Academic Journal of Research in Business & Accounting www.newscienceseries.com Vol. 2, No. 8, August 2014, 43-52
ISSN: 2311-326X
Kaizen and Kaizen Costing Amir reza Ramezani 1*and Ali P. Razmeh 2
Abstract
Abstract
rganization that emphasizes on the essence of strategy, namely transformative dimensions, is more efficient than organization that is concerned with program and process. There are two approaches to reach progress. Gradual improvement or kaizen and development based on Great Leap, which is called innovation. Kaizen is a processoriented way of thinking that supports and encourages the efforts of process-oriented people for small but continuous improvements and it has main differences with western management system that assessment solely takes place based on the results. Kaizen is a system that involves all employees, from top management to the bottom. Anyone who contribute to improvement by continuous suggestions improvement, are encouraged and suggestions are not presented once a month or a year but they are continuous. Kaizen also sets and adjusts standards and improves standards continually. Kaizen costing is implemented with the objective of determining cost reduction targets and cooperation of staff in all levels, and it is different from innovation and cost control techniques of standard costing. Keywords: Kaizen, kaizen Costing, Innovation
1*
Corresponding author: Faculty Member of Islamic Azad University, Miyaneh-Branch,
[email protected] 2 Faculty Member of Islamic Azad University, Dehdasht-Branch.
Ramezani and Razmeh
Introduction The spirit of kaizen is achieving improvements through small steps rather than big steps and dramatic changes and revolutions and includes continuous setting and improvement of standards without major investment. The aim of kaizen is to eliminate wastes and non-value added activities, just-in-time delivery, leveling load of production in amount and type, labor Standardization, quiet transfer of production lines and using appropriate equipment. In fact, kaizen includes processes, systems, products and services that takes them apart and then rebuild in a better way. Actually, kaizen is along and hand in hand with comprehensive quality control (Slobodan, 2011). Kaizen approaches and techniques are valuable tools which can be used to increase productivity and gain competitive advantage and to increase the overall performance of the organization in a tough competitive market by reducing the cost of production or manufacturing. For quick and effective problem solving or managing kaizen events, appropriate methods should be used. In these cases, kaizen uses techniques and methods that are factors and integrators of quality improvement approaches such as 5S, Six Sigma, PDCA, Toyota Production System (TPS), a comprehensive quality management (TQM) and 7 Quality Control Tools (7QC). Kaizen strategy involves all levels of management including managers, engineers, technicians and production supervisors which have been developed as a leadership team for continuous efforts and commitment. In Japan, concept of kaizen has embedded in the minds of managers and workers so deeply that often they do not notice kaizen as a customer-driven strategy for improvement
The concept of kaizen Kaizen is a term that has its origins in Japan (Sani & Allahverdizadeh, 2012) which was popularized by Masaaki Imai and it is a concept of two Japanese words, KAI means change and ZEN means better (Rof, 2012). Kaizen is defined as continuous and in process that involves the whole organization. Imai (1986) knows Kaizen as fundamental philosophical concept according to the best Japanese management and it is in the concept of an umbrella which covers most of Unique Japanese management practices which has helped to start from zero and overcome upscale Global competitors since 1950s to 1980s. Concepts such as customer satisfaction, Kanban, total quality control, quality improvement, robots , just-in-time systems, quality control cycle, zero waste, suggestions system, small group activities, equipment, collaborative labor management relations, new product development, etc. can be considered among the concepts covered by Kaizen. Kaizen Management has two major components, including the improvement and maintenance of standard operating procedures. Maintaining standards includes training and discipline. Kaizen is representative of small improvements in the current system while innovation shows Substantial improvements as a result of major changes such as investment in technology or new equipment. All organization members are involved in Kaizen, from the Chief Executive Officer who are responsible for introduction, support
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Academic Journal of Research in Business & Accounting Vol. 2, No. 8, August 2014 and creation of systems to workers who participate in kaizen activities through suggestion system and small group activities. Kaizen meaning continuous improvement is based on three dimensions. Improving the quality of products and services, zero waste, and customer satisfaction through collaborative management based on staff suggestions in the quality control department are dimensions of continuous improvement (Alborzi, 2002). Kaizen philosophy is based on the belief that human’s family life, employment and society are interrelated and must be improved continuously through required activities. The key for continuous improvement in kaizen is in small innovations and creativities not in great dramatic and revolutionary innovations. Kaizen focuses on small reductions of cost in product life cycle. The focus of this approach is on reducing the target cost and giving power to employees. The purpose of Kaizen is to reduce actual costs below the standards set by Innovation. In kaizen system, goal management determines cost reduction and usually compares it with real results every month. Thus, kaizen is used not only for maintaining standard but also it is used to enhance them. Kaizen, or continuous improvement is short-term planning system and employees are the source of problem solving in this approach. Kaizen approach is used for cost reduction at production level. Kaizen culture and its interaction between various social layers and organizations in Japan has caused to change company to university, and university to company; workers learn from manager and manager uses workers’ ideas.
