ANALYSIS OF KAIZEN

APPROACH AS A COSTING
METHOD

Submitted to: Dr. Anshu Aggarwal

Submitted by :
Group 5 (Section-C)
Rishabh Shah (162/2018)
Anurag Agarwal (163/2018)
Shikha Prasad (164/2018)
Ankit Khullar (165/2018)
Navdeep Singh Oberoi (166/2018)
Kishan Vora (167/2018)
Table of Contents
Introduction to Kaizen ............................................................................................................... 2
What is Kaizen ........................................................................................................................... 2
Why Implement Kaizen ............................................................................................................. 3
How to Implement Kaizen ......................................................................................................... 4
Real Life Instances of Kaizen Being Used ................................................................................ 5
Maruti Suzuki......................................................................................................................... 5
Kaizen at Maruti Suzuki .................................................................................................... 6
Toyota .................................................................................................................................... 8
Toyota’s Major Operations: ............................................................................................... 8
Key markets for Toyota: .................................................................................................... 8
Kaizen at Toyota .............................................................................................................. 10

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 Introduction to Kaizen
We live in different world than our predecessors. Our world consists of technology that allows for
instant communication around the globe. In this new and exciting time, we have opened up a
truly global marketplace for goods and services. Competition for business is continually
increasing. Today it is more important than ever to stand out from the crowd by offering the
highest quality products at competitive prices. All businesses must continually seek out methods
to increase quality and reduce waste. Many companies are embracing Lean methodology.

One of the main pillars of Lean methodology is Kaizen. Kaizen has been described in many
ways, differing slightly in the definition for the word Kaizen, but keeping the overall idea of
Kaizen the same. One definition states that it is actually two words: the first Kai, meaning change
and the second Zen, meaning good. Another source stated that the definition of Kaizen is
improving everybody, every day, everywhere. Yet another stated that Kaizen simply means to
improve. Kaizen is improvement, improving processes, products, workplaces and people.

What is Kaizen
Kaizen is more than just a methodology for continuous improvement. It is not a specific tool or
set of tools to improve quality. Kaizen is a journey and not a destination. The objective of Kaizen
is to improve productivity, reduce waste, eliminate unnecessary hard work and humanize the
workplace. Kaizen is effective at identifying the three basic types of waste: Muda, Mura and
Muri. Kaizen philosophy empowers everyone to assume responsibility for their processes and
improve them. With Kaizen, workers at all levels of the organization are engaged in constantly
watching for and identifying opportunities for change and improvement. Kaizen is not just a one-
time event; more precisely, it is a process that occurs every day.

Kaizen has its roots in post war Japan. Following the Korean conflict, when Japan served as a
major supply line for the US military, industry in Japan began to rebuild. The US aided in the
revitalization of industry in Japan. In the early 1950s, W. Edwards Deming assisted Japanese
business managers in developing quality systems utilizing statistical quality controls. At the heart
of Kaizen is the Shewert Circle or Deming wheel that we now recognize as the PDCA cycle
(Plan, Do, Check, Act). Kaizen began as part of the “Toyota Production System”, as a method to
involve the entire workforce to improve product quality. Kaizen has since become one of the
main factors for the country’s success. In Japanese companies, Kaizen is a way of life, involving
everyone from the CEO all the way to the shop floor. In Japan, Kaizen is highly respected and
considered instrumental in Japan becoming one of the strongest industrialized countries in the
world.

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 Why Implement Kaizen
Throughout most companies today, there is a consistent drive to reduce waste and increase
quality. The benefits of Kaizen methodology can reach far beyond reducing waste (muda) or
increasing quality. Following are the 7 types of Muda (wastes) which needs consideration:

