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 working with suppliers to reduce the costs in their processes, or implementing less costly re-designs of the product, or reducing waste costs. 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.