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Kaizen Costing, Just in time approach & lifecycle costing
Kaizen costing is a Japanese approach that focuses on continuous, incremental improvements to processes. It aims to reduce costs through small, ongoing changes rather than large, infrequent innovations. Just-in-time is a system that seeks to eliminate waste by producing and delivering only what is needed for production. Life cycle costing estimates the total costs of a product or project over its entire lifespan, from inception to disposal. This allows organizations to understand costs at each stage and make informed decisions.
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Kaizen Costing, Just in time approach & lifecycle costing
- 1. Prepared by: Neelam Jodhwani PinakiniTrivedi Jay Raval Dept. of Business Admin., Bhavnagar University, Bhavnagar. Guided by: Himanshu Sir SUBMITTED TO: Kaizen Costing Just In Time Approach Life Cycle Costing
- 2. KAIZEN COSTING KIA-----CHANGE ZEN-----BETTER CHANGE FORBETTER Jay Raval
- 3. DEFINATION A Japanese termfor making improvements to a process through small, incremental amounts rather than through large innovations. Jay Raval
- 4. BENEFITS Change in attitude Reductionin Production Time Reduction in Rejection Energy Saving Improved Quality Motivation Team Building Sense of belongingness Environment conservation Jay Raval
- 5. •Proactive approach tocTSost management. •Orients organizations towards customers. •Breaks down barriers between departments. •Foster partnerships with suppliers. •Minimize non value-added activities. •Encourages selection of lowest cost value added activities. Jay Raval
- 6. LIMITATION Effective implementation anduse requires the development of detailed cost data. its implementation requires willingness to cooperate Requires many meetings for coordination May reduce the quality of products due to the use of cheep components which may be of inferior quality. Jay Raval
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- 9. STANDARD COSTING V/SKAIZEN COSTING 1. Cost reduction targets are set and applied monthly. 2. Variance analysis involves target Kaizen costs versus actual cost reduction amounts. 3. Investigation occurs when target reductions are not attained. 1. Standards are set annually or semi- annually. 2. Variance analysis involves comparing actual to standard costs. 3. Investigation occurs when standards are not met. Jay Raval
- 10. CONCERNS Often viewed asreactionary not value adding. The system places enormous pressure on employees to reduce every conceivable cost. The product is already in the manufacturing process, thus it is difficult and costly to make large changes to reduce costs. The cost of disruptions to production may be greater than the savings. Jay Raval
- 11. RULES FOR IMPLEMENTATIONOF KAIZEN COSTING List your own Problems Grade problems as to minor, difficult and major Start with the smallest minor problem Move on to next graded problem and so on Remember improvement is part of daily routine Never accept status quo Never reject any idea before trying Eliminate tried but failed experiments Highlight problems rather than hiding Jay Raval
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- 13. History and Philosophyof Just-In-Time • A philosophy that seeks to eliminate all types of waste, including carrying excessive levels of inventory and long lead times. • Takes its name from the idea of replenishing material buffers just when they are needed and not before or after. • Developed by Toyota Motor Company in mid-1970s • Best applied to a production system, such as automobile assembly, that would be considered repetitive, such as a flow shop. Jay Raval
- 14. Characteristics of LeanSystems: Just-in-Time Pull method of materials flow Consistently high quality Small lot sizes Uniform workstation loads Close supplier ties Flexible workforce Line flows Automated production Preventive maintenance Jay Raval
- 15. JIT Means … •Keeping work flows moving • Eliminating inventories • Reducing travel distances • Eliminating defects and scrap • Maximizing usage of space Jay Raval
- 16. JIT Demand-Pull Logic Customers Sub Sub Fab Fab Fab Fab Vendor Vendor Vendor Vendor Final Assembly Herethe customer starts the process, pulling an inventory item from Final Assembly… Then sub- assembly work is pulled forward by that demand… The process continues throughout the entire production process and supply chain Jay Raval
- 17. Just-In-Time Production • Managementphilosophy • “Pull” system though the plant WHAT IT IS • Employee participation • Industrial engineering/basics • Continuing improvement • Total quality control • Small lot sizes WHAT IT REQUIRES • Attacks waste • Exposes problems and bottlenecks • Achieves streamlined production WHAT IT DOES • Stable environment WHAT IT ASSUMES Jay Raval
- 18. Traditional Systems Comparedto JIT Jay Raval
- 19. Priorities • Traditionally – Acceptall customer orders – Provide a large number of options from which customers may order • JIT – low cost/high quality within limited market Jay Raval
- 20. Engineering • Traditional – designcustom outputs • JIT – design standard outputs – incremental improvements – design for manufacturability (DFM) Jay Raval
- 21. Capacity • Traditional – excesscapacity designed into system just-in-case problem arises – highly utilized – inflexible • JIT – minimize waste of having extra capacity – flexible capacity – moderately utilized Jay Raval
- 22. Transformation System • Traditional –job shop – materials handling equipment – lots of space to store inventory • JIT – mostly used in repetitive production situations – job shops often converted to cellular manufacturing Jay Raval
- 23. Transformation System continued •Traditional-long lead times are often thought to allow more time to make decisions and get work performed. • JIT – short lead times mean easier, more accurate forecasting and planning. – If lead times are reduced, there is less time for things go awry, to get lost, or to be changed Jay Raval
