The KAIZENshiro Costing (2)

Opening and Urgent Issues

How can your organization thrive in an increasingly competitive landscape while effectively managing costs? As we approach 2025, businesses find themselves at a pivotal moment: companies that enhance productivity by just 20% can expect to see a 30% increase in profitability. With escalating operational costs and market pressures, the need for innovative cost management strategies has never been more urgent.
Central to this transformation is KAIZENshiro Costing, a methodology that not only focuses on eliminating non-productive activities but also cultivates a culture of continuous strategic improvement among employees, especially among managers. In a challenging business environment, it is essential to maximize all resources – equipment, personnel, materials, and information – to their fullest potential. This approach not only enhances operational efficiency but also empowers employees to take ownership of their roles, thereby elevating organizational performance.

Moreover, research indicates that organizations implementing Strategic KAIZEN practices can achieve cost reductions of at least 30% over five consecutive years. This initiative goes beyond mere cost-improving; it involves innovating production systems and adopting flexible processes that adapt to market demands. By engaging your workforce and fostering a mindset geared towards strategic productivity improvement, you can build a resilient organization capable of navigating the complexities of modern business.
As you delve into this paper, consider: is your organization prepared to adopt KAIZENshiro Costing as a strategic imperative for sustainable growth?

What is KAIZENshiro Costing?

KAIZENshiro Costing is a strategic approach that combines the principles of KAIZEN, which emphasizes continuous improvement, with the concept of shiro, meaning “white” in Japanese, symbolizing purity and the potential for growth. This methodology focuses on minimizing non-productivity costs within an organization to enhance overall cost competitiveness and operational efficiency.

The 7 Key Components of KAIZENshiro Costing

KAIZENshiro Costing is not just about reducing costs; it is about creating a sustainable framework for continuous improvement that aligns with long-term business objectives.

a) Continuous Strategic Improvement: Rooted in the KAIZEN philosophy, this approach encourages continuous process improvement with the aim of increasing value and efficiency.
b) Understanding Non-Productive Costs: KAIZENshiro Costing focuses on identifying and quantifying costs associated with non-productivity. These include: (1) equipment, (2) inventory consumption and system consumption, and (3) human work and material and utilities. In short, any costs that do not contribute to the creation of value for the company and/or customers.
c) Strategic Focus: The methodology encourages organizations to align their Strategic Kaizen projects for strategic productivity growth with clear strategic objectives. This involves establishing a comprehensive plan that outlines specific Strategic Kaizen projects, responsibilities, and expected results.
d) Dual Strategy: Companies are encouraged to focus on two main strategies depending on sales scenarios:
– the sales increase scenario: preponderant emphasis on the need for productivity increase through improving effectiveness and reducing cost of losses – cost of not effectively used input;
– the sales decline scenario: preponderant emphasis on the need for productivity increase through improving efficiency and reducing cost of waste – cost of excess amount of input.
e) Creating Room for Strategic Cost Improvement: the concept of shiro represents the percentage of future operational costs that can be improved by strategically increasing productivity, through Strategic Kaizen projects, under feasible conditions and without investment, allowing organizations to promote new ideas, while maintaining operational boundaries to satisfy all key stakeholders.
f) Holistic Approach: By integrating KAIZEN with shiro, companies can cultivate a culture of excellence, driving effectiveness and efficiency and continuous strategic improvement at all levels.
g) Takt Profit Achievement: This involves structuring, quantifying and improving total non-productivity costs to meet profit targets effectively, ensuring that improvements are reflected in financial performance (in the KAIZENshiro Budget and Speed-Based Target Profit).

The 7 Steps of KAIZENshiro Costing

Through KAIZENshiro Costing and Strategic KAIZEN, by simultaneously focusing on (1) continuous and strategic productivity growth and (2) costs, organizations can enhance their competitive advantage in an increasingly challenging global marketplace.
The KAIZENshiro Costing methodology has the following 7 steps:

1) Ongoing Measurement of KAIZENshiro: Continuously monitor performance and utilization to discover the full productivity improvement potential for all factors, without investment – or KAIZENshiro.
2) Root Cause Analysis of KAIZENshiro: Dive deep into the root causes of KAIZENshiro by analyzing past behaviors and predicting future scenarios;
3) Translating KAIZENshiro into Costs: Regularly evaluate the costs linked to KAIZENshiro, converting all metrics – seconds, kilograms, meters – into a cost-per-minute framework.
4) Identifying Critical KAIZENshiro Costs: Aim to capture at least 80% of the KAIZENshiro costs that cause other upstream and downstream KAIZENshiro Costs;
5) Analysis of Critical KAIZENshiro Costs: Conduct concurrent feasibility assessments, alongside financial and operational risk analyses, for upcoming Strategic KAIZEN projects, with the objective of simultaneously enhancing cost, quality, and time.
6) Setting Critical KAIZENshiro Costs Targets: Set annual targets by modules, processes, product families and products aligned with the annual Takt Profit target.
7) Setting Strategic KAIZEN Targets: Assign specific operational targets for each Strategic KAIZEN project and manager to ensure timely development and implementation of solutions that meet Speed-Based Target Profit. (see the figure below)

Expected Results from KAIZENshiro Costing

Companies that implement KAIZENshiro Costing and Strategic Kaizen can anticipate several significant outcomes that enhance both productivity and cost competitiveness.
Here are some key tangible results:

Improved Cost Competitiveness: By concentrating on reducing non-productive costs, companies can establish a more efficient cost structure. This involves minimizing losses and waste while optimizing resource utilization, which directly impacts profitability (cost reduction: reduction by 25-30% or more);
Increased Productivity: The KAIZENshiro approach fosters continuous improvement at all organizational levels. This leads to streamlined processes and better alignment of team efforts with long-term goals, ultimately boosting overall productivity (equipment productivity: increase by 150%-200% or more; labor productivity: increase by 150%-200% or more; overall equipment effectiveness: 85% or more (assembly industry), overall equipment effectiveness: 90% or more (process industry);
Strategic Alignment: Implementing KAIZENshiro Costing enables organizations to set a clear strategic direction for strategic productivity improvement. This alignment ensures that all efforts focus on measurable outcomes, facilitating progress tracking and strategy adjustments as necessary (Equipment breakdown: reduction by 20%-1% or less; Process internal defect rate: reduction by 15%-10% or less; Finished product inventory and work in process: reduction by 50% or less);
Financial Gains: Companies can expect significant financial benefits from reduced operational costs, translating into improved profit margins and a stronger competitive position in the marketplace (Return on investment – ROI: increase 5 times or more);

Here are some key intangible results:

Cultural Transformation: KAIZENshiro Costing promotes a culture of excellence, resulting in a more engaged workforce and a proactive approach to strategic productivity improvements.
Sustainable Practices: By continuously addressing non-productive costs, organizations can develop a sustainable growth model that adapts to changing market conditions and customer needs.

Conclusion:

Overall, KAIZENshiro Costing not only targets immediate cost reduction but also lays the groundwork for long-term strategic improvements and operational excellence by fully leveraging the Strategic KAIZEN methodology.

Thank you for dedicating your valuable time to read this article. I genuinely hope it serves as a source of inspiration for your endeavours.

Dr. Alin Posteucă