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 ommunicated 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 and Design to Cost 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.
For further information, contact Kenneth Crow at DRM Associates
Phone +1 310-377-5569