KAIZEN MANAGEMENT

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

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

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

STANDARD PRACTICE V/S KAIZEN COSTINGStandard 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

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

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.

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.

GAP ANALYSIS : TOTAL COST – KAIZEN COST?

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.

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.

PDCA MANTRA

WHAT SHOULD BE CONSIDERED ?

“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

OHNO – Great believer of Kaizen initiated Kaizen in Toyota in

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.

TOYOTA MOTOR CORPORATION

IMPLEMENTATION OF KAIZEN CONCEPT

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

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

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)

KAIZEN COSTING

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)

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

NEED FOR IMPROVEMENT

THE MODIFICATIONOrganized 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

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

THE MODIFICATION

1993 1994 1995 1996 1997 1998 1999 2000 20010

2000

4000

6000

8000

10000

12000

1000

2500

4000

5300

64007100

8000

9150

10700

Cumulative cost savings (100 mn yen)

COST SAVINGS THROUGH QUALITY INITIATIVES & TPS

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

BENEFITS SEEN BY TOYOTA

1996 1997 1998 1999 2000 20010

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

Net revenue

BENEFITS SEEN BY TOYOTA

1996 1997 1998 1999 2000 20010

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

Net Income

BENEFITS SEEN BY TOYOTA

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

BENEFITS OF KAIZEN

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

WHY KAIZEN FAILS ??

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