What is Kaizen Costing? A Brief Overview and Analysis:
Kaizen costing is a system of cost reduction via continuous improvement. It tries to maintain present cost levels for products currently being manufactured via systematic efforts to achieve desired cost level. The word Kaizen is a Japanese word, which is the formation of two words “Kai” means “change” and “zen” means “good”. Simply put, it indicates change for good(or say better). It is based on the philosophy of cumulative improvement. This costing method was first implemented for quality circles in its production by the Japanese company Toyota in the 1970s, however its history dates back to World War II.
It has two dimensions. One dimension considers product (narrow perspective) and another dimension covers asset and organization (broader perspective). Asset and organization specific kaizen costing activities planned according to the exigencies of each deal. Adopting Kaizen costing requires a change in the method of setting standards.
Kaizen costing focuses on “cost reduction” rather than “cost control”.
A strategy where employees at all levels of company work together proactively to achieve regular incremental improvements to the manufacturing process. In a sense it combines the collective talents within a company to create powerful engine for the improvements.
Process of Kaizen
Kaizen requires identifying areas for improvement, creating solutions and plans for a rollout and then cycling through the process again for other issues that were inadequately addressed.
- Involve your employees
- Find problems
- Think and find solutions
- Regularly measure and analyze the results
Kaizen 5 founding elements
- Personal discipline
- Quality circles
- Suggestions for improvement(everyone’s opinion is valued and considered)
- Improved morale
It provides immediate results after the proper implementation of the process with a better work environment. The improvement of working conditions can easily be identified as the technique is implemented. There will be reduction in cost, wastages and even the problems are solved in a short time period. This process is widely applicable on workplace-like manufacturing sites, whereas without the application of 5s technique it is not possible for proper stimulation.
Types of wastes that kaizen helps to recover are:
- Inventory holding time
- Idle time
- Defective units
- Over processing
- It brings standard on settings of organization.
- Its focus is on eliminating the obstacles and improve the systems and productivity.
- It involves on all the areas of the business to make employees empowered to make changes.
- It allows the organization to respond quickly to changes in the environment.
- It brings burden on lower level management.
- here will be permanent change in systems in which some employees may not be familiarized.
Toyota : The Japanese automotive manufacturer is one of the most famous companies using Kaizen and they are responsible for making this method known and for proving that its results are measurable, proven and extremely effective. Kaizen’s methodology is one that focuses on the constant improvement of processes by making small and gradual adjustments to the way things are done. Toyota has used this method for decades and has taken advantage of its principles in many different levels of the organization.
Nestlé: Nestlé is a great example of how Kaizen can be used across different industries, in this case, the food industry with one of the most important firms worldwide who have implemented Kaizen. Lean production has been an aspect of Kaizen that Nestlé has taken seriously and they have made great improvements in the reduction of waste by lowering the time and materials wasted on their processes. Lean production is focused on finding ways to not only reduce waste, but also in finding methods to best use the space available, the resources on hand and the best utilization of talent and technology the company has in their arsenal.
Mayo Clinic: The Mayo Clinic is a nonprofit medical practice and medical research group that decided to follow the lead of Toyota by closely studying how Kaizen was able to help such a complex manufacturing operation to improve their practices. They believed that if a company like Toyota could use Kaizen, they could do it as well by adapting the philosophy to health care. The industry of health is very complex and there are many moving parts to it that can be benefited by Kaizen. Methods, waiting times, handling of patient records and the best use of resources are areas in which Kaizen can make a difference and has done so in the case of Mayo Clinic and other healthcare organizations worldwide.
Kaizen technique has been followed increasingly since the 1970s. It has been followed by many of the multinational companies as per the examples given above and many more. This technique has taken the working process to upgrade level along with systems, morale, technologies, proper maintenance for safe and innovative working environments. It has made the organization to receive the level of lean production processes like cost reduction, no overproduction or production as market demand or needs, or say full efficient production and effective business formation.