Kaizen costing

Kaizen costing is the process of continual cost reduction that occurs after a product design has been completed and is now in production. Cost reduction techniques can include working with suppliers to reduce the costs in their processes, or implementing less costly re-designs of the product, or reducing waste costs. These reductions are needed to give the seller the option to reduce prices in the face of increased competition later in the life of a product.

Characteristics

• Kaizen involves setting standards and then continually improving these standards to achieve long-term sustainable improvements.
• The focus is on eliminating waste, improving processes and systems and improving productivity.
• Involves all employees and all areas of the business.

Kaizen costing is a cost reduction system. Yasuhiro Monden defines kaizen costing as “the maintenance of present cost levels for products currently being manufactured via systematic efforts to achieve the desired cost level.” The word kaizen is a Japanese word meaning continuous improvement.

Monden has described two types of kaizen costing:

• Asset and organization specific kaizen costing activities planned according to the exigencies of each deal.
• Product model specific costing activities carried out in special projects with added emphasis on value analysis.

Kaizen costing is applied to products that are already in production phase. Prior to kaizen costing, when the products are under development phase, target costing is applied. After targets have been set, they are continuously updated to display past improvements, and projected (expected) improvements. Adopting Kaizen costing requires a change in the method of setting standards. Kaizen costing focuses on “cost reduction” rather than “cost control”.

Types of costs under consideration

Kaizen costing takes into consideration costs related to manufacturing stage, which include:

• Costs of supply chain
• Legal costs
• Manufacturing costs
• Waste
• Recruitment costs
• Marketing, sales and distribution
• Product disposal

5S in Kaizen Costing

• Seiri (Sort): Must start from all tools within the workplace by scan through all of them and evaluate their usefulness. Only the necessary tools should keep in the workplace, the useless items should be removed to save the space and enhance the working experience.
• Seiton (Strengthen): The concept that the tools and material must keep in their own place with proper labels or categories. The most frequently used item must place near us while less one should keep in the corner. It will save time for us to look for each specific item.
• Seiso (Shine): The workplace must be clean and tidy every day. All the tools are ready to use and space is available for new work. It will improve the productivity of the employee.
• Seiketsu (Standardize): We must keep the workplace from getting back to the previous condition. There must be a sign, banners, or board to ensure everybody understands and practice as part of daily operation.
• Shitsuke(Sustain): The last step is to inform all staff and departments to practice this culture every day. It is the continuous task that needs to maintain for long.

Principles

Less waste: This method focuses to decrease all kind of wastage since the product design and production and after-sale services.

Increase employee satisfaction: The employees are the key person to identify non-value-added activities and aim to decrease it. They will be able to

Improve working commitment: All the staff levels will commit to their work as they know the company goa, which looking for improvement at all levels. They will leave behind if they not improve, so it encourages them to work harder to archive it.

Increase competitiveness: It will, the advantage when we can improve our product’s quality and sell it at a lower price. We will gain more market share and increase profit in the long term.

Advantages

Waste reduction

Kaizen reduces wastes in business processes. This is another major kaizen advantage. Kaizen is the responsibility of everyone. Therefore, management and staff are responsible for identifying areas that constitute waste in the business process. By implementing constant changes, they can determine the root cause of wastage and fix them. By so doing, waste is eradicated from the business process and cost is reduced.

Improved Standard Work Document

Implementing changes during kaizen results to a new and improved Standard Work Document. Standard Work Document, also called standardized work, is a tool that forms the foundation of kaizen improvements. It contains the current best practice guiding a business. Sometimes, this is the main aim of implementing kaizen. In addition, Standard Work Document serves as the base for future improvements. It also serves as a tool for measuring employee performance and educating new employees about improvements.

Better safety

Improving safety on the work floor is a kaizen advantage for business. Safety is improved when businesses implement ideas that clean up and organize workspace. By so doing, employees have better control of business process equipment. Employees are also encouraged to make suggestions to improve safety on the work floor. This helps to minimize accidents and other related injuries. Hence, employees become more efficient and manage their time properly. However, safety is a responsibility of management as well.

Improved employee satisfaction

Another kaizen advantage is that it improves employee satisfaction. Kaizen involves the employees when implementing changes for improvements. Employees can make suggestions and creative input for changes through a suggestion system like team meetings. When employees are involved in decision making, it gives them a sense of belonging and worth.

Improved teamwork

One of the major kaizen advantages is improved teamwork. Kaizen is a quality improvement tool driven by teamwork. It does not benefit only a selected few, but everyone involved in the business process. As the kaizen team solves problems together, they develop a bond and build team spirit. Thus, employees are able to work with a fresh perspective, an unbiased mind and without prejudice.

Improved efficiency

A major kaizen advantage is improved efficiency. Kaizen improvements boost the quality of services. It helps businesses implement new process improvements, boost efficiency and enhance time management.  For example, Toyota Manufacturing Company employs kaizen in its production process. First of all, they deploy muscle-memory training to train their employees on how to assemble a car. Muscle-memory training helps them to achieve accurate results. Hence, their employees are able to work with precision.

Kaizen builds leadership skills

Every kaizen team must have a team leader. The team leader is responsible for organizing the kaizen team and coordinating implementation. The kaizen team leader makes sure that everyone is performing their roles successfully. The team leader is also responsible for sourcing for help when additional resources are required. Nevertheless, s/he does not have to be in a management role to qualify as a team leader. Thus, another kaizen advantage is that it presents an opportunity for employees to take on leadership roles.