Melco Management Accounting Research
Discussion Paper Series
No.MDP2017-008

GKC as Gemba Kaizen Costing: Visualizing Kaizen Effects

September 2017

Shino Hiiragi*
Associate Professor, Yamagata University,
Graduate School of Science and Engineering
4-3-16 Jonan, Yonezawa City,Yamagata, 992-8510, Japane-mail: s_hiiragi@yz.yamagata-u.ac.jp
Yasuyuki Kazusa
Professor Emeritus, Kyoto University
e-mail: kazusa@apu.ac.jp*Corresponding author

The Melco Foundation
Nagoya, Japan
Discussion Paper Series of the Melco Management Accounting Research, in order to promote
the study of management accounting, has published this unfinished paper onto the Web. Pleaseobtain the permission of the author when citing this paper.

GKC as Gemba Kaizen Costing: Visualizing Kaizen Effects

Yamagata University

Hiiragi Shino
Kyoto University

Kazusa Yasuyuki

Abstract
For companies around the world, global competition is no longer unusual but a part ofeveryday activity. “Kaizen” or CI (continuous improvement) is one of the ways to improveorganizational capabilities, which has been said to be a major strength of Japanese companies.
Based on the previous researches about Kaizen effect measurement, new accounting
theory and methods called Gemba Kaizen costing (GKC) have been developed that canillustrate the progress of Gemba Kaizen. They are consistent with Professor Takahiro Fujimoto's“design information transfer theory” in production control theory and the view of Taiichi Ohno,
the founder of TPS (Hiiragi and Kazusa, 2016, 2017). The significance of measuring the Kaizen
effect is explained in GKC, and the relationship between the external environment surrounding
enterprises, such as economic trends, and corporate performance such as sales, costs, and profit,is clarified. Further, the key concept of opportunity loss is identified as a loss that could not berecorded as performance in the current term.
GKC is an accounting method that can be used to evaluate Kaizen and provide useful
information for business management, and its characteristics are clarified in this paper. In
addition, the key concept of a new theory of GKC that integrates production control, Kaizen,
and cost accounting is also specified.
Keyword
Kaizen, Continuous improvement, GKC (Gemba Kaizen Costing), Production capacity,
Visualization, Lean accounting, Opportunity loss

1. Introduction: Why are Kaizen effects measured with currency
equivalent value?
For companies around the world, global competition is no longer unusual but apart of everyday activity. “Kaizen” or CI (continuous improvement) is one of the ways
to improve organizational capabilities, which has been said to be a major strength ofJapanese companies.
Various improvement activities are being conducted at many Japanesemanufacturing sites, called Gemba. These activities, which occur daily, involve not
only supervisors but also operators with the goal of increasing productivity for eachprocess. Furthermore, it is believed that these activities will improve the efficiency andperformance of the entire enterprise. Toyota Motor Corporation (Toyota), for example,
is famous for systematic improvement of the Gemba using the Toyota Production
System (TPS), which was created by Mr. Taiichi Ohno. In addition to the excellence ofToyota's achievements, the company reports in their annual financial statements not
only the impact of the external environment, such as currency exchange rates and sales
trends, on its performance, but also the impact of Kaizen cost improvement during theaccounting period (Toyota Motor Corporation 2017).
The lean manufacturing system (lean) developed by benchmarking Japanesecompanies is typified by Toyota's TPS (Womack et al., 1990). It has been shaped
around advocating “the flow of customer value” related to management of the entire
business, and lean activities are developing globally (LEI 2017).
However, Kaizen effects at each Gemba of Toyota are mainly measured by theamount of material (material consumption, production per hour, and so on), the amountof time (required man-hours, lead time), or a quality index (such as the defect rate)(Tanaka, 2009). The influence on overall performance is calculated not by the
manufacturing site but by company management. Toyota expresses it as “theperformance follows the action,” (Tanaka, 2009, p. 280); in other words, the rightprocess will produce the right results. In the “Kaizen Culture,” nonmonetary values
such as safety and ease of work, as well as long-term aspects like stability of quality,
raising employee awareness, employee education, and organizational capacity building
through on-the-job training (OJT) are emphasized just as much as short-term financial
performance (Tanaka, 2016).
On the other hand, even Japanese companies have been heard saying “we want
to foster motivation of employees” (Nagasaka et al., 2015) by measuring the Kaizen
effect. Japanese researchers have conducted some studies on the topic; for example,
１