1.Transport: Any unnecessary movement of Work in Progress or raw materials is a form of

waste. This may cause damages to materials and may also increase the cycle time of production
and thus is a waste.
2.Inventory: Purchasing and storing raw materials and stocking Work in progress to wait for
future processes is a waste. Setup and holding cost are associated with this type of waste.
3.Motion: Unnecessary movement of machineries and movements of operators can cause wear
and tear, fatigue respectively.
4.Waiting: In a series of steps for processing a material if one of the steps is slow, then it
accumulates Work in Progress and creates bottleneck which is a waste.
5.Overproduction: Producing items that are more than customer demand. (includes both finished
and semi-finished products). It results in more operational costs.
6.Over-Processing: Providing features that are not demanded by customers, and fine tuning to
levels more than that are prescribed by customers, adds to cost of manufacturing which is a
waste. Cost of excess material and labour hour is associated with this type of waste.
7.Defects: Finally, the most important and prevalent type is defects. Defects are not acceptable
by customers. To avoid this, a Quality check process, rework process should be established,
which adds to cost. Therefore, defects are a major form of waste. Cost of rework, Cost of Quality
(Warranty and Guarantee) are associated with this type of waste.

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. All these wastes cam be reduced and eventually eliminated through proper implementation of
Kaizen,. The advantages of implementing Kaizen include, but are not limited to:

 Utilization of Resources – Kaizen focuses on improving products through utilization of

existing resources (your people) to achieve incremental and continuous improvement.
Kaizen is centred around making small changes instead of relying on massive changes or
expensive equipment investments to gain improvements.

 Increased Efficiency – Central to Kaizen methodology is the importance of providing a

well-planned work area, eliminating unnecessary movement or operations and proper
training for all employees.

 Employee Satisfaction – Kaizen is about creating an atmosphere of teamwork and

change, where new ideas are encouraged. Team members are asked to really examine the
processes and make suggestions for improvement.

 Safety Improvements – A safer work environment is another benefit of Kaizen. The

safety improvements occur when new ideas to clean up and organize the work area are
developed and implemented.

Kaizen involves everyone in the improvement effort. It does not rely on huge capital investments
or attempt to make enormous strides at one time. The roots of Kaizen are in making small,
immediate, incremental improvements in the processes and work standards. It is about looking
for ways to improve every day. In due course, these small steps can result in giant leaps in
quality, safety, efficiency, productivity and a positive impact on the bottom line.

How to Implement Kaizen

When most people think about how to implement Kaizen, the first thing they think is “Kaizen
Event”. This is a short-term, focused activity targeting one particular process or department. This
short event is also called a Kaizen Blitz (from the German word for lightning fast). While daily
and event centred events are included, the core of Kaizen is not focused on one single event.
Kaizen is a philosophy of good change that is incremental and continuously moving towards an
ideal state. Kaizen is about looking for ways to improve every day by everyone.

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Real Life Instances of Kaizen Being Used
A century-old mail order candy company wanted to boost productivity by 30% and cut the
work process by half, bringing in consultants from the Kaizen Institute, its website said. They
found one worker had a cumbersome process to enter an order starting with walking to get
thousands of pieces of mail then manually feeding each through an opener, paper clipping
each to the envelope, stacking them, more walking and then typing each order into a
computer.

Part of the simplification eliminated walking to fetch the mail and the sorting. The Kaizen
steps resulted in a redesign of the department’s process and met the company’s reduction and
improvement goals, the site said.

In England, Leyland Trucks wanted to cut costs and improve its European market share,
according to an article on the website for The Times 100 Business Case Studies, and the
company employed Kaizen methods for the improvements. The methods produced more than
200 ideas from rank and file employees. Many of these ideas led to results that included a
10% reduction in defects per truck, 20% lower inventory, increase in on-time delivery by
95%, fewer injuries and reducing the distance workers had to walk to do their jobs by 25%.

Maruti Suzuki

Maruti Suzuki India Ltd (formerly Maruti Udyog Ltd) is India's largest passenger car
company, accounting for over 50 per cent of the domestic car market. The company offers
full range of cars from entry level Maruti Alto to stylish hatchback Ritz, A-star, Swift,
Wagon R, Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. The
company is a subsidiary of Suzuki Motor Corporation of Japan. The Japanese car major held
56.21% stake in Maruti Suzuki as on 31 December 2017.

