Surprising as it may seem, it was these Japanese principles that contributed to the growth of Russian agricultural holding Kuban Agro into one of the most efficient agribusinesses in the country and can teach leaders of fast-growing businesses some valuable lessons.
What is kaizen and why you need to know about it
First applied at Toyota plants in Japan after the Second World War, kaizen is based on the concept of continuous improvement. It was first introduced in Russia in early 2000s when Oleg Deripaska, a chief stakeholder in the Basic Element group of companies, was inspired by the Japanese experience and became the first businessman to adopt these practices in his companies.
Kuban Agro, part of the Basic Element family, was the first agribusiness to implement kaizen principles in 2007 with a focus on labor productivity and cost reduction. At this stage, it was becoming inevitable that Russia was on its way to WTO accession, which gave rise to open markets and rising competition. Given that the prices for agricultural products are set by commodity exchanges, our focus was to reduce losses and cut costs.
Staying competitive in a fast-moving global marketplace is a challenge familiar to all. We have found kaizen lessons invaluable in meeting it and any business can use kaizen to help gain that competitive edge.
How does it work in practice?
It is easiest to explain kaizen through a case study, so we will use our own experience. We asked our employees, from top managers to the cleaning crew, to come up with small improvement suggestions that would make their work more efficient.
Kaizen is intrinsically linked to the mindset of employees and their ability to spot every possible opportunity for improvement. In the farming industry, this can range from milking to spraying fertilizers at night as opposed to during the day. For other industries, improvements can be as simple as reducing the weight and size of any materials/packages being moved around to make handling easier or using motion detectors to ensure lights are not left on unnecessarily.
Initially, we faced reluctance from employees, who were resistant to change. However, we have gradually been able to modify all the work algorithms, outlining a set of new standards.
The results of the implementation of the kaizen method have been plain to see, with over 3,000 individual improvements and more than 3,700 standards modified and improved since 2007. Kaizen has boosted production efficiency hugely resulting in gross profit per employee almost tripling since it was put in place. Net profit also quadrupled by 2013, rising from $5.9m to $22m.
Kaizen techniques have now become ingrained into all aspects of Kuban’s business model; we have even modified our harvesters by upgrading their crop dividers with the help of our engineers.
This helps to save $4,300 every season while the cost for upgrading the divider was only $30.
In addition, Kuban has increased its production of top grade milk to 90 per cent, which earned the company an additional $1m in revenue in 2013 and turned an unprofitable part of the business into a lucrative one.
Lessons for all
The benefits of kaizen practices for business can hardly be overestimated. The world’s biggest companies from Toyota to Tata Steel are reaping the rewards of kaizen philosophy too – and you can too.
Based on our experience, three top tips are:
Don’t neglect the tried and tested in favour of management buzzwords. Kaizen philosophy may not have the appeal of novelty that some management theories have but its results are undeniable.
Communication is vital for your employees to understand the rationale behind the programme,
…but don’t forget to sit back and list. Once the programme is up and running, management teams must seek feedback and listen to employee ideas.
Andrey Oleynik is MD of Basic Element’s agribusiness.
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