Senju and Fushimi (1982, 1983) and Senju et al. (1986). Okamoto (2000) applied
TQM's overall equipment efficiency to a standard cost calculation, which focuses on
the deterioration of the cost management function in standard cost accounting, as well
as changes in production systems.
Based on these studies, new accounting theory and methods called Gemba
Kaizen costing (GKC) have been developed that can illustrate the progress of Gemba
Kaizen. They are consistent with Professor Takahiro Fujimoto's “design informationtransfer theory” in production control theory and the view of Taiichi Ohno, the founderof TPS (Hiiragi and Kazusa, 2016, 2017). The significance of measuring the Kaizen
effect is explained in GKC, and the relationship between the external environment
surrounding enterprises, such as economic trends, and corporate performance such as
sales, costs, and profit, is clarified. Further, the key concept of opportunity loss is
identified as a loss that could not be recorded as performance in the current term.
The importance of the opportunity loss concept in Japanese management was
first proposed in Kazusa (2016). Further, in Hiiragi and Kazusa (2016), opportunity
loss was identified as a key concept of GKC, and the Cycles of Kaizen andManagement Reform were described. One of these is the Gemba Kaizen Cycle in theeconomic growth period (Figure 1) where the increase in production capacity tends to
impact performance. The second is the Gemba Kaizen and Management Innovation
Cycle (Figure 2), where increased production capacity becomes surplus capacity, andthen orders and sales are expanded by effectively utilizing the capacity throughmanagement innovation.
Figure1 Gemba Kaizen Cycle

Figure2 Gemba Kaizen and Management(the economic growth period)

Innovation Cycle[Start Point][Start Point]

Increase
Operating
ProfitBacklog

Gemba
KaizenIncrease
Operating
ProfitIncrease
Production
Capacity

Shortening work time
Reducing waste
Shortening lead timeInventory reduction
Originality and ingenuity

Backlog

Shortening work time
Reducing waste
Shortening lead timeInventory reduction
Originality and ingenuity

Opportunity
Loss
Avoidance

Increase
Sales
AmountIncrease
Sales
Amount

Gemba
KaizenManagement
reformR&D
New Product
New Customer
Strategy

Humanresource
utilization
Fixed Cost
Management[Focus on future
performance]

Resource: Kazusa (2016, p.9)

Increase
Production
Capacity
Extra
Capacity
Creation
Opportunity
Loss
Occurred

Employeedismissal[Focus on current
performance]

Resource: Kazusa (2016, p.11)

2

When the Kaizen effect increases profit (performance improvement) through the
stepwise process shown in Figure 2, it is necessary to be able to measure and evaluate
the improvement using monetary equivalent value, even in the middle stage, which is
not reflected in the achievement. GKC or the theory of GKC asserts the importance ofand further advocates use of these measurements in the costing structure.
GKC is an accounting method that can be used to evaluate Kaizen and provide
useful information for business management, and its characteristics are clarified in thispaper. In addition, the key concept of a new theory of GKC that integrates production
control, Kaizen, and cost accounting is also specified. The key concept of the theory of
GKC is clarified in section 2. Then “6 steps of Gemba Kaizen” that rely on design
information transfer theory will be introduced in section 3. Finally, section 4 presents
the upcoming challenges of Gemba Kaizen and GKC and improvements in the field.
Previous research in the accounting field related to Gemba Kaizen is provided in
the previous reviews conducted by Hiiragi (2016) and Hiiragi and Kazusa (2016, 2017)
and will be considered in a future draft. In this paper, we will focus only on thefollowing points: that is, prior research can be organized into three perspectives:
improvement of productivity and time management at Gemba, production capacity as abusiness management objective, and accounting to visualize the Kaizen effect.