The company is engaged in the business of manufacturing, purchase and sale of motor
vehicles and spare parts (automobiles). The other activities of the company include
facilitation of pre-owned car sales, fleet management and car financing. They have four
plants, three located at Palam Gurgaon Road, Gurgaon, Haryana and one located at Manesar
Industrial Town, Gurgaon, Haryana.

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The company has nine subsidiary companies, namely Maruti Insurance Business Agency Ltd,
Maruti Insurance Distribution Services Ltd, Maruti Insurance Agency Solutions Ltd, Maruti
Insurance Agency Network Ltd, Maruti Insurance Agency Services Ltd, Maruti Insurance
Agency Logistics Ltd, True Value Solutions Ltd, Maruti Insurance Broker Ltd and J J Impex
(Delhi) Pvt Ltd.

Maruti Suzuki India Ltd was incorporated on February 24, 1981 with the name Maruti Udyog
Ltd. The company was formed as a government company, with Suzuki as a minor partner, to
make a people's car for middle class India. Over the years, the company's product range has
widened, ownership has changed hands and the customer has evolved.

In October 2, 1982, the company signed the license and joint venture agreement with Suzuki
Motor Corporation, Japan. In the year 1983, the company started their productions and
launched Maruti 800.

Kaizen at Maruti Suzuki

Maruti had adopted the Japanese management concept of Kaizen, or continuous
improvement. The Kaizen activities had resulted in the improvement of the in-house
capabilities.

Shop Floor Innovation:

Maruti Suzuki India is trying to ensure that its workers walk around less on the shop floor.
The country’s largest car manufacturer has found that every little stroll away from the
assembly-line costs both time and money.

“We pay salaries to work and not walk. There is time spent to pick up spare parts or tools
from the racks,” said Rajiv Gandhi, Executive Director (production — Gurgaon).

To tackle this challenge, the New Delhi-headquartered company turned to the Japanese
management practice of Kaizen, which had helped in the reconstruction of that country after
World War II. Simply translated, it means change for the better.

Kaizen’s ‘One Operator, One Step Reduction’ initiative helped Maruti reduce 21,500 steps
from worker walks in FY17.

“This was achieved by providing belt pouches to workers (to keep spare parts), introducing
‘synchronised trollies’ (with parts moving along the line) and moving certain racks closer to
the line”.

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However, there was no way to “quantity the financial gains from this practice”.

Employees Feedback Initiative:

Other Kaizen practices offer measurable financial gains like the ‘Employees Feedback
Initiative’. The company received 397,000 suggestions under the scheme, and their
implementation resulted in savings of Rs 350 crore in FY13. In the year-ago period, the
savings under this practice added up to Rs 294 crore.

Quality Circle Activity:

Under its ‘Quality Circle Activity’ programme, the company halted the manufacturing line
for an hour on the first Wednesday of every month. It then encouraged workers and
supervisors to brainstorm over issues such as defects and rewarded employees with the best
suggestions.

Implementation of Kaizen practices also led to recurring savings in scrap elimination (Rs
26.6 lakh), tractor trips (Rs 1 lakh), reduction in labour (15 per cent), and the amount of water
used to wash cars (50 per cent less).

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Toyota

Toyota Motor Corporation (TM) is the world’s largest automaker by volume. The Japanese
auto industry pioneer was established in 1937. The company’s name originated from the
family name of its founder, Kiichiro Toyoda.

Toyoda was the son of a successful businessman who developed an automatic loom
manufacturing company in Japan.

Toyota’s Major Operations:

Toyota Motor Corporation’s headquarters are in Toyota City located in Aichi Prefecture,
Japan. The company has seen numerous ups and downs in its nearly 80-year history. In 1957,
the company entered the US market with the first export of Japanese passenger cars to the
United States.

Toyota manufactures and sells vehicles and spare parts globally. Currently, the company
operates its business worldwide with 53 overseas manufacturing companies in 28 countries
and regions. The company’s vehicles are sold in more than 170 countries and regions.

Key markets for Toyota:

Previously, we looked at how Toyota (TM) conducts its business worldwide with 53
overseas manufacturing companies in 28 countries and regions. The company was originally
considered to be a regional auto manufacturer.

