Target costing
It involves setting a target cost by subtracting a desired profit margin from a competitive market price.
Through this decomposition, target costing spreads the competitive pressure faced by the company to product's designers and suppliers.
Target costing is defined as "a disciplined process for determining and achieving a full-stream cost at which a proposed product with specified functionality, performance, and quality must be produced in order to generate the desired profitability at the product’s anticipated selling price over a specified period of time in the future.
[5] Target costing emerged from Japan from 1960s to early 1970s with the particular effort of Japanese automobile industry, including Toyota and Nissan.
It did not receive global attention until late 1980s to 1990s when some authors such as Monden (1992),[6] Sakurai (1989),[7] Tanaka (1993),[8] and Cooper (1992)[9] described the way that Japanese companies applied target costing to thrive in their business (IMA 1994).
With superior implementation systems, Japanese manufacturers are more successful than the American companies in developing target costing.
[1] Company's long-term sales and profit objectives are developed from an extensive analysis of relevant information relating to customers, market and products.
Target selling price need to consider to the expected market condition at the time launching the product.
[1] Regarding the complexity of problems in the real world, implementing the target costing process often relies on the computer simulation to reproduce stochastic elements.
The factors influencing the target costing process is broadly categorized based on how a company's strategy for a product's quality, functionality and price change over time.
However, some factors play a specific role based on what drives a company's approach to target costing.
[14] Competitors introducing similar products has been shown to drive rival companies to expend energy on implementing target costing systems such as in the case of Toyota and Nissan or Apple and Google.
The automotive and camera industry are prime examples for how customers affect target costing based on their exact requirements.
[1] Supplier-Base strategy is the main factor that determines component-level target costing because it is known to play a key role in the details a firm has about its supplier capabilities.
More cooperative supplier relations have been shown to increase mutual benefits in terms of target costs particularly at a component level.
Some major design parameters are specified using this methods including Facility Operation Schedule, Orientation, Plug load, HVAC and lighting systems.
Initiation stage involves developing a business case for energy efficiency using target value design (TVD) training, organization and compensation.
Designs are evaluated keeping in mind the requirements of the various stakeholders in the NICU including nurses, doctors, family members and administrators.
Research has proven that if being applied systematically, TVD can deliver a significant improvement in project performance with average reduction of 15% in comparison with market cost.
[20] In Scotland, guidance on the use of pain share/pain gain arrangements and target cost contracting was issued to public sector construction procurers in 2017.
