Target Costing & Design to Cost

Meeting customer affordability requirements is critical to a successful product. Since typically 80% of product costs are committed based a decisions during concept development and design, a design-to-cost (DTC) orientation in key to a successful product. The concepts of design to cost that form the basis for our consulting process are described in a paper titled, Achieving Design-to-Cost Objectives. DRM Associates, a leading consulting organization specializing in product development, can help with the following eight-step approach:

  1. Initiation of a DTC program begins with management understanding and commitment. This may require DTC management training which we provide. These objectives must be communicated to the rest of the organization. Again, our DTC training can provide an understanding of the concepts and essential elements of a DTC approach. We can help in establishing metrics and determining baseline performance.
  2. A Target Costing and Design-to-Cost 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 also help define roles and responsibilities to support DTC. We can then develop and conduct training to deploy this process to the organization.
  3. 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.
  4. 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 define a process for their use.
  5. Design for manufacturability is one of the primary methods to reduce costs. We can provide design for manufacturability training, help establish DFM guidelines, define a process for the application of DFM, and facilitate the use of these practices on a development project.
  6. Supplier involvement in a DTC 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 DTC, provide DTC training to suppliers, work with key suppliers to establish a DTC program, and develop pricing programs.
  7. Indirect costs are the second most significant cost element. We can assist with business process reengineering of indirect activities, eliminate non-value-added activities, and establish an activity-based costing system to better support decision-making.
  8. Monitoring of DTC results is key to a successful program. We can help establish DTC tracking systems, develop design review guidelines, formalize an overall development process oriented to DTC, and insure appropriate management focus to a DTC program.

The DRM Associates DTC Capabilities Presentation provides further information on our DTC capabilities, consulting approach, and DTC process and tools.

For further information, contact Kenneth Crow at DRM Associates