Kaizen and Innovation Japanese kaizen and English improvement are two distinct and separate concepts. Kaizen is related to continuous accumulation and aggregation of improvement activities instead of improvement resulted from innovation and kaizen costing includes cost reduction in production stage. The improvement resulted from innovation is based on new technological innovations which is usually introduced in designing or product improvement level (Monden & Hamada, 1991). Japans term, kaizen, meaning continuous or permanent improvement, stands in front of innovation which focuses on major improvements, productivity or quality through major changes in production or processes. In the kaizen, emphasize is on series of continuous improvements and small incremental steps that can be used at all levels of the organization. At senior executive level, Kaizen is focused on changes in the procedures and processes, at middle management level on connection of internal departments, and in lower levels of management and workers on the jobs, duties and specific departments. Kaizen is a broad concept that complies with many other concepts, tools and techniques such as 5S, Quality circle, PDCA circle, 5Wh, 1H, 3Ms, infallibility or Poka Yoke, SMED, Kanban, just-in-time system, and 7QC tool, etc. Versus kaizen, there is western approach of innovation. Innovation, as major changes, follows technological progress or an introduction to the largest concepts of management or manufacturing techniques which are often dramatic and impressive. In contrast, kaizen and its results are often subtle and barely visible quickly. While Kaizen is a continuous process, innovation is
Ramezani and Razmeh
generally an explosive phenomenon. One of the beautiful things about kaizen is that Kaizen does not require advanced methods. In order to use kaizen, only simple techniques and conventional methods, such as quality control are needed while Innovation typically requires advanced technology and large investments. Kaizen is like a fountain that nourishes small changes, while Innovation is similar to sudden volcanic eruptions that it happens and ends all of a sudden. Though, kaizen philosophy is appropriate for slow-growing economies, innovation seems to be more favorable for fast-growing economies (Dobi, 2007). In other words, kaizen is related to minor changes happened in the current situation through ceaseless efforts and innovation refers to overall modifications caused by extensive investments in technology. One of the interesting features of kaizen is that it does not needs sophisticated technology or the latest technological achievements definitely. To achieve kaizen, common sense is all that is needed but, in contrast, often Innovation requires technology and huge investment (Soltani, et al., 2009).
Kaizen and Suggestions System Toyota calls its Suggestions System as "Soui Kufuu Seido". "Soui" means "creative ideas", "Kufuu" means "discover" or "do" and "Seido" means "politics" or "system". Toyota calls it suggested system of critical ideas in English. Kaizen covers different parts of an organization, from workers responsibility of maintaining machinery to simplification of activities, kaizen has an important role and all improvements will have positive impact in system and procedure ultimately. Most Japanese senior executives believe that kaizen is the responsibility of managers to 50% and it is the responsibility of all organization staff (Recht & Wilderom, 1998). Understanding the role and responsibility of workers and it's compete support has great importance for management. One of the most important factors of all staff participation in kaizen is using suggestions system. Suggestions system usually does not have rapid financial reimbursement but it will raise and reinforce moral. Moral improvement can be improved through kaizen activities because in this way everyone participates in problem solving. In most of Japanese companies, number of suggestions submitted by each worker is the reflection of supervisors’ kaizen efforts. Therefore, the goal of managers and supervisors is to provide ways to help people make more suggestions. Kaizen starts when the individual accept its positive characteristics to change and improve ways of doing things. Any suggestion is a revision in standards and since the new standards have been set by workers, they will accept it rapidly and follow to implement it (Stenmark, 2000). In contrast, if standards be set by managers, there may be problems in acceptance by workers. Thus, through suggestions system, employees can participate in kaizen and play an important role in improving standards. Basically, any suggestion system must show a circle with four basic components (Nicoleta & Klein, 2009):
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Encouraging employees to participate,
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Motivating employees to submit suggestions (practical and non-practical ideas),
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Review and evaluation of applications,
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Payment of reward and appreciation of staff.
