Tips from Japan for Indian Manufacturers on Cost Competitiveness

'Indian companies are unable to translate customer requirements into products'

If you don't have the money, use your brains, if you don't have the brains...sweat it out,"
says Masaaki Imai, chairman and founder of the Kaizen Institute, Tokyo, Japan. Called , led the Father of Kaizen, Imai, 69, propagates his philosophy amongst corporates worldwide: sensible practices at workplace can improve bottomlines more than mindless investments in technology and manpower. On his second visit to India in six months, Imai recently held an interactive session with a host of CEOs of small, medium and big enterprises, sensitising them to his philosophy. Imai's book Kaizen -- The Key to Japan's Success was translated into 14 languages. He started his pursuit of Kaizen (in Japanese, it means to change for the better or a common sense, low-cost approach to improvement) many years ago. Today he is the spirit behind the success of numerous Japanese companies like Toyota. Indian corporates like Milton Plastics and Indian Hotels Company (which runs the Taj Group of Hotels) vouch that Kaizen has helped them to cut costs, boost profits and satisfy the customer, all at the same time. Kanchana Suggu spoke to Imai during his visit to Bombay. Could you give a brief history of Kaizen Kaizen? In Japan, Kaizen is almost a 50-year-old concept. Toyota was amongst the very first companies to implement it. But today almost every other Japanese company is following Kaizen. Is Kaizen limited only to the manufacturing industry? Not at all. This is a misconception. Kaizen is equally applicable in the service industry, retail industry and even on the golf course. It has relevance in one's personal life too, you know. There is simply no end to it. Please elaborate. 'Go to Gemba'' is the motto we all follow. Gemba in Japanese means the place where all activities are actually taking place; in other words, the place where value is added. In case of the manufacturing industry, gemba is the shop-floor; for the hotel industry, it is the place where the food is actually being cooked; and in case of the service industry; it is everywhere. Gemba is thus the most precious place for the management. How popular is Kaizen in Japan? If you take a look at the hierarchy triangle of most Japanese companies, you will notice that gemba is placed at the top-most level, followed by the middle level managers and then there is the CEO of the company. The best example I can state is that of Toyota. Today, when the automotive industry is not doing so well, Toyota is the only company to actually make profits. And I can tell you that Kaizen has played a major

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hand in its progress. Mr Ohno of Toyota is such a strong believer in Kaizen that people call him Mr Oh No! (laughs). What is the first step that one has to take towards Kaizen Kaizen? I think Kaizen should be in your thought, word and deed. What needs to be understood is that Kaizen cannot be practised at the manager's desk. The first step that one has to take is to go and get things done. Managers can begin with starting to clean their own equipment. You cannot know anything unless you get involved in the actual work at the lowest level. You would be amazed by the number of discoveries made once you are involved in the actual work. So many details that were hitherto ignored will suddenly become very important. In my view, the best time to start practising Kaizen is when you are faced with a crisis. Could you elaborate with some examples? Kaizen basically looks at small details: workers should not leave the workplace too often; everything that they need should be within their arm's reach and so on. Let me project a scenario: if there is a minor electrical problem, everyone waits for the electrician to arrive. But a minor problem can be tackled by anyone. Instead work comes to an absolute standstill. There are these minute details that make the whole difference. What are your observations of managers? One thing that most managers don't seem to be doing is observe. That's because they are not actually present in the workplace. There is this one incident I would like to mention here. A German manager wanted to buy some six machines, each costing 15 million Deutsche Mark. He invited our manager for advice. Our manager asked him: 'What percentage of time in a day do these machines work?' The answer he got was: ' I don't know.' The German was about to spend as much as 15 million DM and he didn't know how much time these machines were actually going to be used. It was found out that the machines would be used for only 38 per cent of the time. The machines he was about to purchase were not essential at all! Observations like these can only be made by regularly spending some time at the shop-floor. Managers only try to find short-cuts by hiring foreign consultants and paying them exorbitant amounts as consultancy fees. That's where the real problem lies. So practising Kaizen does not cost a lot of money; on the contrary, one can save a lot of money. Then why hasn't Kaizen gained worldwide acceptance? Kaizen is a top-down approach. It requires a lot of effort; especially by executives at the top-most level. Unless they are willing to take the first step, nothing can be done. What is your view about the management practices in the Indian corporate sector? I see that Indian managers are extremely intelligent. They are abreast with all latest technologies and developments. But the problem is that they are not practical. They completely isolate themselves from

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reality. They are under the impression that real knowledge can be gained only by reading books and attending lectures. How often do they actually roll up their sleeves and get into some action? They really need to make more effort (at getting into the thick of action). They have immense knowledge, but what . you really need is wisdom and that only comes by doing things yourself. So Kaizen is basically action-oriented? Yes, it is. I firmly believe that 90 per cent of the problems can be solved using common sense. Rule number one is: Go to gemba and take a real good look. Then take action right away. If you see anything that needs to be changed, do it at once. The most important thing is to detect the non-value adding activities ( (Muda as we call it in Japanese) and eliminate them as soon as possible. Do you foresee Indian companies adopting Kaizen in a big way? The problem with most Indian companies is that they do not give enough importance to the consumer. They are unable to translate customer requirements into products. Even if they do, they do not have a good system to support it. There is an acute need to address this issue in India. But I'm sure this too shall change. Companies like Milton Plastics, Jollyboard (maker of hard and softboards), and very recently, the Taj Group of Hotels, have successfully implemented Kaizen. . Jollyboard has been able to reduce its workforce by half, increase its production by 40 per cent and revenues by 20 per cent after they have started practising Kaizen. . I also see a host of new companies, large and small, showing great enthusiasm and eagerness to know how they too can practice Kaizen. If this continues, India will not stay far behind. .

