Question

2. You are the CEO of a US manufacturing company. You are being acquired by a large Japanese company who wants to incorporate your products as a component in their final products. They currently use the Kaizen Costing system and they have indicated that beginning next year, the US Company will use the same system. The CFO wants to understand better the differences and how it will change her responsibilities. How do you help her understand those differences? What plans would you make for the transition to Kaizen costing?

Answer 1

Understanding the Benefits of Kaizen Costing (In other words, the way it differ from Current Production System):

CIMA defines the Kaizen Costing as kaizen as Japanese term for continuous improvement in all aspects of an entity’s level performance at every level. See Continuous Improvement.

Kaizen Costing is a term for number of cost reduction steps that can be used subsequent to the issuing a new product design to the factory floor. Dome of the activities in the kaizen costing methodology include the

• Elimination of Waste in Production
• Elimination of Waste in Assembly
• Elimination of Waste in Distribution Process and
• Elimination of Work Steps in above Areas

The Cost reduction achieved in the Kaizen Costing are much smaller than some other methods but are still worth since competitive pressures are likely to force down the price of a product over time.

Due to this any possible cost savings allow a company to still attain its targeted profit margins while continuing to reduce cost.

This type of cost reduction used for target costing have an impact on the extent of cost reduction, as well as on the nature of components used in the product. This approach is most commonly used during the redesign of product’s which are already in the market.

In Short, Kaizen Costing can be understood as “Small and Continuous improvements in the current process”

Kaizen Costing is a technique, which focuses on the reduction of waste in the production process. Thereby further lowering the costs below the initial targets specified during the design phase.

Through the above explanation of the Concept of Kaizen Costing, CFO can understand the differences between the current Production methods and the Kaizen Costing System.

And through the above understanding, he can plan and decide the financing decisions to be taken place in the Production related activities. He can make the discussions with the production manager and other authorities to decide whether implementation of Kaizen Costing actually benefits the Company or not ? and make a Final Decision on the transition of the current production system to the Kaizen Costing.