The constant cost reduction activities in the manufacturing stage are known as "waste removal".
In the media, Toyota Kaizen. The results of cost reduction through the proposal system etc., will be whispered as "household art".
The result is not so much for the effort, considering the degree to which this is effective for profit. Most of the cost is decided at the stage of product development.
There may be a counterargument from people in the manufacturing industry who are working hard daily.
In our cost planning system, the cost that incorporates the target profit is factored into the drawing at the start of production.
Cost reduction at the development stage is a practical activity. This system is called cost planning.
Image of cost planning
The amount saved by the manufacturing department is added to the results of cost planning activities and recorded in the period of profit or loss.
In newspaper reports related to financial results, we look at the total amount of both and report it as "household art."
I will explain that cost planning is a profitable mechanism.
The "estimated selling price" is precisely the price that the customer will buy.
The market price is formed by the feeling that many customers "may pay this much for this product." Of course, if you are a wealthy customer, you can get as much money as you want, but that is one of the strengths of companies and products dealing with an unspecified number of customers.
The "target cost" is calculated by subtracting the "profit" required to continue the company.
The drawing is totalled when the parts are drawn at the end of product development. The planned profit will always realize if it is below the "target cost".
In the figure above, the cost per product, so there are some prerequisites for calculating the target cost.
For example, assuming 3,000 units a month, the dedicated investment amount for this product can be recovered when 3,000 units are sold, so from the 3,001st unit, that amount will be profitable.
When developing a new product, we can change the product structure. So we can consider cost reduction ideas on a zero basis. As a result, activities become dynamic, and new ideas are proposed.
Only after product development is completed do some companies realize that the cost price is too high. Therefore, after starting production, issue a command such as "Start a cost reduction project!".
I have to say it's too late.
Poor quality, poor processing, shortages, etc., can be a drag in many companies. In that respect, many Western companies have been the first to adopt TPS as a LEAN activity. And participate in have already succeeded in getting out of the world where manufacturing is a drag.
Many companies in Japan are still panting in this muddy world. It is not uncommon for companies to affirm the state of turf, saying, "This is what it is," if you are experiencing suffering. I think the expression boiled frog state fits perfectly.
There are several conditions for a successful costing activity.
The product's cost has been calculated; management accounting has been completed.
Information such as cost information of individual parts and cost differences due to construction methods is provided to the designer.
Information about the customer's market view (determination of the selling price).
Existence of development (project) leader who can assemble the concept of the product considering sales.
At the planning stage, the feasibility of the concept is almost promising.
Negotiation power that can incorporate reduction ideas from the efforts of designers into the purchase price of parts.
The product development process has been established, and the cooperation of the parties' activities can be seen.
The ability to reliably solve a problem when it hits it.
And so on, but the basics are about this.
When you install costing in your organization for the first time, you will see many weaknesses that the above items are not done.
In a recent example, when they hit a wall, they could not solve the problem in time and postponed the production start time.
Of course, the person in charge and the product development leader did not decide to postpone it. So we have correctly reported to the top and obtained approval.
Don't worry about this. Unless we recognize this as a failure/problem and do not repeat it next time, the habit of postponing it will continue to be the corporate culture.
Taking what happened this time as a problem, it is essential to pursue the cause firmly and not repeat the same mistake next time.