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ISSN : 2347 – 9558

ISSUE :2 (January)

IJAMCE INTERNATIONAL JOURNAL FOR ADMINISTRATION IN MANAGEMENT, COMMERCE AND ECONOMICS

Cost Reduction using Kaizen costing method Prof. Sunil S. Patalbansi Asst. Professor Jawaharlal Darda Institute of Engg. & Tech.Yavatmal Prof. C.S.Tolwani Lecturer Mahajan College of Technology, Yavatmal Abstract: The term “cost” has often been considered the most important of all in the organizations which happen to survive in this cut-throat competition. And hence they have been coming out with various methods of reducing their cost so as to increase their profit margin for a longer time. Since, we have always come across the term standard costing which aims to report the deviations, if any, in the actual cost of the product. Sometimes, the results are unexpected and cost is unfavorable. The aim of this paper is to talk about the kaizen costing method which aims to ensure “continuous improvement in the reduction of cost at all levels of a product‟s life cycle. This will also put forth the benefits of effectively implementing kaizen costing methods in the organizations. Key words: Kaizen costing; cost reduction

http: // www.ijamce.org (C) International Journal For Administration in Management, Commerce and economics [39-42]

ISSN : 2347 – 9558

ISSUE :2 (January)

1. Introduction: Kaizen costing is a cost-reduction system that is applied to a product in production. It comes from the combination of the Japanese characters „kai‟ and „zen‟ which mean „change‟ and „good,‟ respectively. The word „Kaizen‟ translates to „continuous improvement‟ or „change for the better‟ and aims to improve productivity by making gradual changes to the entire manufacturing process. Some of the costreduction strategies employed involve producing cheaper re-designs, eliminating waste and reducing process costs. Ensuring quality control, using more efficient equipment, utilizing new technological advances and standardizing work are additional elements.

examines the difference between the target Kaizen costs and the actual cost reduction achieved. The basic idea here is to make tiny incremental cost reductions on a continual basis in a product's life cycle. Since the goal is to reduce costs on a monthly basis, every department in the company makes an effort to introduce operational changes on a daily basis. The Kaizen approach calls for analyzing every part of the process and generating ideas on how they can be further improved. Kaizen costing takes into account aspects such as time-saving strategies, employee efficiency and wastage reduction while incorporating better equipment and materials. The fundamental basis of the Kaizen approach centers around recognizing that employees who work on a particular job are aware of how that particular task can be greatly improved. They are then empowered to do so in the Kaizen costing system. Employees are treated as valuable sources of viable solutions, an approach that differs greatly from the standard cost system that views employees as laborers with variable performance levels.

To understand Kaizen costing, one first needs to grasp standard costing methodology. The typical standard costing approach works by designing a product first, and computing costs by taking into account material, labor and overhead. The resulting figure is set as the product cost. The standard cost is set and revised on a yearly basis. Cost deviation analysis involves checking to see whether the projected cost estimates tally with the final figures. Manufacturing procedures are assumed to be static. In contrast, Kaizen costing is based around improving the manufacturing process on a continual basis, with changes being implemented throughout the year. Costreduction targets are set on a monthly basis. The goal here is to reduce the difference between profit estimates and target profits. The cost deviation analysis done in Kaizen costing

2.

Features of kaizen costing:

Kaizen costing has not been implemented according to standard costing. This means that the companies do not implement the traditional cost variance analysis based upon the gap between the standard cost and the actual cost for each period. Kaizen costing is implemented outsides the standard cost system as part of the overall budget control system. In essence, the actual cost per product for the latest period is the kaizen cost budget which must be reduced in each successive period in order to meet the target profit. Again, standard costing is limited by its financial accounting purpose and therefore it has many unsuitable features for cost reduction in the manufacturing Phase. Kaizen covers up the


ISSUE :2 (January) broader meanings than the traditional cost control system. Kaizen costing activities include cost reduction which requires changes in the way company manufacturers existing products. In addition, the improvement suggestions and kaizen efforts of all employees are taken seriously and implemented when appropriate. The result is a continually more efficient and cost effective production process.

3. Benefits of Kaizen costing: 1) Focus on customers: The Kaizen philosophy has only one prime objective of customers‟ satisfaction. Kaizen permits no middle ground its either you provide best products and customer satisfaction or not. All the activities should aim at providing customer withw h a t e v e r h e w a n t s a n d s h o u l d help the firm long term object i v e o f c u s t o m e r s ‟ satisfaction at the same time building up good relationship. It is a responsibility of each and every person working in a Kaizen company to make sure that the product is up to the mark and it satisfies customers need.

ISSN : 2347 – 9558

2) Make improvements continuously: There is not a best way to do a thing, there is still a better way. In a Kaizen company, the search for excellence just does not end. We should work on the improvement implemented and see if we can make it even more effective. 3) Acknowledge problems openly: Every company has certain problems related to finance, competition, change in demand etc. Kaizen companies are no exception, but by fostering an appropriately supportive, constructive culture it becomes easier for any team to get its problem in the open. The whole organization works as a team to solve the problem. The p r o b l e m s a r e o p e n l y s h a r e d b y t h e management with the employees w hich avoidsrumors. It simply means FIGHT WITH YOUR PROBLEMS D O N ‟ T R U N A W A Y FROM THEM. 4) Create work teams: Each individual in a Kaizen company belongs to work team headed by a leader. Working in various overlapping teams draws employees into corporate lifeand reinforces the mutual understanding. 5) Cross- functional teams: Kaizen states that no individual or team has all the required skill and knowledge to complete a task. Cross-functional teams help in getting all the valuable information‟s from the view of all the related people. It calls for letting ideas to flow as wide as running on moon.


ISSN : 2347 – 9558

ISSUE :2 (January)

5. References: 4. Conclusion: These are the benefits of having properly implemented Kaizen costing in an organization. All possible efforts have been taken to impart sufficient knowledge to the readers that how kaizen costing method improves the chances of reducing cost of production at every level of its product‟s life cycle. And hence organizations must be trained about its implementation so as to increase their profit margin. It will also help them to reduce employees turnover by seeking their participation in the overall decision making process.

Diaconu, P., ş.a., Contabilitate managerială aprofundată, Editura Economică, Bucureşti, 2003. Epuran, M., BăbăiŃă, V., Grosu, C., Contabilitate şi control de gestiune, Editura Economică, Bucureşti, 1999. Horngren, C.T., Datar, S.M., Foster, G., Contabilitatea costurilor, o abordare managerială, EdiŃia a 11-a, Traducători: LeviŃchi, R., LeviŃchi, V., Stanciu, D., Editura ARC, Chişinău, 2006.