- 24. Transformation System continued •JIT – Employing Kanban (Toyota’s materials management system) – Pull system: System for moving work where a workstation pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality). – Push system: System for moving work where output is pushed to the next station as it is completed (planning- based systems that determine when workstations will probably need parts if everything goes according to plan) Jay Raval
- 25. Sequential Production Systemwith Two Machines Jay Raval
- 26. Layout • Traditional – jobshop approach of using widely spread-out equipment with space for stockrooms, tool cribs, and work-in-process inventories between the equipment – To handle and move all this inventory, automated or semi automated materials handling equipment (conveyors, forklifts) is required, which takes even more space. • JIT – Equipment is moved as close together as possible so that parts can be actually handed from one worker or machine to the next. – Use of cells, and flow lines dictates small lots of parts with minimal work-in-process and material-moving equipment. – manual transfer Jay Raval
- 27. Workforce • Traditional – competitiveattitude between workers and managers – status symbols and privileges – much of the employees’ time is nonworking time: looking for parts, moving materials, setting up machines, getting instructions, and so on. When actually working, they tend to work fast. • JIT – broadly skilled flexible workers who can uncover and solve problems – workteams – cooperative attitudes Jay Raval
- 28. Inventories • Traditional – usedto buffer operations – large WIP buffers • JIT – inventory is seen as an evil – small WIP buffers Jay Raval
- 29. Scrap Unreliable suppliers Capacity imbalance Inventory HidesProblems Jay Raval
- 30. Lowering Inventory Investmentto Expose Problems Jay Raval
- 31. Suppliers • Traditional – supplierstreated as adversaries – multiple sourcing • JIT – supplier considered part of team – single-sourcing agreements – supplier certification programs Jay Raval
- 32. Planning and Control •Traditional – focus is on planning – planning complex and computerized • JIT – focus is on control – procedures kept simple and visual – rather than planning and forecasting for an uncertain future, the firm attempts to respond to what actually happens in real time with flexible, quick operations. Jay Raval
- 33. Quality • Traditional – inspectgoods at critical points – scrap rates tracked • JIT – goal is zero defects – workers themselves inspect parts Jay Raval
- 34. Maintenance • Traditional – correctivemaintenance, repairing a machine when it breaks down – done by experts who do nothing but repair broken equipment – equipment run fast • JIT – preventive maintenance, conducting maintenance before the machine is expected to fail, or at regular intervals. – done by equipment operators – equipment run slow (minimizes their chance of breakdown while maximizing their output) Jay Raval
- 35. Typical Benefits ofJIT • Cost savings: inventory reductions, reduced scrap, fewer defects, fewer changes due to both customers and engineering, less space, decreased labor hours, les rework. • Revenue increases: better service and quality to the customer. • Investment savings: less space, reduced inventory, increased the volume of work produced in the same facility. • Workforce improvements: more satisfied, better trained employees. • Uncovering problems: greater visibility to problems that JIT allows, if management is willing to capitalize on the opportunity to fix these problems. Jay Raval
- 36. Potential Problems ImplementingJIT • Applicable primarily to repetitive operations • Requires discipline • Based on cooperation and trust • Requires change of philosophy Jay Raval
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- 38. Introduction • At thestart of any project it is important to understand the costs involved. • Traditional methods simply look at start-up costs, cash flow and profit (or loss). • With more complicated projects, it is necessary to understand costs throughout the life of the project. • This allows the financial managers to; • Understand when the project will break-even • What are the costs and returns during the life of the project • Estimate life of the project. Jay Raval
- 39. Definition • A lifecycle costing estimates a product’s revenues and expenses over it’s entire life cycle. • Life Cycle Cost = Initial Cost + (Annual Costs * Project Life *Discount Factor) • Life cycle concept is associated with target costing & target pricing. Jay Raval
- 40. Advantages • important inputsin the decision making process in the product design, development and use. • evaluation of alternatives • Evaluation of competing options in purchase • Improved awareness of total costs • More accurate forecasting of cost profiles Jay Raval
- 41. Why use LCC Projectmanager Maintenance Engineering Production Accounting Shareholders Jay Raval minimize capital costs minimize repair hours maximize operation hours maximize project net present value Increase wealth of company
- 42. Disadvantages • The accuracyof LCC analysis reduce as it predicts further into the future • LCC is time consuming • LCC is an expensive concept, not appropriate for all applications • The assumption is that the product, as known, has a finite life-cycle • The accuracy of data is often doubtful • It has a high sensitivity to changing requirements Jay Raval
- 43. Cost element • Foran equipment, there are TWO cost elements: 1) Initial Cost, and 2) Operation & Maintenance Cost
- 44. Company X isconsidering whether to follow Project A or Project B. Project B has an initial cost of £2,000, while Project A has an initial cost of £3,000. However, applying the life cycle cost formula will help Company X determine what will select among two projects? PROJECT A PROJECT B Initial Cost £3,000 £2,000 Annual Costs Electricity Maintenance £150 £50 £250 £150 Project Life (Years) 15 15 Discount Factor (Based on an interest rate of 3%) 0.64 0.64 Calculations £3,000 + (£200 x 15 x 0.64) £2,000 + (£400 x 15 x 0.64) LIFE CYCLE COST £4,920 £5,840 Jay Raval
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