2. Key Concept of GKC
In this section, after confirming the definition of Gemba Kaizen, three featuresof GKC and two important key concepts of the theory of GKC will be discussed.
2.1 Accounting definition of Gemba Kaizen activities
Kaizen or CI has many methods, but the definition also varies. Boer (2000)
defined CI as follows: “CI is defined as the planned, organized and systematic process
of ongoing, incremental and company-wide change of existing practices aimed at
improving company performance.” It is important that Gemba Kaizen is acompany-wide optimal activity that is not limited to manufacturing sites. Otherwise,even if positive short-term and local outcomes are obtained, it will not lead to
improvement in the performance of the entire enterprise or to organizational capacity
building for future performance.
In addition, the objective of Gemba Kaizen is recognized as increasing customer
value, and adding value will not only lead to better short-term but also better long-term
corporate performance.
3For example, LEI (2017) explains the lean state that Kaizen activities should aim
for as follows: “The core idea is to maximize customer value while minimizing waste.
Simply, lean means creating more value for customers with fewer resources.” There,
flow of value for customers leads to design information transfer theory, described later.
In addition, LEI (2017) also insists that “Eliminating waste along entire value
streams, instead of at isolated points, creates processes that need less human effort, lessspace, less capital, and less time to make products and services at far less costs andwith much fewer defects, compared with traditional business systems. Companies areable to respond to changing customer desires with high variety, high quality, low cost,
and with very fast throughput times.” The overall efficiency of corporate management
is being pursued, not just cost reduction.
It is necessary to verify from an accounting perspective whether customer value
is maximized with fewer resources and inputs. Okamoto (2000, p. 11) defined cost as
the “monetary value of economic resources sacrificed to achieve a specific purpose.”
Reducing that monetary value reduces the cost of improvement. Reducing thismeasurement is equivalent to “Cost Reduction in Kaizen."
However, it is not just cost reduction that should be measured in accounting for
Gemba Kaizen activities. Merely lowering product costs and increasing profits in the
short term is not enough. To improve the long-term performance of the company andrealize sustainability, it is necessary to take into consideration companies’ resource
management, including investments.
Based on this, “Gemba Kaizen” is defined in this paper from an accounting pointof view, as “making change efforts so that more output can be calculated by using thesame resource”1. In addition, this output amount and output possibility by expending
the resources is called “production capacity” at an individual site or enterprise.
Companies acquire production capacity through various investments. Production
capacity allows businesses to generate revenue by producing and selling products.
Under conventional production capacity theory, it is important to understand andmeasure the amount of idle capacity; that is, capacity that is not effectively used given
the maximum expected production, which makes it an indicator of management
judgment.
For example, McNair (1994) analyzed in detail the point that conventional1

Of course, this does not deny the whole optimal viewpoint included in the definition of the Kaizen
activity at this point. In this paper, in line with the basic definition of GKC to promote Kaizen
activities through accounting evaluation and visualization, we defined Gemba Kaizen based on
feasibility.

