Cost reduction is inevitably crucial in any business as it helps to increase profitability and set a competitive price for your product or service.
Aside from prioritizing the Return on Investment (ROI), making internal improvements, and implementing automation to increase product quality – an organization can apply Kaizen costing and Lean manufacturing principles to reduce the manufacturing cost effectively.
What is Kaizen costing & how is it implemented today?
Kaizen means change for the better. In business, this Japanese term is widely known as continuous improvement – a philosophy that focuses on improving every area of business management.
The term Kaizen costing is a practice of cost reduction without compromising the safety, quality, and standards of a product. The Kaizen technique is used once a product is finalized and has gone under production. It may start with comparing between multiple suppliers for the best quote or reducing wastes – whichever area can minimize the cost of production.
In Kaizen costing, the principles are simple:
- To create less waste
- To increase employee satisfaction
- To improve working commitment
- To increase competitive advantage
There are many ways a business organization can implement Kaizen costing to manage various types of costs.
For instance, managing supply chain cost which includes sectors like procurement, inventory, administration, and transportation. The human resource department can also benefit from this technique by managing the cost of employees’ training and retention. Kaizen costing helps improve business operations and overall production efficiency.
Another cost-saving ideas manufacturing is to use a lean manufacturing system, which is also based on Kaizen costing.
What are the 5 principles of lean manufacturing?
The lean manufacturing system is based on continuous improvement. The goal of lean manufacturing principles is to eliminate waste and improve production. Below are the details of each principle:
1. Define value
In order to add value to the products and deliver value to customers, one of the ways that a company can do this is to eliminate waste and optimize the production process.
Defining values can also be obtained through team brainstorming, and listening to the customers’ voices.
2. Map value stream
Waste is inevitable when the value stream stops moving forward. Thus, any process that doesn’t add value is considered wasteful. Therefore, the whole process needs mapping to find out which is an added value and which is not.
3. Create flow
The lean manufacturing principle is about preventing interruption in the value chain and ensuring each process is in line with the others. To make sure the activity runs smoothly, strategies like leveling out the workload or reconfiguring production steps may be necessary.
4. Establish pull-based system
In lean manufacturing, everything is made in the right amount at the right time. There’s no production based on a forecast. The products are created in the quantities and at the time needed by customers. This pull-based system allows short delivery cycle time to limit inventory excess while ensuring that the products meet customer satisfaction.
Inventory excess means that you have to pay for storage.
5. Pursue perfection
Lean manufacturing principles strive for reducing defects and waste – which are the first four steps. As the products are made, the fifth principle is pursuing perfection to create a company culture that applies continuous improvement along each step of the process.
Both individual or organizational-wide approaches, Kaizen and lean principles could improve satisfaction and save production costs maximally through small changes.
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