2. Kaizen - Japanese term that focus upon
continuous improvement of processes in
manufacturing, engineering, game
development, and business management.
Applicable to :-
All functions in the industry
All employees from CEO to workers
3. KAIZEN PHILOSOPHY
Elements of Kaizen
Teamwork
Personal discipline
Improved morale
Quality circles
Suggestions for improvement
Kaizen Process
Recognition of problem
Standardization
Suggestion system for improvement
4. WHAT IS KAIZEN COSTING ?
Continual Cost Reduction
Design of the Product
Development of the Product
Production Of the Product
Applied to product that is already under production
Time prior to Kaizen Costing is Target Costing
Need was felt in the American Way of Production
5. STANDARD PRACTICE V/S KAIZEN COSTING
Standard Practices Kaizen Costing Concept
Usually a Cost Control system
concept is adopted
Goal is to meet Cost
Performance Standards
The Standards are usually set
Annually or Semi Annually.
Cost Variance Analysis is done
only when Standards are not met.
The traditional costing approach
compares actual costs with
standard costs, which are based
on static conditions, and views
employees as a cause of
unfavorable variances.
A Cost Reduction Concept is adopted
Goal is to achieve Cost Reduction
Standards
Set and reviewed Monthly and
Continuous Improvement methods are
applied all year long.
Cost Variance analysis is done to
determine to check if Target Kaizen Cost
meet the Actual Cost Reduction Amount.
Kaizen costing compares actual costs
with target cost reductions under
dynamic conditions, and views employees
as the primary source of the solutions to
problems
6. PRIOR TO KAIZEN COSTING – TARGET COSTING
Prior to the kaizen costing it uses the target costing,
actual costing system is implemented during the initial
design stage
Projections and plans become the annual profit budget or
“target”:
In this the first step is
•Sales forecast – expected variable cost=Standard Cost
•Budgeted Contribution Margin – expected changes in
variable cost
•Adjusted contribution Margin – expected fixed cost=
budgeted operating Profit
So the target costing took place before the Kaizen costing
7. GAP ANALYSIS : TOTAL COST – KAIZEN COST?
During planning, a target cost is set that results in GAP.
Major cost reductions are broken down into smaller reductions
and form their own activities where they are easier to handle.
Individual activities when experimented with new costs have a
status as either initiated, preliminary, final, verified, or rejected.
Each activity bears its own investment and contribution
according to an investment estimate.
8. GAP ANALYSIS : TOTAL COST – KAIZEN COST?
Activity commences only when the investment estimate has
been approved and resources with the appropriate competence
have been allocated and planned.
Under the kaizen system, new cost reduction targets are set
each month by which the existing gap between the target and
current costs is to be met; kaizen activities are then carried
out throughout the entire operational year so as to meet cost
targets.
9. PDCA MANTRA
The process of improvement every
time a gap analysis is done is called
the PDCA (plan, do, check, and act)
cycle.
This helps in the devising of
countermeasures to eliminate the
root-cause of the problem, and
prevent its recurrence.
WHAT SHOULD BE CONSIDERED ?
Sales increase either increase sales price Or increase the sales
volume.
Sales Volume increase α Variable cost and Mfg F.C. are necessary
for maintaining continuous growth
Amount of Kaizen cost should be achieved mainly by reduction of
variable cost (esp. Direct Material cost and Labour cost) while
Non-Mfg dept. (Head office, Sales and R&D) target F.C. for
reduction.
10. IMPLEMENTATION OF KAIZEN CONCEPT
OHNO – Great believer of Kaizen initiated Kaizen in Toyota in
TOYOTA MOTOR CORPORATION
“Human beings think our way is the best, but at
Toyota we are told we have to always change. We
believe there is no perfect way, so we continue to
search. The aim is to break current condition
through Kaizen.”
--- Shiochoro Toyoda, Chairman, TMC
1950.
One of first company to use practices such as Kanban, Jikoda,
JIT through integration with Kaizen.
Aims:
Increase efficiency.
Reduce waste irrespective of major/minor activity.
