Kaizen Costing Method

Kaizen is a Japanese management concept launched by Masaaki Imai, which proved to be the key to Japanese competitive success. The significance of this concept is: KAI = Change and ZEN = for better, and the translation is “continuous improvement”, that means small improvements to the ongoing efforts. Unlike the Western conception, implying total change, at large intervals of time, using large amounts of resources and a high cost level, Kaizen Costing seeks daily, gradual, slow, but continuous improvements, which take place at minimal cost.

Kaizen strategy is that a single day should not pass without an improvement to intervene in the activity of each employee or each entity. The Japanese have shown that by applying this strategy, improvement is achieved with minimal expenditure. Specific characteristics that ensure successful approach of Kaizen activities are the following:

  1. disregards all ideas implemented so far in the organization of production;
  2. rejects the whole existent situation;
  3. it does not look for perfection, seeking a 40-50% improvement of the existent situation, but at an acceptable cost;
  4. allows any manager to use their knowledge and personal skills;
  5. the ideas produced by many people are better than the ideas of a single person;
  6. the improvements have no limits.

Cost is one of the basic synthetic indicators that characterize the effectiveness of an entity’s activity. The importance of production cost is related to the functions it fulfills in the context of economic-financial mechanism, schematically presenting itself as follows: ensures the resumption of production, measures the means of production and labor, allows the calculation of some efficiency indicators and the real knowledge of activity quality, sizes the profitability of economic entities, etc.

Kaizen Costing Method is focused on improving each process of a technological product sheet, the main goal being eliminating losses and minimizing costs. Process improvement ensures production efficiency, kaizen type activities ensuring maximization of product value corresponding to the requirements of the beneficiary, a qualitative differentiation of this. There are eliminated all those functions of the product which the customer has no interest in and which bring a cost increase without a correspondent in value.

The KAIZEN principles presumes a practical approach and low costs of improvement. The Kaizen management system is based on the continuous loss reduction by means of methods that do not rely on investments, but on the improvement of the processes and the employees performance. According to the Kaizen principles, we must be sure that, when we take an action, our action will go on in the best possible way and is not merely an intermediate action to generate a temporary result.

Innovation is achieved by sudden changes and generates radical improvements, compared to the initial situation, which is due to significant investments in technology, performance and equipment. Kaizen signifies small improvements as a result of ongoing efforts.

In implementing Kaizen Costing strategy, managers rely on other techniques, methods and tools such as: quality circles, suggestions system, kanban, total productive maintenance, action plans, etc. The success of this strategy is subject to a number of changes in the entity’s culture and value system on which it is based.

Suggesting small steps strategy, Kaizen Costing is a concept of “umbrella” which treats the basic methods and concepts applied in quality management in Japan and whose value is recognized worldwide.The superiority of the concept stems from the fact that, by applying small steps strategy, the necessary resources are insignificant, while the strategies based on innovations involve huge investments, although the results are relatively the same. In addition, Kaizen brings in the forefront the employees of the entity, who are motivated to participate consciously and responsibly to achieve the objectives of the entity. In this process the most important dimension is the organizational one, the ability to communicate. Successful implementation of this approach is given by the technical and managerial knowledge, put together, and by the across application of some management tools.

The implementation of Kaizen Costing management system in organizations would bring immediate gains by eliminating waste and losses, increasing labour productivity by 20-30%, reducing operating costs by 15-20%, reducing used areas, reducing the equipment needs and increasing the use of the remaining, increasing staff motivation. Kaizen Costing focuses the entity interest and attention on those places where you can reduce costs, this means on operating the production process and its development in the most efficient way.

As a method of cost calculation and resizing, Kaizen Costing represents the expression of returning to the source, through the causes of performance and the roots of productivity, what is possible in a cross-viewing, and performing a process analysis. Cost reduction approach results by comparing the target-cost to the estimated one, and is fulfilled in terms of value, through an iterative process of continuous improvement.

Thus, Kaizen Costing is not interested in the product but in manufacturing process, which is more than just a cost method, but a global management tool.

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