4

capacity management includes waste as “hidden costs” and discussed its causes.
Alternatively, in “activity-based costing (ABC)” proposed by Kaplan (Cooper andKaplan, 1988), “activity-based management (ABM)” (Kaplan, 1992), and “time-driven
activity-based costing (TD - ABC)” (Kaplan and Anderson 2007), the purpose of
allocating costs in detail has evolved to capture more than idle capacity.
2.2 Basic concept of GKC
GKC focuses on Gemba Kaizen, which is effective as a method for achieving
evolution in all organizations, including commercial companies, and "visualizes" theKaizen effect. As a result, GKC clearly expresses the potential for organizational
capacity evolution and organizational performance improvement using accounting
values. By adopting this method of accounting, the accuracy of present and future
strategies will be improved, and ultimately, management accounting will contribute to
the realization of the enterprise’s sustainability.
The basic concept of GKC consists of five items. These concepts can be divided
into three features of GKC as a method, and two key concepts of the theory of GKC asa theoretical framework.
(Three features of GKC)
> Continuous Actual Costing:
Changes are monitored by continuously recording and measuring actual
numbers.
> Short term and real time measurement:
Daily, hourly, real-time measurement is realized.
> Currency equivalent measurement of Kaizen effect:
Not only nonmonetary effects, but also monetary effects of Kaizen can beevaluated.
（Two key concepts of the theory of GKC）
> Creating and measuring opportunity losses:
Maximizing capacity utilization and available capacity increases accounting
opportunity losses. Linking it to management reforms will improve performance.
Now, Kaizen brings practical capacity closer to the theoretical capacity level, andfurthermore, intends to increase production capacity beyond the theoretical capacity.
Therefore, we propose a new concept called “Premium Capacity,” which canmeasure the “new creation of opportunity loss.”5

> Relationship between two types of time concepts and improvement effects:
In Gemba, raw materials and work-in-process are both processed by workers
or equipment to create products. Although it takes time to complete the products,
these time concepts can be considered from two aspects. The first is time focused on
workers (direct engineers), which can be classified into various times other thandirect working time (Okamoto, 2000). Usually this is the time to handle in costaccounting. The second aspect is time focused on the flow of goods, that is, leadtime. These two time concepts coincide only in the process cycle time (Hiiragi andKazusa, 2017).
Details on these concepts are provided in previously published articles and will
be considered in future drafts. As a precondition for visualizing the Gemba Kaizen
effect, an example of Kaizen progress is illustrated in the next section.

3. Six steps of Gemba Kaizen and GKC
In this section, based on Professor Fujimoto's “design information transfer
theory”, the progress of Gemba Kaizen is organized into 6 steps, and simple
accounting numerical examples are shown for each2.
3.1 Design Information Transfer Theory“Establishing the flow is the basic condition” in TPS (Ohno, 1988, p. 33).
“Production method of what kind of production flow should be created at the Gemba
for making as much as you need, if you need it” (Monden 1980, p.3) becomes
important. The LIE explains flow creation as follows: “To accomplish this, lean
thinking changes the focus of management from optimizing separate technologies,
assets, and vertical departments to optimizing the flow of products and services
through entire value streams that flow horizontally across technologies, assets, anddepartments to customers” (LEI2017), and they emphasize the flow to customers
across technology, capital, and the organization.
Professor Fujimoto's “design information transfer theory” is the theorizedversion of flow at Gemba, the theory that explains “Monozukuri,” that is,
manufacturing with design information creation and transcription (Fujimoto 1999,
2

Regarding the improvement progress and the effect measurement through all the steps, Hiiragi
and Kazusa (2016) showed detailed simulations. In this paper, we will introduce a simple case to
explain each step.

6

2007. What customers want is not the thing itself, but the function or utility that thething provides. It is the “design information” that decides the function, and it istransferred to the raw material as the “media”. The transferred medium is delivered tothe customer. It is nothing other than delivering design information to customers.
Figure 3 shows the design information transfer theory applied to the two-step
production of processing and assembly.
Figure 3 Design information transfer theory at two manufacturing steps
Development/Design

