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 COSTING

Standard Practices 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. Kaizen Costing Concept 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

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.

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.

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 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.

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

IMPLEMENTATION OF KAIZEN CONCEPT

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.

KAIZEN IN TOYOTA
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: PRIOR TO 1990 ORGANIZED KAIZEN

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 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)

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)

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

THE MODIFICATION
Organized Kaizen (prior to 1990) Production targets were decided by management during product development Production efficiency was calculated stringently Standard time based on best standard time marked in the past Skilled male workers were reference for determining standard time Standard time was marked during design and development stage before mass production Production efficiency was calculated considering permanent workers only Routine TPS system without considering workload of individual worker Basic wages related directly to production allowance and overtime work Modified Kaizen (Post 1990) Plants allowed to set their own annual production targets Determination of production efficiency to make it less constrained Standard time fixed by measuring the time really required for workers operations Young female and aged workers were reference for determining standard time Standard time was fixed on actual time for workers operations and three months after launch of mass production Production efficiency was calculated considering permanent as well as temporary workers in Kaizen group Introduction of TVAL to measure workload of all operations Introduction of grade allowance and age allowance

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

COST SAVINGS THROUGH QUALITY INITIATIVES & TPS

Cumulative cost savings (100 mn yen)
12000 10700 10000 9150 8000 7100 6400 6000 4000 2500 2000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 1000 4000 5300

8000

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

BENEFITS SEEN BY TOYOTA

16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 1996 1997 1998 1999 2000 2001

Net revenue

BENEFITS SEEN BY TOYOTA

500000 450000 400000

Net Income

350000
300000 250000 200000 150000 100000 50000 0 1996 1997 1998 1999 2000 2001

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

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 isnt provided Where management does not support kaizen

initiatives

Thank You