However, Toyota busted this myth in the last several decades by gaining a huge market share
worldwide, particularly in the US and Europe.

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Japan: The home market

Toyota is the largest Japanese automaker and commands a huge market share in its home
market. Currently, Japan is the second-largest market for the company after North America.

In fiscal 2016 (April 1, 2015–March 31, 2016), the company sold 2.1 million vehicle units in
its home market. The region represents ~24% of Toyota’s global consolidated vehicle sales.

Toyota in North America

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North America is the largest single market for Toyota (TM), accounting for about 33% of its
global consolidated vehicle sales in fiscal 2016. The company sold 2.8 million vehicle units
in North America during the fiscal year. While Toyota has been witnessing a minor
slowdown in its other key markets—including Japan, Asia, and Europe—for the last couple
of years, North America has remained strong with good profitability.

These higher vehicle sales and revenues from North America were primarily driven by strong
demand for SUVs. In this category, higher sales of the company’s SUV models such as the
RAV4 and Lexus NX played crucial roles.

General Motors (GM) is the largest automaker in the North America with highest market
share in the region. Among other automakers (VCR), Ford (F) and Fiat Chrysler (FCAU)
also have significant exposure to the North American auto market.

Asia and Europe:

Toyota also has a strong product portfolio in Asian countries like Indonesia, Malaysia,
Philippines, Taiwan, and India. In the most recent fiscal year ended March 2016, the
company’s vehicle sales in Asia stood at 1.3 million units, accounting for ~16% of its global
consolidated vehicle sales.

In Europe, the company’s vehicle sales totaled 0.84 million units or about 15% of its global
consolidated vehicle sales. European sales data also includes Western Europe and Russia.
Despite strong sales in Western Europe, Toyota’s overall European sales declined due to
decreased sales in Russia.

The Russian auto market is going through a bad phase due to weak oil prices and the
depreciation of the ruble. In the last several years, these factors have negatively affected
Toyota’s business in the region.

Kaizen at Toyota
Kaizen is a method widely used in many companies to improve in all areas. The translation in
Japanese is “continuous improvement” and it means that you always have to be aware of how
can be improved all processes and how each person in the company can contribute. One of
the companies who excel by good use of your Kaizen is Toyota, that makes its goals and
objectives into a “what we must do” instead of “what we could do”.

In order to implement this philosophy requires a serious commitment of employees with the
company and discipline that involves all members, both senior officers, as middle and low
position. It also involves all areas of the company.

Toyota benchmarks itself on efficiency. It trains recruits in 'muscle memory', so that their
hands work with unfailing precision. For instance, a new recruit graduates to the next level of

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training only after he masters the art of picking up exactly five pairs of nuts and bolts from a
box.

The result: an Etios, Etios Liva or Corolla rolls off the assembly line in Toyota's Plant No. 2
in Bidadi, Karnataka, every 119 seconds, and an Innova or Fortuner in Plant No. 1 every 162
seconds. In 16.5 hours of operation in a day, the two plants produce a total of 744 vehicles.

Both the Bidadi plants have reached an efficiency of 95 per cent, which is the highest level as
claimed by Hiroshi Nakagawa, Managing Director of Toyota Kirloskar Motor. This matches
the efficiency level in Japan.

After a plant reaches peak efficiency, the management reduces the number of workers
slightly, so that the efficiency ratio falls. Then it introduces kaizen (continuous improvement)
to return to the earlier level.

Another example: its steel yield, or the useful output obtained from every kilo of input steel,
for the Innova. The steel yield has improved from 59.48 per cent in February 2005 to 72.13 in
May 2012 - a jump of 12.7 percentage points in seven years. An industry expert says that the
Innova's steel yield ratio in India is the best in the world.

Toyota India ranks number one globally in the shipping quality audit, an annual exercise
carried out at Toyota facilities worldwide. The audit focuses on the quality of vehicles before
they are despatched to market.

