The Cost of Kaizen: Is It Worth It?

The Cost of Kaizen: Is It Worth It?

Dr Michael Carson, Continuous Improvement and Lean Manufacturing Specialist, Helmer Scientific

“Kaizens, excellent kaizens are designed and executed with one purpose in mind. Increase profitability and/or generate cost savings.” The key to a successful manufacturing endeavor is continuous improvement. There are no two ways about it! To stay competitive, there must be an ongoing, systematic effort to improve the conditions of assembly lines and cells. This being said, the method generally accepted, virtually worldwide and in every market and industry, is the practice known as Kaizen. The word, kaizen, is thrown around on a routine basis as a hallmark of continuous improvement, but it is altogether too common just a watchword, frequently with no merit. The word itself is ”kai”, which means change, while “zen” means good. Therefore, the most basic meaning of kaizen is “good change”.

There are two basic schools of thought regarding kaizen. The first, and purest form, is small incremental changes that coalesce into a larger overall improvement. The second, which is infinitely more significant, are the larger scale, well-structured events. During my experiences in the automotive industry, kaizens were six month long marathons called QC Stories. Where the six months comes from, who knows? It is arbitrary at best and is nothing more than an endurance test of countless meetings with ultimately small, and often, unsatisfactory results. The results that do occur are usually reported out in beautiful and dazzling PowerPoint presentations that are designed, consciously or not, to “wow” the upper management. Data is frequently massaged and presented in multitudes of lovely charts, graphs, histograms, and other visuals that camouflage the fact that nothing has really changed at all. It’s all just for show.

This assessment may strike the reader as harsh and unforgiving, but it’s the truth. The horrifying, true life reality of the matter. Kaizens, excellent kaizens are designed and executed with one purpose in mind. Increase profitability and/or generate cost savings. If the kaizen activity you’re involved in right now is not doing this in a highly tangible and quantifiable manner, then you’re actually involved in a money-sucking exercise in futility. So, what to do? There are a few simple and straightforward principles to observe from the very conception of the kaizen project.

First, remember that kaizens are supposed to make money. Secondly, it must, and I emphasize, must be understood that kaizens cost money, and the longer a kaizen is drawn out, the more it costs. Just think about all those meetings that involve cross-functional teams of engineers, technicians, front line associates, etc. These experts in their fields are being paid to sit through these meetings. Front line associates are taken away from the floor, thereby impacting production, to sit in these meetings. And what is the content of the meetings? How far off target do they go, not to mention the side conversations of America’s Got Talent, or The Voice. So, back to the simple, straightforward principles.

1.Target with intelligence. The subject matter of a kaizen should be focused on the biggest cause of lost revenue, whether it be a chronic failure that is causing a less than desirable Sigma level, or a bottleneck process that is a constraint, meaning the production line is unable to achieve Takt Time. Losses are from the overtime and weekends that must be worked to regain those losses and ensure that the customer gets their product, in the right quantity at the right time (JIT: Just in Time).

2. After the target is established, a price tag must be put on those losses. This means a member of accounting would be of great significance to the team. Improving Key Production Indicators is great; however, translating this into dollars and cents is fundamentally critical. The amount of improvement should not be arbitrary but should be in alignment with corporate objectives. This is key. A simple scenario would, for example, be this quarter’s corporate goal is to increase cost savings by X percent. The results of our kaizen will contribute to this goal by Y percent.

3. so, now we have the target, we understand what the losses are and what we must achieve to successfully impact the bottom line. Here is the thrust of this article. If we are to expect a Return on Investment, we must understand how much the kaizen will cost. We’ve already touched on meeting costs, but there are others that should be considered.

  1. Direct and Indirect labor
  2. Any resources, whether it be materials, consultation, or any number of other costs.
  3. Lost productivity due to any type of physical implementation on the floor.

The Kaizen leader must do due diligence in projecting all related expenses from the very start. It would make absolutely no business sense whatsoever to enter into an improvement project without a projected price tag attached to it. Furthermore, until those expenses are returned through the successfully implemented change, the kaizen has made the company no money. It must all be soundly documented with the final presentation being straight to the point with no exaggerated fluff. It must show a solid Return on Investment and most of all, it has to be treated as an honest and genuine business activity.

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