Kaizen Costing
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KAIZEN COSTING BY GROUP 1 SECTION B
FLOW
Kaizen Kaizen Costing Important Points Steps Choice of Perspective Customer Value Kaizen Costing v/s Standard Costing Concerns Benefits
KAIZEN “improvements in small steps”. A Japanese term for making improvements to a process through small, incremental amounts rather than through large innovations.
KAIZEN COSTING
Developed by Yashuhiro Monden in Japan.
Can be translated as “enhancement estimation”.
Most consistent with the saying “slow and steady wins the race”.
KAIZEN COSTING
KAIZEN COSTING A process of cost reduction during the manufacturing phase of an existing product. It refers to continual and gradual improvement through small betterment activities, rather than large or radical improvement made through innovation or large investments in technology.
KAIZEN COSTING Manufacturing Cycle
Kaizen Costing
RD&E Cycle
Post Service Cycle
IMPORTANT POINTS
Kaizen costing’s goal is to ensure that actual production costs are less than the prior year costs. Similar to target costing in its cost-reduction mission. However, it focuses on reducing costs during the manufacturing stage of the total life cycle of a product. Investment estimates are available in advance. It is tied to the profit-planning system.
IMPORTANT POINTS
The time prior to kaizen costing is called Target costing, which involves searching for a target cost for a product before it reaches the market.
Together these two concepts make up lifecycle costing.
IMPORTANT POINTS The target-reduction rate is the ratio of the target reduction amount to the cost base. Cost sustaining period allows employees to learn new procedures before Kaizen targets are imposed. As much as 80% of lifecycle costs are determined when production begins.
STEPS
When planning, a cost target is set and a gap occurs. Establish why the goal was set and what are the possibilities of reaching the target. Cost reductions are broken down into smaller reductions. New cost applies on the day of activity. Each activity bears its own investment estimate prepared in advance. Finally resources are allocated.
CHOICE OF PERSPECTIVE
Commonality, i.e., is economies of scale possible? Suppliers and their added value? Technology, logistics, packaging, investment? Can improvements be made in purchasing function? What about production, maintenance, planning? Can the work be organized differently? Do we have the right customers?
CUSTOMER VALUE Keep
in mind the customer value.
STANDARD COSTING V/S KAIZEN COSTING
STANDARD COSTING V/S KAIZEN COSTING Standard Costing
Kaizen Costing
1. Cost-control system concept. 2. Assumes stability in current manufacturing process. 3. Goal is to meet cost performance standards.
1. Cost-reduction system concept. 2. Assumes continuous improvements in manufacturing. 3. Goal is to achieve cost reduction standards.
STANDARD COSTING V/S KAIZEN COSTING Standard Costing Techniques
Kaizen Costing Techniques
1. Standards are set
1. Cost reduction targets are set and applied monthly. 2. Variance analysis involves target Kaizen costs versus actual cost reduction amounts. 3. Investigation occurs when target reductions are not attained.
annually or semiannually. 2. Variance analysis involves comparing actual to standard costs. 3. Investigation occurs when standards are not met.
STANDARD COSTING V/S KAIZEN COSTING
as the best knowledge to reduce
Standard Costing Managers and engineers develop Standards.
Kaizen Costing Workers are closest to the process and thus know best.
CONCERNS
Often viewed as reactionary not value adding. The system places enormous pressure on employees to reduce every conceivable cost. The product is already in the manufacturing process, thus it is difficult and costly to make large changes to reduce costs. The cost of disruptions to production may be greater than the savings.
BENEFITS Competence development is long term. Result is ability to survive in short run. Every activity is supported by work team that shares the result. Rewards the group working with cost rationalization.
FLOW
Kaizen Kaizen Costing Important Points Steps Choice of Perspective Customer Value Kaizen Costing v/s Standard Costing Concerns Benefits
KAIZEN “improvements in small steps”. A Japanese term for making improvements to a process through small, incremental amounts rather than through large innovations.
KAIZEN COSTING
Developed by Yashuhiro Monden in Japan.
Can be translated as “enhancement estimation”.
Most consistent with the saying “slow and steady wins the race”.
KAIZEN COSTING
KAIZEN COSTING A process of cost reduction during the manufacturing phase of an existing product. It refers to continual and gradual improvement through small betterment activities, rather than large or radical improvement made through innovation or large investments in technology.
KAIZEN COSTING Manufacturing Cycle
Kaizen Costing
RD&E Cycle
Post Service Cycle
IMPORTANT POINTS
Kaizen costing’s goal is to ensure that actual production costs are less than the prior year costs. Similar to target costing in its cost-reduction mission. However, it focuses on reducing costs during the manufacturing stage of the total life cycle of a product. Investment estimates are available in advance. It is tied to the profit-planning system.
IMPORTANT POINTS
The time prior to kaizen costing is called Target costing, which involves searching for a target cost for a product before it reaches the market.
Together these two concepts make up lifecycle costing.
IMPORTANT POINTS The target-reduction rate is the ratio of the target reduction amount to the cost base. Cost sustaining period allows employees to learn new procedures before Kaizen targets are imposed. As much as 80% of lifecycle costs are determined when production begins.
STEPS
When planning, a cost target is set and a gap occurs. Establish why the goal was set and what are the possibilities of reaching the target. Cost reductions are broken down into smaller reductions. New cost applies on the day of activity. Each activity bears its own investment estimate prepared in advance. Finally resources are allocated.
CHOICE OF PERSPECTIVE
Commonality, i.e., is economies of scale possible? Suppliers and their added value? Technology, logistics, packaging, investment? Can improvements be made in purchasing function? What about production, maintenance, planning? Can the work be organized differently? Do we have the right customers?
CUSTOMER VALUE Keep
in mind the customer value.
STANDARD COSTING V/S KAIZEN COSTING
STANDARD COSTING V/S KAIZEN COSTING Standard Costing
Kaizen Costing
1. Cost-control system concept. 2. Assumes stability in current manufacturing process. 3. Goal is to meet cost performance standards.
1. Cost-reduction system concept. 2. Assumes continuous improvements in manufacturing. 3. Goal is to achieve cost reduction standards.
STANDARD COSTING V/S KAIZEN COSTING Standard Costing Techniques
Kaizen Costing Techniques
1. Standards are set
1. Cost reduction targets are set and applied monthly. 2. Variance analysis involves target Kaizen costs versus actual cost reduction amounts. 3. Investigation occurs when target reductions are not attained.
annually or semiannually. 2. Variance analysis involves comparing actual to standard costs. 3. Investigation occurs when standards are not met.
STANDARD COSTING V/S KAIZEN COSTING
as the best knowledge to reduce
Standard Costing Managers and engineers develop Standards.
Kaizen Costing Workers are closest to the process and thus know best.
CONCERNS
Often viewed as reactionary not value adding. The system places enormous pressure on employees to reduce every conceivable cost. The product is already in the manufacturing process, thus it is difficult and costly to make large changes to reduce costs. The cost of disruptions to production may be greater than the savings.
BENEFITS Competence development is long term. Result is ability to survive in short run. Every activity is supported by work team that shares the result. Rewards the group working with cost rationalization.
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