Kaizen Costing (Kai-change, Zen-better; Change for better)

It is said that “Nothing is perfect, so chances of improvement in every system are desirable”. This is how the concept of CONTINOUS IMPROVEMENT pioneered. Now the question is what the continuous improvement is all about? A continuous improvement is a system where a management put his continual effort to reduce the cost of the products. Under this, they simplify the design of the products and processes, eliminate the wastage, and improve the quality and performance of the activities .although they must be adhering to the satisfaction of the customers. Then later on, it was identified by the Japanese manufacturer, two approaches of continuous improvement, i.e. KAIZEN COSTING and TARGET COSTING.

Linguistically, kaizen is a Japanese word. Which means (kai-change and zen-better) change for better. It is a system based on the psychology of improvements through small incremental amounts rather than through large innovations. It looks forward for every smaller area which needs improvement.

Basically, kaizen focuses more on increasing the efficiency of production process through improving the responsibility of every worker in every activity in the process. Through this continual effort, a management definitely leads toward reducing the cost of the products over time. But one cannot achieve this continuously unless they set some standards. Once they set some standards of reducing the cost so called kaizen standards, on coming of actual results, they can then compare these results with kaizen standards and evaluate the performance of the work done. . And it could be broken down in year, month and week as well.  Further, they can make base for actual results which has been achieved so far to evaluate the performance of following years.

But now it brings us at the state of shock that kaizen costing does the same thing as the target costing does. However, target costing reduces the cost at the stage of designing the product where 90% cost of the product is locked. Once designing has been finished and finalised. Then they move to production from where the kaizen costing really starts working.

Additionally, kaizen costing is a very proactive approach which helps in rectifying the criticism of standard costing as well. In standard costing, as long as the adverse variances are rectified or avoided, no further improvement is possible at all. However in kaizen costing, it claims that improvement can be made continuously. it improves even though standard costing stops improving. This is how it goes beyond the standard costing loopholes and keeps improving continuously.