[SOLVED] The word Kai translates to change, and

The word Kai translates to change, and the word Zen translates to better. Together they are taken as change for the better or continuous improvement. Kaizen is part of a methodology known as lean manufacturing which aims to remove waste through continuous improvement to get the best resources and most efficient processes. Kaizen promotes an environment where all employees constantly seek to reduce waste. The Japanese car manufacturers use kaizen costing as a method of cost management. According to Monden and Hamada (1991), Toyota has a two-pillar approach in which kaizen costing and target costing implement total quality management. Total quality management is a process of continuous quality improvement of all business functions in an organization. This was widened to include the “Total Customer Satisfaction” by focusing the improvements in quality to deliver a consistently high quality product or service to customers in a timely manner using various techniques, such as six sigma and getting it right first time to minimize defects. Target costing is used at the design and development stage in the product life cycle to support cost reduction.
This model is used either where an entirely new model or a new version of an existing model is being developed. The idea is that kaizen is an ongoing process by striving to reduce costs through continuous accumulations of small improvements in activities or processes, in order to achieve cost reductions at the production stage of the product life cycle. In Toyota, all personnel are expected to take part in kaizen. If an operative observes an event on a production line, they are supposed to stop production. They then report the event to their supervisor, and both must suggest an improvement to resolve the event. Kaizen uses several tools to achieve these improvements.
The first is known as the PDCA cycles (Bulsuk 2009). There are two such cycles. The first cycle is Plan, Do, Check and Act. The second subsidiary cycle is summarized as Problem finding, Display, Clear and Acknowledge. The kaizen approach seeks to standardize operations or activities. These operations or activities are measured to create standardized operations using, for example, cycle times. Kaizen gauges measurements against requirements, innovates to meet the requirements and thus achieves increases in productivity.
This new improved operation is standardized and the PDCA cycle begins again, so the process is continuous. Another tool is called the 5 whys (Bulsuk 2009). This is a method of finding the root cause of problems by asking “Why” questions five times using structured problem-solving of a fishbone diagram or table. Horenso is a Japanese word that basically describes reporting to superiors and team members. Initially this was a one-way stream of information to managers to ensure that all decisions were made with full information.
However, as kaizen has developed, this has become a more encompassing form of communication, both upward, downwards and side to side to ensure that the team and other stakeholders receive all of the information necessary for decision-making. Bulsuk (2009) calls this 360- degree communication. This is all based on the premise that the people on the front line have more information about the processes and are in a better position to eliminate wasteful procedures than management. ‘Mieruka’ is another Japanese word which means visual control. Four types of visual control are Informative, Instructional, Identification and Planning. This is also known by the acronym 3i1P (Bulsuk 2011). Identification is necessary to ensure design visuals serve their intended purpose. Labelling is very important. Correctly labelled and stored raw materials will reduce time spent searching for items.
This time spent searching is considered time wasted, so the labelling is a form of implementation of a lean manufacturing process. The second I, Informative, concentrates on how important information is and providing it in one location. Toyota use wall charts, Gant charts and white boards which cover one single topic to communicate information. This allows the information to be targeted and specific. Instructional is really about organizing the workspace and displaying instructions clearly on shelves, or on posters. Instructions are designed to ensure operational consistency. Toyota aims to perfect processes. If processes are formalized, they are easy to follow and this aids enforcement. It also creates a natural training plan and support for new employees. Planning is achieved with tools like paper charts, reports, whiteboards and Gant charts for project plans. Toyota aims to use visuals and abbreviated information to make processes simple to understand and yet provides all of the information required.
This is sometimes called 5S in lean standing for Sort, Set in order, Shine, Standardize and Sustain, in that order. Kaizen is also a philosophy. It works on the premise that the reductions are communicated to all the team members who are then responsible for achieving them. In order for this to work, every member of the team, from management to operative, must agree that the targets are achievable and understand the methods of measurement. Measurements may be financial and non-financial. These are called metrics. Management and operatives must understand each other’s expectations clearly (Modarress et al. 2004). Kaizen is a continuous improvement method, which encourages people to learn from their mistakes and to find better ways to do things. Proponents of this method claim that it should lead to better goods or services over time and to improved morale, quality, efficiency, customer satisfaction and reduced costs. Toyota uses traditional cost variances to analyse the difference between actual and standard costs for products. They identified that the standard cost system does not really strive to reduce costs. Standard costs are generally only adjusted annually.
