Kaizen Costing

Kaizen costing is the concept that aims to improve product quality and reduce the cost of production. The company implements Kaizen after the product design stage while the production process starts. It is the process of continually reducing production costs by eliminating non-value-added activities.

Cost reduction is the process that requires working with the supplier to reduce order cost, cut costs in the design stage, and reduce wastage. This technique seeks to cut costs by redesigning products, improving production processes, negotiating with suppliers, and reducing waste.

It follows the concept of Kaizen, the Japanese term, which refers to the continued improvement in all aspects of the entity at every level within the company.

Principle of Kaizen Costing

Feature of Kaizen Costing
Less waste This method focus to decrease all kind of wastage through product design, production, and after-sale services.
Increase employee satisfaction The employees are the key person to identify non-value-added activities and aim to decrease them.
Improve working commitment All the staff levels will commit to their work as they know the company goals, which looking for improvement. So it encourages them to work harder to archive it.
Increase competitive It will be a competitive 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.

5S in Kaizen Costing

It is the method which name after the Japanese words: Seiri, Seiton, Seiso, Seiketsu, and Shitsuke.

  • Seiri (Sort): We must start from all tools within the workplace by scanning through all of them and evaluating their usefulness. Only the necessary tools should keep in the workplace, the useless items should be removed to save space and enhance the working experience.
  • Seiton (Strengthen): is the concept that the tools and materials must keep in their own place with proper labels and categories. The most frequently used item must place near us while others should keep it 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 forever.

What are the objectives of Kaizen Costing?

This method will not scarify the product quality over costing and is intended to reduce the cost, which does not add value to product and customers, it is mostly referring to the wastage.  We should look at the waste that Kaizen cost try to reduce as following:

Waste and cost deduction by Kaizen
Time Time is money, workers should work to add value to customers. If they spend time on non-value-added activities, it is such a waste of resources. For example, the employees spend time solving the problem from the conflict in the working process. The workers cannot complete the work due to raw material shortages.
Defected Every time the defect happens, there will be a cost associated with it. There will be a waste of material and time on the defective product. Sometimes we even spend more time fixing it and clearing the damage. If the defective products are not identified in the company and delivered to customers, it will be an after-sale issue. The company needs to pay compensation, and it will also damage its reputation.
Movement People usually move during the working hour; however, the unreasonable move will become a waste. We should spend time doing useful tasks, not moving around the building.
Over-processing It the way that we work more than what should do, it turns out to be a wastage. We spend too much time on a task which provides the same value to company. For example, if we spend a whole day preparing a meeting agenda, while it just a short meeting. This task should be spent around 30mn, and it gives the same value.
Variation It is the issue in which the same works are produced several times due to the requirement from top management. For example, similar reports are prepared several times for different people. We can develop a standard template that includes the detailed information required by the managements. And the report needs to prepare only one time per month, and it serves all of them.

Kaizen Costing Process

  • Involve Your Employees

When it comes to implementing change within a company, the involvement of employees is crucial. Their participation helps to generate new ideas and gather valuable feedback. It also eliminates any resistance to change that might exist. By involving employees in the process, you can ensure that the transition is smooth and successful. Furthermore, you can build morale and foster a sense of ownership among your team. Ultimately, the success of any change depends on the buy-in from employees. When they are invested in the process, they are more likely to embrace the new direction. Consequently, involving employees in the change process is essential for any company that wants to be successful.

  • Find Problems

The organization together with its employees of all the departments needs to find out the various problems in the organization with the help of techniques like 360-degree feedback. This will give the company an insight into how well the departments are functioning and where there is scope for improvement. It will also help to identify any areas where employees are not working well together. In addition, 360-degree feedback can also be used to assess how effective training programs are and whether they are meeting the needs of employees. By using this technique, organizations can ensure that they are constantly improving and providing the best possible service to their customers.

  • Think and Find Solutions

To find solutions to the identified problems, managers form a team of ingenious employees who brainstorm and take a tactical approach. This team comes up with practical solutions to each question by considering all aspects of the problem. They also create action plans to implement the solutions and track the results to ensure that the desired outcomes are achieved. By solving problems effectively, the team contributes to the overall success of the organization.

  • Implement

Many organizations find themselves struggling to keep up with the times. In order to stay relevant and competitive, they must continually adapt to new trends and technologies. However, implementing any change involves cost and risk simultaneously. Therefore, it is often advisable to test out a new idea on a small part of the organization before roll it out to the entire company. By doing so, you can minimize the potential downside while still reaping the benefits of innovation. Of course, there is always some inherent risk in any change, but by taking a cautious approach you can help ensure that your organization remains poised for success.

  • Check

In order to assess the effectiveness of the solution, a number of factors must be considered. For example, does the solution address the root cause of the problem? Does it provide a long-term fix, or is it only a temporary measure? In addition, how easy is the solution to implement, and what are the associated costs? By taking all of these factors into account, it is possible to get a clear idea of whether or not the proposed solution is likely to be effective. In some cases, multiple solutions may need to be evaluated before finding the one that is most likely to succeed. However, taking the time to assess the effectiveness of a solution before implementation can save a lot of time and resources in the long run.

  • Standardize

Once an organization has implemented a change and seen positive results, it’s important to make sure that the change becomes standard procedure for all departments and across the entire organization. This ensures that the benefits of the change are realized on a long-term basis and that any negative effects are minimized. There are a few steps that organizations can take to ensure that changes become standard procedures. First, senior management should provide clear direction and support for the change. Second, training and communications should be provided to all employees to ensure that they understand the change and know how to implement it. Finally, procedures should be put in place to track compliance and progress. By taking these steps, organizations can increase the chances that changes will become successfully embedded into their operations.

  • Repeat

Procedure implementation is a critical step in ensuring that an organization’s goals are met. To ensure successful implementation, procedures must be designed with input from all relevant stakeholders. They must be clearly written and easy to understand. Once the procedures are developed, they should be piloted before being implemented on a wider scale. Finally, once the procedures are in place, they should be regularly monitored for effectiveness and efficiency. By following these steps, organizations can ensure that their procedures are effectively achieving their intended goals.

What are the Disadvantages of Kaizen Costing?

Disadvantages of Kaizen Costing
Hard to change the existing system It will be hard to replace the current system in the organization. People may resist to changing as the current process already works for a long time. They still think that the existing work is good enough, why need to change it.
Incur more cost Kaizen will not work if the employees do not have enough competence. It requires the company to provide regular training on both Kaizen philosophy and their working process.  They have to think outside the box in order to find a new solution to the problem.
Fall back to the existing system The people will feel unsatisfied when the Kaizen cannot solve the problem for the first time, which is very normal. People will go back to the previous system.