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Meeting customer affordability requirements is critical to a successful
product. Since typically 80% of product costs are committed based a decisions
during concept development, target costing is key to a successful product.
The concepts of target costing that form the basis for our consulting process
are described in a paper titled, Achieving Target Cost / Design-to-Cost Objectives.
DRM Associates, a leading consulting organization
specializing in product development, can help with the following eight-step
approach:
- Initiation of a Target Costing program begins with management
understanding and commitment. These objectives must then be communicated
to the rest of the organization. Our Target Costing
training can provide an understanding of the concepts and essential
elements of a Target Costing approach. We can help in establishing metrics
and determining baseline performance.
- A team-based organization needs to be established to support
development. We can help define roles and responsibilities to support Target
Costing and provide Team-Building training
or Team Launch training as required. We
can work with the team to facilitate their use of Target Costing practices.
- A Target Costing process needs to be defined and established.
We can review the current development process and define the changes and
additional activities to establish a Target Costing Process. We can then
develop and conduct training to deploy this process to the organization.
- Target costs must be established based on analyzing market niches,
assessing customer affordability requirements, understanding cost drivers,
considering trade-offs in costs vs. other requirements, determining elasticity
of demand, and analyzing volume-cost relationships. We can help organize
the data gathering, guide this analysis, and facilitate the use of tools
such as quality function deployment to support requirement trades.
- Product cost models and/or cost tables are required to evaluate
concept and design alternatives and support decision-making. Parametric
cost models are needed in the early stages of a development program to
develop a proposal or establish a business case, to support analysis of
concept alternatives, and perform trade studies. More detailed cost models
based on analogy or industrial engineering build-up are needed in the later
stages to evaluate product and process design alternatives. We can help
in selecting, building, validating and establishing these cost models and
cost tables and define a process for their use.
- Value analysis and design
for manufacturability are two primary methods to provide focus
on functions of value to the customer, the associated costs, and the DFM
principles to reduce costs. We can provide value analysis
training and design for manufacturability training,
help establish DFM guidelines, define a process for the application of
value analysis and DFM, and facilitate the use of these practices on a
development project.
- Supplier involvement in a Target Costing program is critical
since typically 50-70% of product costs are materials. We can work with
the materials organization to help structure a supplier involvement program
based on Target Costing, provide Target Costing training to suppliers,
work with key suppliers to establish a Target Costing program, and develop
pricing programs.
- Indirect costs are the second most significant cost element.
We can assist with business process reengineering
indirect activities, eliminate non-value-added activities, and establish
an activity-based costing system to better support decision-making.
- Monitoring of
Target Costing results is key to a successful program. We can help
establish Target Costing tracking systems, develop design review
guidelines, and insure appropriate management focus to a Target Costing
program.
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