Kaizen and 5S Experience has shown that a condition for the successful implementation of kaizen in various institutions is that initially, 5S method should be implemented correctly in the organization. All experts of productivity clearly state that if a company could not implement 5S successfully, it would not be able to do any activity in the field of productivity (Kozazi, 2001). In Japan, 5S is the abbreviation of 5 words which show the concept of appropriate maintenance. Usually when the employees notice management decision to implement the concept of kaizen, show some resistance in front of making changes. Often, the commonest resistances and reasons of employees for resistance in making changes are as follows (Titu, 2010): 1- What special things can make adjustments and sorting?, 2- Why should something that will be messy again, must be cleaned and arranged?, 3- Cleaning and sorting and arranging will not increase results, 4- We usually apply setting and cleaning, 5- we've implemented the 5S tears ago, and 6- we do not have enough time to implement 5S due to excessive preoccupation. Below 5S approach is presented briefly for each of the five activities:
1-Seiri (Sort) means to identify and sort all essential and non-essential items based on what is needed and what is not needed. All non-essential items and what is not needed receive red label based on tagging and labeling but people have opportunity to change the label of needed items. So any item that has received a red tag are identified as unnecessary items and may be sold to employees or to be sold as scrap or may be given away or discarded according to the case. 2-Seiton (Order/Straighten) means sorting essential item in order to teach them easily. In fact, the concept of seiton is what items should be kept. In other words, putting the items so that all items are visible, tools and items must be maintained so that become easily identifiable and accessible which is called "A place for all items and all items in one place." 3-Seiso (Clean/Scrub) means cleaning the workplace. In Seiso, anything that remains in ground must be cleaned and environment should take a good and beautiful look. 4-Seiketsu (Standardize) means setting the standards of cleanliness, spreading cleanliness and controlling everyday practices and strive to maintain the initial steps. When people see improvement resulted from kaizen, they will try to learn it and improve their workplace. 5-Shitsuke (Self-Discipline) means to teach people in order to regard order and discipline of environment. In fact, Shitsuke is in the sense of discipline and self-regulation. Establishing
Ramezani and Razmeh
a cleaning schedule, using rest time of machine for cleaning, and arranging environment are purposes of Shitsuke.
Kaizen and 7QC Techniques and tools of kaizen which are used to improve quality are called building blocks of kaizen. Techniques and tools like kaizen teams, waste elimination, kanban, andon, preventive repairs, single minute exchange of dies (SMED), Heijunka, 5S, and 7QC are used in kaizen (Suarez & Ramis, 2008). The 7QC tool is engineering with quality tools. Learning these tools is simple and available. In addition, these tools are used to analyze and find solutions for problems and they are considered as a foundation for other tools which include the following cases (Ratchanok & Kongkiti, 2011):
1- Pareto, 2- Cause and effect diagram (Ishikawa fish bone), 3-Histogram, 4- Control charts, 5- Scatter plot, 6- Classification Worksheet, and 7- Graph.
Kaizen and housekeeping Housekeeping is an essential element of good management. By Good Housekeeping, staff studies knowledge, discipline and self-regulation. Without self-regulation among employees, it is hard to produce a product that will earn customer satisfaction (Kr, 2011). Housekeeping is management process at work and in Japanese it is called GEMBA or workshop that is created for the purpose of improvement. Imai was the person who introduced the word GEMBA that means the actual location and place of receiving value-added by products and services before passing to the next process (Schonberger, 1996). For good housekeeping, there is a useful tool that is called 5S method which can create order, arrangement, discipline, and help to the cleanliness housekeeping. Japanese companies use 5S in a wide range which is related to housekeeping (Harrison, 1992). The basic process of housekeeping is described by breaking it down to organizing, cleaning, clarity, standardization and discipline. Keeping or housekeeping of workplace is a factor that results a clean workplace and a clean workplace leads to do working activities in a better way and so productivity increases and security of employees are kept better. In business and institutions, GEMBA refers to value-added activities for customer satisfaction. In production activities, there are three main activities which are directly related to earning money and improving production and sale of products. Without these three activities, the Company is not able to move on and continue the activities. Therefore in a broad sense, GEMBA is considered the meaning of these three activities. In other words, GEMBA means a place where productions are carried out and since Japanese believe that production is one of the most important fields of business which has been ignored by management, it is also have the same meaning in Japan. It seems that managers emphasize on production as a second source of earning money and their main concern is sections like financial
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Academic Journal of Research in Business & Accounting Vol. 2, No. 8, August 2014 management, marketing, sale and product improvement. When GEMBA or production fields become focus center of management, they can be changed to utopia which is able to change company into a more profitable and successful one in order. In services part, GEMBA is a place that costumers are in contact with presented services. For example, in a hotel, GEMBA can be seen everywhere. Signs of GEMBA can be found in the lobby, restaurant, guest room, reception desk and secretary, counters, and concierge station.