Business Daily from THE HINDU group of publications Thursday, Jan 10, 2008 ePaper | Mobile/PDA VersionOpinion - Interview Columns - Account Speak

A four-step cost-competitiveness roadmap for Indian manufacturers

Industry leaders should have the vision to drive target cost management and kaizen costing as a cost management process instead of purely looking at the same as a quality movement.MR HIROSHI OKANO,
PROFESSOR, GRADUATE SCHOOL OF BUSINESS, OSAKA CITY UNIVERSITY, JAPAN.

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Local demographics and the economy may be acting against Japanese automobile sales, pushing the latest tally to a 35-year low, yet their business abroad is brisk. And, the leading industry players in the Land of the Rising Sun continue to bring out innovative and environment-friendly models at continually lower costs. One may wonder if Japanese automakers, well known to have already achieved high cost efficiencies, still see a role for cost management. Can any incremental gain from cost management be too insignificant to pursue? Cost efficiency is very necessary for Japanese automakers, because global competitors are getting more competitive, argues Mr Hiroshi Okano professor in Graduate School of Business, Osaka City University, Okano, Japan. There cannot be a lowering of speed on cost management process; and Japanese companies will be always on the treadmill, he observes during the course of an e-mail interaction with Business Line In Line. fact, companies like Toyota still continue to save significant resources through cost down initiatives. Mr Okano, who has authored ten books and over 30 papers, has research interest on diverse themes. Such as, the historical and social aspects of management accounting, strategic cost management, R&D (research and development) management, eco-design, financial management for public sector, sport and art management, JIT (just in time) accounting, strategic city planning and urban studies, accounting and the poor. Later this week, he is scheduled to speak at the Global Summit of the Institute of Cost and Works Accountants of India on cost management in the manufacturing sector. Excerpts from the interview: Where have been the major shifts that Japan has achieved, compared to the practices elsewhere in the world? The shift has been from standard costing to kaizen costing (that is, continuous standard costing), and target costing (that is, longer term budgetary control, meaning two or four years during the design stage). In Japanese automotive and electronics companies, they must launch a variety of products relatively for short terms (four years for automotive, and six months for electronics). Also, in one assembly line they make several types of products, so standard costing is not an effective tool. Since the 1960s, therefore, Toyota, Nissan and other companies started to introduce target costing in the design process and kaizen costing. Target cost for each part is also the target for suppliers. Target cost for suppliers is not linked with price. Price is fixed almost six months after SOP (start of production). Target cost is fixed after the calculation of target price and target profit. Are there reasons why costing did not develop as an independent profession in Japan?

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Lots of Japanese companies have been using cross-functional management (for quality, cost, delivery, etc.) since World War II. Especially, product engineers, process engineers, purchasing, marketing and finance staff must act as accountants. So they have their own target costing offices in the organisation. Toyota, for example, has five target costing offices. Also, almost all big Japanese companies have been implementing lifetime employment systems; many people stay in the same company, which is why I guess the need to establish professional bodies has been low. Accounting of costs is less important than upstream management of costs, and hence the country did not perhaps see the evolution of cost accounting institutes. Is cost management a component in education? At what levels, and to what depths? Yes, cost management is a part of our curriculum, but normally undergraduate students have no experience in any company. Therefore the level of cost management in the practical sense has not been deep in the curriculum. But once the employment exposure starts the practical deployment of cost management skill is very intense and sharpens the academic knowledge gained in the undergraduate curriculum. What specific cost management tools and techniques are the most popular now, in Japan? And what have become irrelevant? Kaizen costing, target costing, and shared service (outsourcing of administrative works) are the most popular. Standard costing practices have become irrelevant and no company in Japan is considering this Western practice. Much has been written about Japanese manufacturing success through cost management. Not so much about cost management in services, such as telecom, banking, IT (information technology), and so on. Why? Are there successful cost management initiatives in the Japanese services sector too? I think that the linkage between cost down and benefit for customers in manufacturing companies is visible for everyone, so customers can check the situation, but in the service industry it is very difficult to do that. Actually, I have been involved with the service cost management of a telecom company, but its cost management activity does not seem to be supported by customers, I think. Do Japanese manufacturers extend cost management to their marketing functions, even when the same are operated as separate entities? If marketing means sales, it is yes. But it was very difficult to do cost management in the sales function because of the long-term commercial customs and other practices (kickback and so on). What are the takeaways for the Indian automotive industry from the Japanese cost management experience?

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Target costing and kaizen costing for sustainability and innovation. These two pillars can drive the bottom line of the Indian industry in the short and the long run. But the industry leaders should have the vision to drive target cost management and kaizen costing as a cost management process instead of purely looking at the same as a quality movement. Of course, without losing the integration with the quality management process. Can you suggest a cost-competitiveness roadmap for the Indian manufacturers, in view of the stiff Chinese competition? First step: Kaizen costing for enhancing manufacturing innovation. Second step: Target costing for R&D innovation. Third step: Green kaizen and target costing. Forth step: Overall cost management. What is the next book you are working on? I am working on strategic management accounting for city (urban) planning and control, a project of the Urban Research Plaza of the Osaka City University (http://gcoe.ur-plaza.osaka-cu.ac.jp/en/index.html http://gcoe.ur-plaza.osaka-cu.ac.jp/en/index.html). Id also like to do joint research with some Indian companies on target costing for the bottom of the pyramid, a concept made popular by Professor C. K. Prahalad.
D. MURALI

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