Kaizen Costing

3 March 2017

The management thereafter tries to minimize this difference. i. For variable costs, the actual year’s production serves as a standard base for current production. ii. For fixed costs, its total budget is considered as a target which is lowered by a reduction rate. The actual performance is then compared with this budget and the favourable reductions are made. * The other objectives of Kaizen costing are: * Providing the customers with the best quality product possible at a minimum cost and thereby satisfying them. Making improvements as and when required at each stage of production and reducing the costs to the minimum. * Acknowledging the problems openly and creating an atmosphere of team work to solve them. * To eliminate the waste of time and raw materials, include the just in time strategy and induce the management to work effectively and efficiently. KAIzen costing at “Toyota motor company” : * During 1987-1991, demand for cars was overheated, which induced the carmakers to diversify their car models. The sales increased, but profits, however, did not increase as rapidly as sales.

Furthermore this ‘bubble economy’ provoked crisis of labour force due to several reasons. At the same time, Toyota was engaged in revising its production management and human resources management in order to solve this labour crisis. * To face this labour crisis, Toyota’s union and management formed a Committee in which their representatives questioned the production efficiency management coupled with production allowance, the human resources management, the working conditions and the tough assembly line work. Toyota decided to radically modify its production system. And the way to increase the production efficiency was by reducing the number of workers by KAIZENING the production process for a given production volume under the constraints of “just-in-time” production. * For this, the management renounced its unilateral.

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