Kaizen costing

Kaizen is a Japanese word, made up of two words “kai” and “zen”. Kai means a “change” and Zen means
“Improvement”. So, the meaning of kaizen is to make small changes for the improvement in the
organization. It is a technique for controlling the cost over those activities that does not add value to the
organization or product. It is used to improve the overall efficiency of an organization.

E’s of kaizen
 Everyone
It means all employees must follow the small changes to get improvement in an organization
 Every time
Its also mean if employees are following those small routines but how many times they are
following those procedures. That’s mean in kaizen all employees should practice those routines
every time in the organization by doing it daily.
 Everywhere
In which areas those changes are implemented? If an organization wants to implement kaizen,
then those changes must be adopted everywhere within the organization

Principles of kaizen

 Gradual improvement
Kaizen costing does not focus on drastic or immediate changes. It generally focuses on small
improvements. It’s a slow procedure. These small improvement does not bring immediate
change in short run in an organization. But in long run, these gradual improvements will bring a
drastic change in your organization.
 Collective decision making
In kaizen, all the employees, ranging from top level managers to the bottom level managers are
generally involved in decision making. So, as you are involving each and every employee in
decision making than participative approach will be created in your organization. Also,
behavioral problems like communication problems, hatred etc. these can be eliminated from
your organization.
 Unlimited scope for improvement
There is not a single method for improvement in it. In kaizen, we keep on changing the methods
for improvements so that the scope of improvement can be superior. As a result the goals will
be achievable.
 Eliminate wastage and improve productivity
‘waste’ is anything that do not add value to the customer but consumes time and cost to the
company. Therefore, kaizen tries to find out wastage in each and every process and then it
concentrated on that process where the waste resides, and try to eliminate it which results in
increased efficiency.
 Involves all employees and all areas
Kaizen generally involves all the employees from the top level to the bottom level. And it
involves all the functional areas e.g. sales department, administrative department, finance,
marketing etc.
5 S approach

In order to successfully implement the kaizen costing, one has to follow 5’ S approach. These five 5 are 5
Japanese words. If you follow these 5 s correctly, you have implemented 5 kaizen costing in your
organization.

 Seiri/sort
It means categorizing the items and making proper arrangements based on their necessity. Once
sorting is done and unnecessary items are recognized. Then these unnecessary items are labeled
red and must be removed from the organization
 Seiton/systematic arrangement
After sorting, your organization is left with essential items. Seiton suggests that these essential
items must be arranged in a proper manner, which means each item should have a particular
place.
 Seico/clean

 Seiketsu/standardizing
 Shitsuke/sustaining

Process of kaizen costing

1. Develop kaizen plan
The first step of kaizen costing is to develop a plan. And that plan should be concise and
complete. This process includes following processes:
 Involve your employees
First of all, ask your employees about the performance of the organization. In that way,
employees will feel their importance in the organization and their morale will be high.
They will help you to point out problems within the organization.
 Find problem
Find the problems in the processes of the operations.
 Define problem
 Document current situation
 Visualize ideal situation
 Brainstorm solutions to problem
2. Implement the plan
3. Check the plan
4. Standardize
5. Repeat

Advantages
 1. Waste elimination
 Over production
 Inventory
 Unneccessory motion
 Unnecessary processing
 Unnecessary wasting
 Unnecessary transportation
2. Standardization
3. Innovation
4. Morale
5. Teamwork increases
6. Quality increases
7. Reduced inspection
8. Efficiency

Disadvantages
1. Resistance
2. No immediate results
3. Permanent change system