The system as it stands analyses and responds to situations where the standard is not met (variances). Toyota felt that it was important to question the standards and to look for cost reductions using continuous improvement and removal of waste. In order to support the cost reductions, a system of cost management based on kaizen costs was imposed alongside standard costing (Modarress et al. 2004). Cost plus mark-up did not help to achieve cost reductions. This takes the full cost of a product and adds a mark-up to cover profit required. The cost accounting standard is based on the best practice prevailing when the standard is set, combined with a purchase price for raw material based on usage. The actual results are then measured against the standard to produce a variance. The result is that variance analysis is backward looking, whereas cost management is proactive and forward looking (Berliner et al.1986). It is agreed that financial measures based on the traditional system are still important (Modaress et al 2004). It is important from an external reporting perspective that standard costing and variance analysis are performed. The Japanese believe that a customer will only buy a product if they believe the price is less than the perceived value (Monden 2000).
Cost management focuses on reducing the cost to reduce the price or increasing the perceived value of the product (Monden 2000). Target costs are set for new products. In order to achieve these costs, the processes are analysed using value and functional analysis. These methods identify where the product or manufacturing process has any unnecessary costs or non-value-added activities. These are defined as “waste”. Value engineering is used to create the functional changes in the new product development life cycle stage to achieve cost reduction or to increase value. Function is what a product does. Value engineering is also used to identify cost reductions involving design changes in existing products. Wasteful costs and activities are eliminated while maintaining quality and functionality of the end product. Ultimately, this could lead to complete product redesign. Cooper (1995) states that if management shared the relevant cost information with workers, they would be able to achieve cost reduction most effectively by setting and committing to sensible targets’
In the car manufacturing industry in Japan, Monden and Hamada (1991) identified that kaizen was used to analyse:
1. the difference between the actual cost and a target cost (not the same as the standard cost) after a new produce was in production for 3 months.
2. every period an analysis was carried out on differences between targets and estimated profit. Target profits are a top-down method of costing. The target selling price is identified based on what the market is willing to pay for a product and a target profit is identified based off the company’s strategy. Removing the target profit from the target price, the target cost is calculated. The estimated profit is a bottom-up process, where all the costs of a product are added to sum to a total overall cost. The kaizen costing system includes direct material and direct labour costs. These are added to create a kaizen cost per unit for each car. The reductions are based on the kaizen cost per unit for budgetary control rather than standard cost analysis. Fixed cost reductions are taken at the total level of the kaizen fixed costs rather than at a cost per unit level (Monden and Hamada 1991).
A target percentage cost reduction is then applied to the kaizen cost to achieve the kaizen profit. An example of this would be a purchasing department not being allocated a kaizen cost target for reductions in its own costs, but rather they would be expected to look for reductions in the costs of parts by promoting value engineering proposals with vendors and negotiating price reductions with vendors. The method for achieving the profit improvement is to find the difference between targeted profit and estimated profit. Then half of the required savings are sought via increases in sales and the other half of the required savings via cost reductions (Monden & Hamada 1991). Sales increases can be achieved either by increasing sales volume or increasing selling price. The increased selling price is the preferred option as increasing quantity also increases variable costs. Cost savings are achieved both in variable and fixed costs. Manufacturing fixed costs are considered necessary for maintaining continuous growth so there is a greater focus on reductions in variable costs, especially direct material and direct labour.
Non-manufacturing departments are tasked with finding reductions in expenses. Design overhead costs may not necessarily be asked to provide for reductions in expenses. The kaizen cost model adopted by the Japanese car manufacturers has proved so successful it has been applied in many non-manufacturing industries, including hospitals in the US and for personal development. It does not replace standard costing but rather supports the effort of cost reduction by using a separate cost management system.
Required:
1. Describe target costing and how it is used in kaizen for cost management.
2. “Kaizen costing is based on the belief that nothing is ever perfect, so improvements and reductions in the variable costs are always possible” (Norwood Whittle FCMA). Using examples describe the characteristics of kaizen costing.
3. ‘Virtually all companies in the UK used cost-plus pricing until they started to realize that they were operating in price-competitive markets’ (Norwood Whittle FCMA). Discuss how total quality management using kaizen and target costing could help to achieve a lean manufacturing environment to create a competitive advantage for companies.
4. Berliner et al. (1988) state that standard cost accounting and cost management systems utilize performance measures that are often in conflict with strategic manufacturing objectives, and they cannot adequately evaluate the importance of non-financial measures such as quality, throughput, and flexibility. Explain with examples how standard costing differs from kaizen costing in its approach to budgetary cost management.

Question: The word Kai translates to change, and