11. Seven types of waste identified at Toyota
Overproduction ahead of demand
Unnecessarily movement of materials and
products
Excessive inventories
Production of defective products
Idle time
Over processing
Unnecessarily movement of people
KAIZEN IN TOYOTA
12. Pre – Production:
Costing method: Design stage included
Setting of target cost for component
Standard time for production
Product Plan
Shop floors to meet target cost and standard time
The above cost and time were referential cost and
standard time
If workers do not meet target cost and standard time then
Kaizen pursued to decrease cost and time
It workers meet target cost and standard time then further
reduction through Kaizen to increase efficiency
KAIZEN: PRIOR TO 1990 – ORGANIZED KAIZEN
13. KAIZEN COSTING
Setting up of cost councils to reduce material cost
Control of costs through division of responsibilities amongst group
leaders, chief leaders and engineers
Formation of try teams of skilled workers to establish production
time and then involving them to implement Kaizen at production level
Main aims were to establish
Standard time
Standard work
Line stop system
Further increase in production efficiency by
Reduction in standard time through process improvement
Reduction in labour cost through reducing workers in unit
(Shojinka)
14. KAIZEN IMPLEMENTATION AT WORKER LEVEL
Each worker was expected to question every process and
test all assumptions
Errors were viewed as learning opportunities
Implementation of quality circles and employee suggestion
systems
Each team member as quality inspector and any one stop
production line on observing problem
(More than 90000 employee suggestions were reported every
year & few employees gave more than 1000 suggestions)
15. NEED FOR IMPROVEMENT
In early 1990s
Acute labour shortage
Emergence of high wage jobs and shortage of young
manpower
Low birth rates in Japan in two decades
Strained work atmosphere
Exodus of young workers from company
Required New Approach:
Modified Kaizen – Human Friendly
16. THE MODIFICATION
Organized Kaizen (prior to 1990) Modified Kaizen (Post 1990)
Production targets were decided by
management during product
development
Plants allowed to set their own annual
production targets
Production efficiency was calculated
stringently
Determination of production efficiency
to make it less constrained
Standard time based on best standard
time marked in the past
Standard time fixed by measuring the
time really required for workers
operations
Skilled male workers were reference for
determining standard time
Young female and aged workers were
reference for determining standard time
Standard time was marked during
design and development stage before
mass production
Standard time was fixed on actual time
for workers operations and three
months after launch of mass production
Production efficiency was calculated
considering permanent workers only
Production efficiency was calculated
considering permanent as well as
temporary workers in Kaizen group
Routine TPS system without considering
workload of individual worker
Introduction of TVAL to measure
workload of all operations
Basic wages related directly to
production allowance and overtime work
Introduction of grade allowance and age
allowance
17. THE MODIFICATION
Reconstruction of assembly line so that workers can work
easily and execute their operations
Organizing a human centered TPS
Form a Kaizen mind in everyone so that he/she willingly
does Kaizen
Quality and worker security assurance
Efficient logistics
Minimum production time
High Investment Returns
19. BENEFITS SEEN BY TOYOTA
Reduction in annual working hours by 300 working
hours
Successive two shift work without night shift to
reduce overtime
Increased worker participation in Kaizen activities
Increase in employee strength from 108167 to
110534 in 1994 and to 215648 in 2001
Nourishing „Kaizen mind and ability‟ of the workers
to accept and welcome changes
Flexibility to changing business dynamics
22. BENEFITS OF KAIZEN
Reduces Waste in areas such as inventory, waiting
times, transportation, worker motion, employee
skills, over production, excess quality and in
processes.
Immediate results
Focuses on creative investments (instead of Capital
intense) that continually solve large numbers of
small problems
Continual small improvements that improve
processes and reduce waste
Helps in employee retention
23. WHY KAIZEN FAILS ??
Kaizen is seen as a short term project
Overemphasis on mapping kaizen to KPIs
When implemented in a heavily bureaucratic
organization
Management pays lip service to kaizen
Where training on kaizen isn‟t provided
Where management does not support kaizen
initiatives