Inside of Business

DesignInformation

Media（Material）

Purchase

DesignInformation

DesignInformation

Processing

Assembly

Production

Purchase
Consumption
Product
物流

Customer

Logistics
Sales

Resource: Hiiragi and Kazusa (2016, p.78)“Design information” created in the development and design division at theupper left of Figure 3 is transmitted to the manufacturing site as a design drawing or
CAD / CAM information. Raw materials are added at the manufacturing site, andprocessed according to the design information. In design information transfer theory,
this is expressed as transfer of information. Raw materials are “media” on which
design information is placed, and as processing advances and information is transferred,
they become work in process and finally products. Here, distances (arrows) always
exist between real processes, markets, and customers. In addition, since there is someloss with every transfer, the medium in Chart 3 becomes smaller from left to right.
Furthermore, if defects occur in the transfer process, customers will not receive
products as designed.
As a “flow” toward customers, ultimately, the medium (raw material) should be
consumed when received by the customer as a medium (product) instantaneously.
Moreover, in an ideal state, there are no defects and material loss should also be zero.
Gemba Kaizen is to create a “good flow” toward customers, aiming at the ideal stateon the premise of “good design” of products, thereby realizing cost reduction and leadtime (LT) shortening (Fujimoto, 2012).
7

One of the basic methods for creating flow at such a manufacturing site isindustrial engineering (IE). Mr. Ohno stated that “Toyota Formula IE is an evolving IE,
meaning that there is no point unless it is possible to reduce the cost and be an IE that
leads to increased profits.” (Ohno 1978, p. 128), and he emphasized cost control. GKC
needs to be considered to realize that goal.
3.2 “6 steps of Kaizen process” at Manufacturing Gemba and GKC“Good flow of design information toward customers” described by design
information transfer theory is that the flow of materials, work-in-progress, andproducts does not stagnate and flows at the shortest LT. However, this cannot berealized immediately. To smooth flow, Gemba Kaizen also progresses systematically.
In GKC, this was organized into six steps shown in Figure 4 (Hiiragi and Kazusa,2016).
The improvement process is developed in six steps: (1) shortest process distance,(2) synchronization in main process, (3) synchronization of confluence points, (4)eradication of defects, (5) improvement of yield, and (6) fastest flow. Various Kaizen
methods are used in each step. These methods include, for example, layout change,
flow diagram improvement, standardization of work and work time, work
improvement by the IE method, improvement of work efficiency of facilities andpeople by man-machine chart, operation analysis, line reorganization to improveorganization efficiency, equipment improvement, cause-effect analysis, eight steps ofproblem solving, and others (Ohno, 1978). While using these Kaizen methods, eachstep of the improvement process defined in Figure 4 will occur. Below, we show asimple calculation example of GKC for each step of the Kaizen process based on
Hiiragi and Kami (2016)3.

3

Since it aims to show cases that can occur at each step in a simplified manner, consistency of
calculations through all the steps is not sought. For consistent calculation examples of these, pleaserefer to Hiiragi and Kazusa (2016).

8

Figure 4 6 steps of Kaizen process(1) shortest process distanceＢ

Ｄ
Ａ
Transport
personnel

Ｃ①Ａ(3) Synchronizationof confluence point

②
Ｃ

③
Ｄ

Ｂ

(4) eradication of defects(5) improvement of yield

Ａ

Ｃ

Ｂ

③

Ｃ

Input

⑥
Ｄ

OutputＢＤ(6) fastest flow

Defective Loss ④

Ａ

Ｄ

Ｂ

(2) Synchronizationin Main process
ＡＣ⑤ Edge Material Loss

Ａ

Ｃ

Ｄ

Ｂ

Source: Hiiragi and Kazusa (2016, p.79)(1) Shortest Process DistanceKaizen's first step is 5 S (Sort, Set in Order, Shine, Standardize, Sustain). If thearrangement of the equipment is not appropriate, a layout change is also frequently
used. As a result, the distance between steps is minimized.
At beginner level Gemba, assets (machinery equipment, raw materials, work inprogress, finished goods, jigs, tools, carriers, and so on) are cluttered like mountains,and people are also busily moving. However, it is often impossible to see the essential
process flow. Therefore, at this stage, Kaizen activities dramatically change the sceneryof Gemba, and the Kaizen effect is easy to see. It is a time when the motivation oforganizations, including Gemba and management teams, is greatly increased, but if
Kaizen fails at this stage, the Kaizen process will not move forward.
For example, if there is only one process in another building, the number of
persons carrying the work in progress to the next process from that building, will
create labor costs corresponding to the time used. Employing automatic transportationequipment for transportation will not incur labor costs, but instead will require capital
investment, resulting in depreciation and maintenance costs.
As a remedy for such a case, the process could be moved from the other building9

