What you’ll learn
- Why preventing cost is better than removing it, and where target costing came from
- The allowable-cost sum, the value gap and the one rule you never break
- How targets are split from the whole vehicle down to systems, parts and suppliers
- Design-to-cost at each design review: managing cost the way engineers manage weight
- The handover to kaizen costing once production starts
What you’ll produce
By the end of this module you’ll have a target-cost cascade from market price to each function. Free templates:
From the module
Preventing cost is better than removing it
Everything so far in this course removes cost that's already there. This module is about never letting it in. It's often said that by the time a concept design is frozen, 70–80% of lifecycle cost is already decided, while almost none has been spent. The exact figure is debated, but the direction isn't. So the cheapest VAVE workshop is the one you never needed because you set a target. Target costing (Toyota's genka kikaku, developed from the 1960s) turns the usual thinking upside down. The traditional "cost-plus" approach asks: what will it cost, and what price does that mean we have to charge? Target costing asks: what will the market pay, and what cost does that allow?
The sum is surprisingly simple: Allowable cost = target selling price − required margin. Use the price the company actually receives: take VAT and any dealer or retailer margin off the shop price first. The hard part of target costing is people, not maths: sticking to the number when engineering says "it can't be done for that", and splitting the number up so every team owns a piece of it.
Short narrated video in this module
Continue reading in Module 13, or read the related guide: Product cost optimisation.