Cost Reduction in Gemba (Part I of II)

In this context, the word cost does not mean cost cutting, but cost management. Cost management oversees the processes of developing, producing, and selling products or services of

good quality while striving to lower costs or hold them to target levels. Cost reduction in Gemba should come as a result of various activities carried out by management. Unfortunately,

many managers try to reduce costs only by cutting corners; typical actions include firing employees, restructuring, and beating up suppliers. Such cost cutting invariably disrupts the

process of quality and ends in quality deterioration. But today’s customers are increasingly demanding; they want better quality at a lower price—complete with prompt delivery.

When we respond to demand for lower prices simply by cost cutting, we soon find that quality and prompt delivery disappear. Cost management encompasses a wide spectrum of

activities, including:

  1. Cost planning to maximize the margin between costs and revenues
  2. Overall cost reduction in Gemba
  3. Investment planning by top management

Opportunities for cost reduction on-site may be expressed in terms of muda. The best way to reduce costs in Gemba is to eliminate excess use of resources. To reduce costs, the following

seven activities should be carried out simultaneously, with quality improvement being the most important. The other six major cost-reduction activities may be regarded as part of the process quality in a broader sense:

  1. Improve quality.
  2. Improve productivity.
  3. Reduce inventory.
  4. Shorten the production line.
  5. Reduce machine downtime.
  6. Reduce space.
  7. Reduce Lead Time.

These efforts to eliminate Muda will reduce the overall cost of operations.

Acknowledgement: “Gemba Kaizen” book by Masaaki Imai

In case you missed it, my last post was Operational Excellence: Top Keys to Lean

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