Kaizen Cost Reduction: An Overview

Staring down volatile markets, manufacturers focus on reducing costs while boosting efficiency and quality. This practice of continuous improvement (CI) unlocks the agility needed to thrive in today's fast-paced industrial economy. Kaizen is a particularly well-established methodology for pursuing continuous improvement.

Kaizen prioritizes small, positive changes—relying on the collective skill and experience of employees to drive change. Emphasizing incremental piecemeal updates, Kaizen helps manage evolving challenges to boost efficiency, cut unnecessary costs, and deliver competitive advantage.

What is Kaizen costing?

Kaizen costing integrates CI principles into cost analysis by continually refining processes to enhance efficiency and reduce waste. Organizations practice Kaizen cost reduction to find and shed excess costs while driving a corporate culture of ongoing improvement.

How can Kaizen reduce costs?

Energy savings

Kaizen cost reduction provides a structured approach to reducing energy costs and promoting sustainability. Employees find and close waste drivers (e.g., machines idling during downtime) with new best practices (e.g., machines actively powered down when not in use). Or they may implement energy-saving technologies such as motion sensors or optimize processes to minimize energy consumption.

Kaizen’s emphasis on CI requires perpetual review and optimization—even for previously optimized operation.

Improve manpower productivity

A Kaizen cost reduction approach to improving manpower productivity offer multiple inroads to sustained employee productivity improvements, such as:

• Standardizing of work procedures around best practices

• Elevating training and skill development

• Streamlining processes and shedding wasted steps

• Optimizing workstation layouts and setups

Inventory optimization

Kaizen is well suited for shining a spotlight on excess inventory overhead. Kaizen practitioners use inventory management systems to improve how materials are ordered and used. These optimizations free up cash flow, reduce storage costs, and prevent waste from outdated or expired stock.

Reduce rejections

Kaizen empowers employees to find and address process problems that lead to defects and rejections. Kaizen-based CI replaces factory-floor problems with employee-driven best practices for safeguarding product quality. Kaizen cost reduction is measured by scrap and rework costs, efficiency gains, and reduced expenses associated with shipping or inventory.

Reduce material losses

Kaizen’s approach to waste elimination encourages teams to trace factory waste and back to its sources, such as overproduction or insufficient material handling. Empowered to implement corrective actions, employees take an active part in minimizing material losses.

Increase machine output

Optimizing machine utilization, reducing setup times, improving asset efficiency, and eliminating bottlenecks are all central to the Kaizen method. All team members bring their training, knowledge, and expertise to bear in exposing machine inefficiencies and implementing solutions. High-quality training on machine operation and troubleshooting ensures that employees keep up with skills needed to minimize downtime and maintain peak performance.

Key Kaizen tools that help with reducing costs

The goal of Kaizen cost reduction supports CI in all aspects of operations by systematically eliminating waste, optimizing processes, and fostering a culture of innovation. Kaizen complements the following metrics and tools to deliver sustainable growth, incremental change, and employee involvement.

Total productive maintenance

Total Productive Maintenance (TPM) maximizes the overall effectiveness of production equipment. TPM addresses all losses on the manufacturing floor, including breakdowns, equipment setup and adjustment losses, idling and minor stoppages, reduced speed, defects and rework, and startup and yield losses. Through TPM, organizations improve asset utilization and plant capacity by minimizing breakdowns and defects.

Total quality management

Total Quality Management (TQM) is an ongoing process of detecting or reducing errors to streamline supply chains, improve customer service, and reinforce employee training. In TQM, all involved parties are held accountable for the overall quality of the final product, meaning everyone has a stake in the manufacturing process. Employees are committed to designated processes, empowered to participate in CI initiatives, and focused on the end goal: delivering high quality products that leave customers satisfied and returning for more.

Kanban, inventory management & just in time

Kanban, a visual method for managing workflows, can help individuals, teams, and even entire organizations map complex projects into simple steps. The Kanban method consists of boards and cards: boards are divided into three columns (versions of “To Do,” “Doing,” and “Done”) in which cards represent individual projects or tasks. This method helps organizations immediately understand inventory and facilitating regular reviews of processes. While the Kanban method is now ubiquitous across all industries, it was originally developed as an inventory management system at Toyota. The goal was to only have the minimum amount of necessary stock on hand at any given moment, freeing up warehouse space and reducing excess spending.

The Kanban method is often used in Just-in-Time inventory systems, which align raw-material orders directly with manufacturing schedules. The method aims to decrease waste, improve efficiency, and enhance responsiveness to customer demand, ultimately making it a stronghold in lean manufacturing initiatives.

Overall equipment effectiveness

Overall Equipment Effectiveness (OEE) identifies the percentage of manufacturing time that is truly productive by measuring machine availability, performance, and quality. OEE provides a better understanding of business losses and simplifying production issues. These insights are used to increase efficiency and trim down operating expenses. The key areas of OEE include availability of equipment, performance of factories and lines, and quality of units produced.

Line balancing

Line balancing distributes workloads evenly across all steps in a production line, minimizing idle time, bottlenecks, and imbalanced workloads. By assigning the right number of workers and machines to each workstation, line balancing increase efficiency sheds unneeded expenses. This method is especially effective in production-intensive industries, where small efficiency improvements make significant downstream impacts.

Conclusion

The Kaizen approach offers a comprehensive way to reduce costs and enhance efficiency by empowering organizations (and the individuals they’re comprised of) to foster CI and sustainable growth. By leveraging key Kaizen tools such as TPM, TQM, Kanban, and OEE, organizations can unlock new opportunities for cost savings and operational excellence. Further, an ongoing commitment to Kaizen principles can reach far beyond the factory walls—it can position organizations for lasting success in today’s increasingly volatile manufacturing landscape. Manufacturing organizations looking to transform their operations by adopting Kaizen—or upleveling its role—are well-served by looking at solutions like IoT, Industrial Connectivity, and PLM. These technologies help surface critical data that can be harnessed by shop-floor experts and quality experts alike for Kaizen-based optimizations.