DEFINITION

KAIZEN COSTING :
A Japanese term for making improvements to a process
through small, incremental amounts rather than through
large innovations.
16-3
KAIZEN COSTING is the process of cost reduction during the
manufacturing phase of a product. Improvement is the goal and
responsibility of each worker.
Cost per product unit
12/31/x0 12/31/x1
Time
Cost base
for next
year
Actual cost
reduction
achieved
Current year
cost base
Kaizen goal:
cost reduction
rate
Actual cost
performance
of the
current year
Exh.
16-7
require the involvement and commitment of
top management.
Employees must be trained in the new
processes, procedures and mindset that they
must follow to be successful.

KAIZEN INNOVATION
EFFECT Long-term and long lasting
but un-dramatic
Short-term and dramatic
PACE Small steps Big steps
TIME-FRAME Continuous and
incremental
Intermittent and non-
incremental
CHANGE Gradual and constant Abrupt and volatile
INVOLVEMENT everybody Select a few champions
APPROACH Collectivism, group effort Individual ideas and efforts
MODE Maintenance and
improvement
Scrap and rebuild
EFFORT ORIENTATION People Technology
EVALUATION CRITERIA Process and effort for
better result
Result for profits
ELEMENTS
OF KAIZEN
COSTING
Teamwork
Personal
Discipline
Suggestion
for
Improvement
Quality Circle
Improve
Morale
TEAMWORK
Employee work as a team towards the
common goal of achieving the desired
improvement on production.
Work for their best for the good of their
colleagues and company.
It involves sharing chores, training, timely
delivery among many others.
PERSONAL DISCIPLINE
Employee should have self-disciplined in time
management, quality assurance, material
management, finances and loyalty to company
and its public.
Any back fall in personal discipline will
definitely affects the productivity of the
employee.
SUGGESTION FOR
IMPROVEMENTS
Give opportunities to all employee to air
suggestion freely no matter the workers rank
No matter how suggestion may be, they
should be welcomed appreciated and
considered at all times.

QUALITY CIRCLES
Employee will have opportunities to share
ideas, skills and other relevant resources.
The exchange encourages them to measure
their performance based on other companies
Kaizen programs and thus try to improve.
IMPROVE MORALE
Employer or senior management should put
motivational strategies such as:
- good working conditions
- merit promotions
- better remuneration
-workers benefit (paid leaves, allowances,
medical care, bonuses and loan)
All these give the employee the security of
employment.

Role of top management
Establishing Kaizen as the most essential
corporate strategy.
Communicating this commitment to all levels
of the organization.
Allocating the resources necessary for Kaizen
to work out.

Role of middle management
Implements the Kaizen policies that
established by top management.
Establishing, maintaining and improving work
standards.
Responsible in ensuring that employees
receive the training necessary to understand
and implement Kaizen.
Ensuring that employees learn how to use
problem solving and improvement tools.

Role of supervisors
Developing plans for carrying out the Kaizen
approach at the functional level.
Improving communication at the workplace
Providing coaching for teamwork activities
Soliciting Kaizen suggestions from employees
and making Kaizen suggestions.
Role of employees
Responsible for participating in Kaizen
through teamwork activities.
Engaging in continuous self-improvement
activities
Continually enhancing job skills through
education and training
Continually broadening job skills through
cross-functional training(is a group of people
with different functional expertise working
toward a common goal)
KEY
FACTORS
OF KAIZEN
COSTING
Housekeeping
Waste
elimination
Standardization
This is the process of managing the workplace,
known as Gemba (workplace) in Japanese,
for improvement purposes.
The word Gemba means a real place,
where value is added to the products or
services before passing them to next process
where they are formed.

Sorting
-keeping only
essential items

Simplifying
-eliminates
extra motion



Standardizing
-standardized
work practices



Sweeping
-keep the
workplace
clean
SHITSUKE
Sustaining
-maintaining and
reviewing
standards
S
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S
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S
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O
N
Kaizen costing has been developed to support continued
cost reduction of existing components and products.
Cost reduction targets are set on a regular basis.
In Kaizen philosophy, the aim is to eliminate the seven
types of waste :

Overproduction
Waiting
Transportation
Unnecessary stock
Over processing
Motion
A defective

Standards are set by management, but they must be able to
change when the environment changes.
Once the standards are in place and are being followed then if
there are deviations, the workers know that there is a
problem.
Then, employees will review the standards and either corrects
the deviation or advice management on changing and
improving the standard.
Companies can achieve dramatic improvement as reviewing
the standards periodically, collecting and analyzing data on
defects, and encouraging teams to conduct problem-solving
activities.
It is a never-ending process and is better
explained and presented by the PDCA Cycle
(plan-do-check-act), known as Demming
Cycle;


Standard Costing
Cost control system concept
Assumes stability in current
manufacturing process
Goal to meet cost performance
standard
Set annually or semiannually
Involves comparing actual to
standard cost

Kaizen Costing
Cost reduction cost concept
Assumes continuous improvement in
manufacturing
Goal to achieve cost reduction
standard
Applied continuous improvement all
year long
Involves target kaizen cost vs actual
cost reduction amount
ADVANTAGES
Results in higher
employee morale and job
satisfaction, lower turn-
over.
Reduces waste
Provide immediate result
Improve space utilization
DISADVANTAGES
Getting people to think in
the long term
Too much suggestion
may lead to confusion
and time wastage
Permanent changes of
management system.
Kaizen can motivate workers to make
improvements in their job.
Give higher satisfaction to the customer.
The Kaizen philosophy is to do it better, make
it better, improve it even it isnt broken,
because if we dont we cant compete with
those who do.
QUESTION

Common test (April 2013)
Question 2(b)
Describe three (3) behavioral implications of
Kaizen Costing to employees.

(9 marks)
Good is never good enough, kaizen is a
never-ending journey to excellence.