to the building where the equipment is located, and further changes could be made to
the layout so that the shortest distance between processes is achieved. Kaizen effectreduces man-hours for transportation. As a result, for example, if one non-regular
employee with hourly wage of 1,000 yen is reduced by one person, 8 hours of work perday, 20 days of monthly operation;
1,000 Yen×8 hours×20 days=160,000 Yenof monthly cost reduction is achieved. Even if the employment and salary amounts do
not change because of regular employees doing the transporting, GKC calculates thesame amount of opportunity loss. This is the visualization of the Kaizen effect.
(2) Main Process: Synchronization in Main Process
Once the physical layout of the process is decided, the next stage is to eliminate
the “detention” where WIP, that is media, does not flow.
When things accumulate, it is called a “bottleneck process.” In principle,
stagnation does not occur if all items always achieve “synchronization” at the same
speed, and warehouse inventory will then be zero. However, in real life,
synchronization is often disturbed due to differences in facility capability, work
capability, and incomplete work combinations, and goods stagnate. On the other hand,when things do not flow in the downstream process, workers incur wait time andequipment is idle. LT also becomes long, and “7 wastes” in TPS (Ohno, 1978) occurs.
For example, the process with the longest cycle time is the bottleneck process.
Prior to the bottleneck, work-in-process inventory is accumulated among the processes,
so in the next process, the worker waits. If the cycle time of the bottleneck process is
600 seconds and the next process is 300 seconds, waiting time of 300 seconds for the
next cycle occurs in every cycle. In the case of full-time employees, equivalent to¥ 1800 per hour, converted to a per month payment at 0.5 yen per second, 40 cycles
per day are produced, and when operations are carried out for 20 days per month,
0.5 Yen×300 seconds×40 pieces ×20 days=120,000 Yen
This means that labor costs are wasted. As synchronization progresses and waitingtime decreases, labor costs are reduced accordingly. However, if the operating time isregular working hours of a regular employee, and the labor cost corresponds to a defacto fixed cost, no cost reduction will be realized. In this case, GKC calculates it as anopportunity loss amount.
(3) Main and Sub Process: Synchronization of a Confluence Point
Following the synchronization of this main process, synchronization at the main
10

flow (main process) and tributary (sub-process) confluence point is realized.
In actual Gemba, the process repeats, branching and merging. Even in such acase, after first seeing the mainstream process, the timing of tributaries entering andexiting will be combined and the goal will be “synchronization” at the confluence
point. In that sense, (3) can also be described as an application section of (2).
As for the measurement of the Kaizen effect, the calculation in GKC is carriedout in the same way as (3). That is, with variable time reductions, variable costs arecalculated as cost reductions and fixed costs are calculated as opportunity loss
amounts.
(4) Eradication of Defects, that is, Scrap reduction
Manufacturing defective products wastes resources, such as the inputs of raw
materials, human labor, and facilities. It is “good flow” only if good products flow to
the next process. For that, it is necessary to eradicate defects. This results in zero costfor damaged goods.
(5) Improvement of Yield, that is Reduction of waste / impairment
It is desirable for more products to be produced from the same amount of raw
materials. In Gemba, part of the raw materials is disposed of or damaged due to design
issues, technical restrictions on processes and work, and so on. The efficiency ofutilizing raw materials is measured as the yield rate = output amount / input amount.
In manufacturing Gemba, defects, disposal, and impairment, as well as theirquantity, is very likely to be managed using the ratio of defects to the input amount.
There are indicators such as defect rate, orthogonality rate, and yield rate. If Kaizen
activities are successful and these indicators improve, raw material input will be
reduced going forward.
In steps (4) and (5), for example, if the product is 70 (30 are discarded /impaired) out of 100 units of raw material input, the yield rate is 70%. In addition, if
the number of failures is 7 among the 70 products, the defect rate in the product is 14%
and the non-defective rate is 86%. Ultimately converting, the percentage of good
products compared to the input amount is 60%. Figure 5 shows this change.

