.