What is Kaizen Costing?

Kaizen costing is the process of continual cost reduction that occurs after a product design has been completed and is now in production. Cost reduction techniques can include the following:

Working with suppliers to reduce the costs in their processes. This involves sending engineers to supplier locations to evaluate their processes.
Implementing less costly re-designs of the product. This is an ongoing process that likely employs the use of common design platforms across multiple products. This approach reduces the design effort on each product, and may also result in the use of many of the same components in multiple products.
Reducing waste costs. This is a catchall area that includes all types of waste reduction activities.

These reductions are needed to give the seller the option to reduce prices in the face of increased competition later in the life of a product.

During the product design phase that precedes kaizen costing, target costing is used to reduce the cost of a product. If a new product design cannot be sold at a price that will result in a reasonable profit, then the product is never produced.