Kaizen costing Kaizen costing as cost management procedure originated in Japanese companies after World War II. Kaizen costing which is called Genkakaizen in Japanese companies is an approach that is used in production level as a cost reduction process and focuses on continuous improvement in all processes, and customer satisfaction and it involves all employees of the company. Kaizen costing which was used in Japanese automobile companies were developed by Toyota Company as cost management techniques in 1960 that was named Kaizen Costing (Toyota Motor Corporation, 1978). Yasuhiro and John (1993) expressed that Kaizen costing through continuous improvement or kaizen activities acts as target cost reduction and Kaizen costing activities keep the current level of production cost and begin to reduce production cost according to the company's plans. Kaizen costing is the process of strategic management accounting that is a forward approach and outlook in search of competitive advantage for firms (Guilding, et al., 2000). Point of strength in kaizen costing is its close relationship with the company’s planning process and hence the company can evaluate its plans, progresses and long-term goals. Kaizen costing activities include incremental improvements, continuous reduction of production cost, and constant imprudent in designing and developing products. In fact, Kaizen costing is continuous improvement and recovery by eliminating waste and reducing the cost (Kennedy and Widener, 2008) and it is related to the reduction of production cost and existing processes (Hansen & Mowen, 2003). This costing is a method to ensure manufacturing of products that meet the required quality, customer satisfaction, usability and affordable price to maintain the competitiveness of products (Ellram, 2000) and focuses on continuous cost reduction of products that are really manufactured in the company (Cooper, 1995). Kaizen costing is a method including product design and improvement teams after the establishment and implementation of product and designing production process, and it focuses on operational characteristics of processes and production in an efficient manner and requires a focus on cost reduction, however, the main focus of KC is on manufacturing process rather than products. In kaizen, cost reduction is a goal for each process. Thus to achieve this goal, Value analysis is used which is a form of value engineering. In Japanese Sumitomo Corporation which Kaizen costing is used, cost reduction process is assigned to factory labor and that is why factory labor supply needed information in cost management and then part of this information is used to prepare financial reports by accounting
Ramezani and Razmeh
Department. Important aspect of kaizen is business and production elements improvement such as quality, cost, delivery and etc. Quality improvements are in terms of features of production and product, cost improvements in terms of product cost, and delivery improvement in terms of time of the product distribution. Part of cost improvement is done by controlling and reducing unnecessary cost. For this purpose, kaizen costing techniques can be used for continuous improvement in whole organization and kaizen costing is part of kaizen term which is used for continuous reduction of production cost and it is the basis of kaizen ideology. Japanese companies calculate kaizen profit or profit improvement based on the difference between target profit set by senior managers and estimated profit set by lower level managers. Japanese car companies consider reduction of fixed and variable costs necessary in cost savings. They think that kaizen cost reduction can be achieved through a reduction in the variable cost of production departments and non-production departments but the kaizen cost can also be considered for fix items. Kaizen Cost includes the actual cost as the basis for cost reduction and thus the goal of kaizen costing is to reduce determined cost during the current period. At the end of this year, the real cost is the basis for the next year, and next year, efforts direction will be to reduce the kaizen cost based on the actual cost at the end of the year. Cost reduction goal of kaizen is achieved by eliminating non-value added activities and improving time management. Also, management receives employees’ improvement suggestions and examines them honestly and implements appropriate ideas for making improvements (Hilton, et al, 2006). The ratio of kaizen cost reduction goal is considered based on kaizen profit and it is generally 10% on the whole. After 3 months of the start of the new product and after using target costing process, the cost is reduced through kaizen costing. Then, Kaizen cost targets are analyzed for each factory within different sectors and smaller units and kaizen is done through daily activities. Cost targets of kaizen are proposed in the cost committee of kaizen and policies for implementing goals of kaizen (mainly non-monetary standards) are set. In kaizen costing process through allocating target cost of kaizen to various departments of company, control, accounting, maintenance and quality aspects can be done through the activities of factory employees. Factory employees participate in the daily activities of kaizen through proposing suggestions and quality cycle. Therefore, kaizen costing is effective in accounting controls and factory. After introducing the product, customers demand to increase value of product over time by increasing the value of products and reducing their cost. Kaizen costing process is an important interactional process between management and staff working group. Kaizen costing method uses target cost to reduce cost and it is calculated according to principles of standard cost. Kaizen costing system is an attempt to reduce the cost below the standard cost and achieve cost reduction targets. This cost system defines annual standard and examines difference between actual and standard costs and when standard cost does not fulfill, tries to find the reasons and make necessary decisions.
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Conclusion Kaizen is way of thinking and philosophy which can be used in all institutions. The concept of kaizen includes continuous improvement in all areas and also kaizen costing which is mainly associated with cost improvement. Kaizen costing is an important branch of the kaizen concept which follows philosophy of kaizen. This costing system is an emerging method to change and continuous improvement of cost in an efficient manner. The secret to the success of Japanese companies has been using philosophy of kaizen and kaizen costing and has been accepted as a part of this concept. Essence and main theme of Kaizen which is deeply ingrained in the of today's Japanese mindset and Japanese have selected it as an strategy and use it in all areas, In fact, it is the origin of the ideology of human effort and continuous improvement. Kaizen is the process of improving the amount of difference rather than huge innovations and the main difference between target costing and Kaizen costing is that target costing is used in designing level, whereas Kaizen costing is used in the production stage. In target costing, main argument is designing production and reducing its costs but in kaizen costing the discussion is on production process.
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