Target Costing

One of the core issues in product cost engineering is the definition of a  cost target in line with the market.

Frequently, the target price is already defined by customers and competitors. However, some questions remain open:

How is the target price broken down into target cost for components and/or functions? This breakdown is important in order to assess during the development phase, where there is most need to reduce cost.

Is it possible to reach the target cost at all? Do certain requirements need to be reduced or functions eliminated in order to reach the target cost?

Which cost can the competition achieve? Where can they make use of specific cost advantages?

The own product might have functional advantages compared to competitor products. What is the cost of these advantages? Can this be comunicated to your customer?

Target Costing is an important requisite to deploy development resources efficiently and to avoid unnecessary process loops.

What are typical project phases?

Project Clarification

Is there already a cost target and what is it based on?

Which are the requirements and premises?

Target Cost Definition

If there is no target cost provided by the customer, it needs to be defined systematically. Inputs can be provided by benchmarking as well as internal projections by sales, marketing and engineering. A transparent target cost definition process is prerequisite for team acceptance and support.

Target Cost Breakdown

In this phase, the target cost for individual components, subassemblies and functions is defined. In this phase, it is essential to integrate all inputs from the different roles within the project team.

Cost Deviation Analysis

The target cost will be compared with the current planned cost in order to define priorities and generate a reasonable and focused action plan.

Cost Gap Elimination

In order to close the gap between target and planned cost, classic Design to Cost methods will be applied.