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Hi,
In applying Kaizen theory for the first time, product target cost is set – after the first year of production this target cost OR actual cost incurred is used as baseline/starting point for further reductions?
Will the baseline change after every year, making the previous year’s actual cost as baseline?
Thanks.
Kaizen seeks small continuous improvements.
After the first year, thee will be evidence about the actual costs and whether the budget cost is too low or too high.
If actual costs look reliable (ie have not bee affected by an extreme event) they can be used to set next year’s budget (incorporating some improvements).
Thereafter the company would hope to be able to achieve small improvements each year, but there might be some occasions (in theory anyhow)v where they think no further improvement is likely to be possible. For example, if wastage is reduced to zero, it can’t get better.
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