At Toyota, the Kaizen methodology is applied by utilizing following tools:

Kanban: A method of regulating the flow of goods both within the factory and with outside
suppliers and customers. Based on automatic replenishment through signal cards that indicate
when more goods are needed. Kanban cards eliminates waste from inventory and
overproduction. It eliminates the need for physical inventories (instead relying on signal
cards to indicate when more goods need to be ordered)

SMED (Single Minute Exchange of Die): Practice of reducing setup (changeover) time to
less than 10 minutes (Single digit duration in minutes). It does so by converting setup steps to
be external (performed while the process is running), simplifying internal setup (e.g. replace
bolts with knobs and levers), Eliminating non-essential operations and creating standardized
work instructions. It eliminates wastes due to waiting time and motion.

Jidoka (Autonomation): Process of designing equipment to partially automate the

manufacturing process (partial automation is typically much less expensive than full
automation) and to automatically stop when defects are detected. After Jidoka, workers can
frequently monitor multiple stations (reducing labour costs) and many quality issues can be
detected immediately (improving quality).It also motivates the employees to follow practice
of ‘do it right the first time’. It eliminates wastes due to defects.

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Heijunka(Production Levelling) : A form of production scheduling that purposely
manufactures in much smaller batches by sequencing (mixing) product variants within the
same process. Reduces lead times (since each product or variant is manufactured more
frequently) and inventory (since batches are smaller). It eliminates wastes due to waiting
time, overproduction and inventory.

Just In Time Manufacturing: Contrary to traditional push approach, this method focuses on
pull strategy. That means flow of information starts from customer and reaches to
manufacturer or supplier through all the elements of supply chain. This approach helps in
eliminating cost due to excess inventory.

5s Methodology: It refers to the Japanese words Seiri, Seiton, Seiso, Seiketsu and Shitsuke
or translated into English, Sort, Set in order, Shine, Standardize, and Sustain. Toyota invites
all his employees to apply this not only inside the organization but also in their life.
Seiri or Sort refers to the elimination of unnecessary items in the workplace. To make this
step is necessary to be clear about what will be the criteria to select or remove objects. After
this, the deleted objects passed to a second review to decide will be done with them. Toyota
also tries to reduce the useless things in this step by planning before what they will need.

Seiton or “Set in order” is where everything is classified and has a specific place for storage.
Toyota considers that in this step, each item should be easy to find and use. For example,
many of the tools they use are always at hand close to the workplace and arranged to be
easily caught without keys or doors or wasting time searching it.

Seiso or “Shine” involves the cleaning part that will take place every day. It is not only clean
but also try to avoid get dirty as possible. This should be done not only to have more order in

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the company but a responsibility to the environment, by cleaning everything that can pollute
and reduce waste.

Seiketsu or “Standardize” invites to make all the above steps a habit. To accomplish this,
Toyota always seeks to create awareness about the importance of the 5’s and give their
employees clear rules to carry them out.

Finally, Shitsuke or Sustain, speaks of self-discipline. At this point, all members of the
company constantly apply 5s looking to improve more every day.

5 why’s
In Toyota all members are always encouraged to participate in the development of ideas, this
in order to create the best possible solution. Kaizen methodology needs logic and continuous
assessment of what is going to be done, so every planned improvement is tested by
questioning ‘why?’ At five levels.It helps in reaching ar root cause of the problem.

Among the techniques used to develop the five whys, the most popular ones are the Ishikawa
diagram and the tabular format. The first is a graphical representation where several minor
factors go to a number of causes that lead to the same center line that resolves the problem.

TPS (Thinking People System)

The Kaizen continuous improvement philosophy depends not only on experts or leaders but
involves everyone in the company. Therefore, Toyota believes that everyone can contribute
their knowledge and skills. By TPS, it becomes possible for everyone to do their part and be
able to devise other solutions. That´s why Toyota makes a reunion all mornings to be aware
of what people needs and suggest.

Another initiative proposed by this system is that it invites to be aware of the importance of
the activities that each one performs in the company and to think about the reason for the
procedure that is done. In addition, the TPS makes Toyota staff feels valued and heard.

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