11Figure 5 Yield rate and defect rate
Disposal
Impairment 30

Input
Material
100

Product
70⑤Yield Rate
70％

④Defect Rate
14％
Defect 10

Good 60
Non-Defect Rate

86%

Source: Author creation based on Hiiragi and Kazusa (2016)

To realize these physical efficiency improvements, in addition to improving theprocessing method of people and equipment, if equipment factors are large, equipment
maintenance such as TPM (total productive maintenance) and equipment improvement
are also important. It should be noted, steps (4) and (5) are also often carried out inparallel with steps (1) to (3).
(6) Fastest Flow
Basic improvements are completed once in steps (1) to (5). Furthermore, therealization of the ability to flow the entire process at maximum speed is accomplishedin step (6). By the way, if it is possible to achieve production capacity of Gemba at thehighest speed, whether this can improve the performance of a company is determinedby the level of demand. Even if only Gemba Kaizen evolves, unless orders catch up to
production, corporate performance will not be improved, and opportunity loss will
increase (Kazusa, 2010,2014). Visualization of this relationship is important in thestagnation/decline period of the current economy.
However, if there is an overwhelming shortening of LT, it can be expected that adifferentiation strategy will utilize this. Profitability is expected to improve byimproving customer satisfaction. In addition, as it is only necessary to forecast the near
future, accuracy of demand forecasting may increase.
For each of these steps, as an example of the Kaizen effect measurement, Hiiragi
and Kazusa (2016) presented a simple “daily actual cost calculation” example on an
actual cost basis in an attempt at theory. Although details will be skipped, important
points of step (4) and after that, based on the simulation results are cited as follows:
In (4) and the subsequent steps that should be further improved, reduction of12manufacturing costs due to labor costs will not be seen at all. Because in step (3),production is possible only during regular time, and labor costs within that fixed time
are de facto fixed costs. Therefore, even if cycle time is reduced, the waiting time thatis “opportunity loss” only increases. In other words, a decrease in labor cost whenwork time decreases due to improvements in processes is related to variable expenses,
but in the case of fixed costs, labor cost does not decrease and opportunity loss occurs
because of the extra time. In this numerical example, the increase in opportunity loss
amount is most significant in step (6) where time becomes the shortest. In summary,when material cost is originally a variable cost, cost reduction is achieved in proportion
to the amount of material. Regarding labor costs, the variable cost portion such as therearrangement of non-regular employees and the reduction of overtime hours isdirectly reflected in cost reduction. However, shortening the working time of regular
employees with fixed time, which is a fixed cost, does not appear in cost reduction.
Therefore, it becomes meaningful to measure the waiting time of workers in money asan opportunity loss (Hiiragi and Kazusa, 2016, pp. 82-83).
This simulation shows that there is at least a "time difference" between
improvements at the manufacturing site and performance improvement. It is aremarkable analysis perspective for the future.

4. Future Challenges
In this paper, we pointed out various issues related to Gemba Kaizen andaccounting, proposed GKC as a solution for them, and then clarified its basic concepts
and features. Already our separate paper simulates each improvement step in GKC andthe concept of time involved in the Kaizen effect is discussed in detail. However, theissue of production capacity, which is one of the important issues in modern
manufacturing companies, is currently under consideration. In addition, there are still
many areas that GKC should handle. They are not only those directly linked to costs
but also Kaizen related to quality and Kaizen related to safety or environment. Afterconsidering these, we would like to further develop the structure and evolution of
GKC.

<Acknowledgments>
This work was supported by Grant-in-Aid for Scientific Research (C) of JSPS
KAKENHI Grant Number 26285105 and 17K04038.

13

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