If it is about finding an effective and efficient way to reduce costs, the best way to achieve it is by implementing the Kaizen continuous improvement system. For kaizen, it is not about cutting costs, but about managing them.

Cost management involves overseeing the processes of developing, producing, and selling good-quality products or services while trying to reduce costs or keep them at target levels.

The reduction of costs in the company is the product of various activities carried out by management. Unfortunately, many companies try to reduce costs only by cutting expenses; being among the typical actions the dismissal of personnel, restructuring, and the reduction of suppliers.

This type of attitude causes interruption of the quality process and results in its deterioration.

But in today’s markets, clients and consumers demand better quality at a lower price and punctual delivery, which can also be formulated as a higher satisfaction (quality + service) / price ratio.

When management only concentrates its activities on the search for lower prices, it simply proceeds to reduce costs, discovering that both quality and punctual delivery are seriously affected by this attitude.

Managing costs in the company imply:

  • Cost planning is aimed at maximizing the margin between revenue and costs.
  • The systematic reduction of costs.
  • Investment planning by senior management.

The possibilities of reducing costs can and should be expressed in terms of waste and waste, which are called mudas in Japanese.

The best way to reduce costs in the company is through the systematic detection, prevention, and elimination of excessive use of resources.

To reduce costs, seven activities must be executed simultaneously, of which quality improvement occupies the most important place, and the other six activities must be considered as part of process quality.

The activities we mention are :

1. Quality improvement.

2. Improvement of productivity.

3. Reduction of inventories.

4. Shortening of production lines.

5. Reduction of idle time of machines and equipment.

6. Reduction of the used space.

7. Total cycle time reduction.

Quality improvement

Quality improvement is essential to kick-start cost reduction. Improving the quality of the work processes results in fewer errors, defective products, and repetition of work, thus shortening the total cycle time and reducing the consumption of resources, thereby reducing the costs of the operations.

A company that intends to be internationally competitive should set itself the objective of achieving a level of quality corresponding to six sigma, which implies reducing failures and errors to a level of 3.4 DPMO (defects per million opportunities).

What it is about is not only reaching the final customer with products free of defects but also generating these products “first time”, which implies productive processes with the capacity to produce high-quality goods and services without the need for reprocessing and inspection work.

Higher levels of quality generate greater customer and consumer satisfaction, and consequently decrease their turnover levels, accompanied by an increase in sales to the same customers and new products due to better advertising among them.

It should always be taken into account that it is much more expensive to get new customers than to keep them, and secondly that consumer satisfaction is usually spread by three people, while a bad product or service will spread it to ten.

Higher quality contributes to increasing the brand value of products and consequently, the capacity to generate future income, with which employees, managers, owners, and suppliers can be rewarded to a greater extent.

Productivity improvement

Improving productivity indices implies generating a greater volume of products with the same amount of inputs, or the same volume with a smaller amount of inputs.

By inputs, we understand in this case both human resources, as well as equipment and machinery, facilities, raw materials and components, energy, and other public services.

Setting productivity objectives, determining strategies and concrete actions for their achievement, and measuring the achievements obtained, constitute the three fundamental steps in the search for higher levels of productivity.

Levels must be continuously exceeded within the trend of continuous improvement.

Improving productivity implies the best and fullest use of each of the resources, be it materials, machinery, facilities, labor, and monetary resources.

Inventory reduction

Inventory takes up space, lengthens production lead time, creates transportation and storage needs, and absorbs financial assets.

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The materials, work in progress, and finished products that take up space in the factory or the warehouses do not generate any added value, on the contrary, they deteriorate and can even quickly become obsolete.

Shortening of production lines

In factories, a long production line implies the need for a greater number of people, a greater amount of work in process, and a longer total cycle time.

The greater number of people on the line also implies a greater number of errors, which generates lower levels of quality, the latter being a fundamental issue when it comes to reducing costs and fully satisfying the consumer.

Reduction of idle time of machines and equipment

Machinery and equipment with breakdowns give rise to idle times, inability to meet expected delivery deadlines, generation of defects in products, and high expenses in repairs, with all that this implies both in terms of customer satisfaction, well as financial results.

Another critical factor when it comes to reducing machine idle times is the systematic reduction of setup times.

The idle time of the machines leads to batch production, and consequently to higher levels of inventories, with all that this implies in terms of costs in terms of handling, security, insurance, finance,  and cost of physical space, among others.

In addition, the lack of reliability and durability of the machines leads to the generation of safety stocks to use in case of anomalies, such as the interruption or malfunction of certain equipment.

Reduction of space used

Traditional businesses typically use four times the space they need.

The elimination of conveyor belts, the shortening of production lines, and the incorporation of separate workstations within the main production line reduce inventory and decreases transportation needs. All of this consequently generates the least need for space, being able to use the excess spaces in the implementation of new lines, rent them to third parties if feasible, or eliminate the need to lease said premises.

Reduction of total cycle time or waiting time

Total cycle time begins when a company pays for raw materials and various supplies and ends only when the company receives payment from its customers for the products sold.

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Thus the waiting time represents the turnover of money. A shorter lead time means better use and turnover of resources, greater flexibility in meeting customer needs, and lower cost of operations.

Conclusions

The first and fundamental thing to take into consideration is that achieving higher levels of quality does not imply higher costs, but quite the opposite, with higher levels of quality more productivity is achieved and consequently lower costs accompanied by greater satisfaction for customers and consumers. .

The implementation of the kaizen system for the prevention, detection, and elimination of waste is essential for a company that intends to achieve higher levels of added value for its customers, high profitability rates, greater added value per employee, higher levels of satisfaction, and greater market share.

Reducing costs is essential, but not any methodology is consistent in the medium and long term with the expected returns, even more so they end up generating higher costs than those that were intended to be reduced.

For this reason, the implementation of the kaizen philosophy of continuous improvement is ideal, since it is part of the permanent improvement of the most valuable element that a company has, which is its staff.

The lowest price (costs), quality, and customer service today do not make up competitive advantages but are essential conditions to compete.

The reduction of change cycle time to carry out what the market requires is what currently determines the competitive advantage.

This implies the imperative need to reduce costs, not to be competitive, but to aspire to participate in the market game.

The implementation of said continuous improvement system must have the leadership and commitment of senior management and the firm support and awareness of management and personal levels.

Bibliography

Kaizen. Detection, prevention, and elimination of waste – Mauricio Lefcovich – www.gestiopolis.com – 2004

The lean company – Mauricio Lefcovich – www.winred.com – 2004

How to implement Kaizen in the workplace – Masaaki Imai – McGraw Hill – 1998

Managerial effectiveness – Juan Carlos Fresco – Prentice Hall – 2000

Kaizen Strategy – Mauricio Lefcovich – www.monografias.com – 2003