How company set target

costing to meet customer

expectation by different

industries

5520212002 : Nabduan D.

5520212004 : Phornpat R.

5520212007 : Raveepitchaya R.

5520212009 : Ata K.

Target Cost =

Expected Selling Price – Desired Profit

Target costing

The establishing phase of Target Costing

AUTOMOTIVE INDUSTRY

• KAIZEN – is a Japanese word and means

continuous and gradual cost improvements by

means of business betterment of activities.

Target costing in Toyota

• By using kaizen costing, teams of people from

marketing, engineering, purchasing,

manufacturing and accounting work together to

assure that a cost position of the product is such

that the company can sell product at its required

market price and make money by doing it.

KAIZEN

Toyota Motor Manufacturing UK Ltd

• Toyota Motor Manufacturing UK Ltd (referred to as TMUK here) started production in December 1992 in the Bumastonplant in South Derbyshire. It employs 1,300 people and had a production volume of 35,000 cars in 1993. TMUK presently manufactures the Carina E model, whose production volume reached 100,000 in 1994, thereafter progressing to the 200,000-1evel plant capacity. Target cost management at Toyota for this model is an involved and complex process entailing information (and parts) exchange between TMUK, Toyota Motor Europe Marketing and Engineering (or TMME) based in Belgium, and Toyota Motor Corporation in Japan (TMC).

The departmentalization of target costing

responsibility in Toyota Motor Manufacturing UK

Ltd

• Department of Accounting and Finance gathers information for sales

forecasting purposes and profit improvement efforts.

• Department of Purchasing is more directly engaged in pursuing target

costs.

Department of Accounting and Finance which is segmented into:

• Sales and Planning (five people) concerned with reviewing European sales of

the model and aggregating medium and long-term planning data.

• Financial Accounting (12 people) responsible for debtor/creditor records, sales

invoice and tax processing and general cash management.

• Management Accounting (12 people) to oversee costing, fixed asset and

inventory administration, cost-reduction plans, profit improvement controls, and

cost management, which entails the preparation of budgets.

Target Costing and Kaizen

TECHNOLOGICAL INDUSTRY

HP at a glance

• HP (Hewlett-Packard)

– Expert in technology product

– Provider service for SMBs and government

HP printing product at

Vancouver Division

• Purpose to research and develop new printer

include inkjet and dot-matrix printer.

• HP was the pioneer in inkjet technology, later it

become very successful technology

HP Printing product

• HP Printing and Personal Systems strategy (HP PPS)

focused on combine supply chain and reduce number of

sale teams. And Reduce number of SKU by break down

the work and reduce support team.

Product life cycle

• technology product life cycle become shorter and shorter

Product life cycle

• technology product life cycle become shorter and shorter

• Customer expectation are high

• To maintain and go higher position

Product life cycle

• Development state: – Most of cost incur in this state in because of it require a lot of

money in product design and purchase materials.

– In order to reduce cost you should set target cost for internet,

how you allocate cost into each department, and external cost to

get information it require collaboration of procurement and

supplier to exchange necessary information.

Product life cycle

• Introduction state:

– The product are not acknowledge from people. It look

people not know you product. Marketing investment is

important in order to attractive more people.

• Growth state:

– In this state technology is stable. Your product get

more attractive from people, they trust the product.

Product life cycle

• Maturity state:

– Peak of old technology. Time to go to next state depend on the

market.

– The company should plan to discount and develop new product.

• Decline state:

– The product became obsolete. Time to get the plan into action.

– Maintaining customer loyalty the company can’t stop

immediately they should provide support to customer for a while

to make sure they ready to buy the new one.

Target costing in

HP printing product

• Printing product are price sensitive

• Procurement engineers

– interpret what R&D want into purchasable thing

– co-working with supplier, working closely with they

can induce them to provide insight cost information

• Supplier reward plan

• Establish current and predict target costing

How to implement target costing

• Target costing require more personal and department

responsibility to achieve it

• To ensure that you cost will not excess

– Fine alternative supply who has less bid

– Shouldn’t approve the project that consuming cost

more than target even it look good

– Set up project driven team

How to implement target costing

• Step of implement target costing

– Market research

– Set selling price

– Set target cost – include internal and external cost

– Evaluate and feedback

• In some case to achieve target cost you might consider

to re-design or change product requirement.

Benefit of target costing

• Certainly continuous cost reducing

• Bargaining power with supplier

• Target costing are changeable

• Make you product more attractive

Drawback of target costing

• Increase work pressure

• Balance performance and cost

• Hard to control external cost

Recommendation

• To understand more about cost behaviors the company

need more tools as ABC (Activity based costing) to show

how each pool cost.

• Evaluate cost and dead line carefully: in order to don’t

put more pressure to a department. Cost are

unavoidable to develop product

CIRCUIT BOARD INDUSTRY

Printed Circuit Board Manufacturer (PCBM)

PCB manufacturer History

• Providing for PCB Prototypes and medium

scale PCB production with quality, quick

turn-around times, and low prices

• It is mechanically supports and electrically

connects electronic components.

• Using conductive tracks, pads & other

features etched from copper sheets

laminated onto a non-conductive substrate

• By experienced engineers and helpful

support staff would be ensure that

customer get products made exactly to

customer specifications

PCB manufacturer History (Cont.)

PCB manufacturer processing

• Engineering planners to decompose target cost into each

cost element and use value engineering to achieve the

target cost and illustrate the process of determining target

costs using production and cost figures.

• Improving by Valued Engineering (VE)

- reduce material cost

- reducing material moving distances between receiving to

delivering area to user's area.

• By purchasing department of PCBM, they have a long negotiation

process with the suppliers to persuade buying power to order at

lower prices.

• The result of improvement activities : reduction of $1 per

unit cost

• Activity-based costing (ABC) system

– supporting price change when customer requires

different designed (require tab plating)

– no charged cost to customer’s order for this option

– helped PCBM received credibility regarding the price

quotes from the customer

– customer agreed to consider a price increase in the near

future

PCB manufacturer processing (Cont.)

PCB manufacturer: Key success factors

• Purchasing department has good relationship with

suppliers so they could be strong negotiation to order

low costing price of material.

• Reduce manufacturing costs by created awareness of

Valued Engineering to leaders

• Using Activity-based costing (ABC) system to support

and cover costing price change when customer requires

different designed. Keep customer retention because

price is not changed and also achieve customer

expectation in same quality as well as same price.

PCB manufacturer: Obstacles

• PCB manufacturer cannot reduce completely in gap of

allowance cost and cost management occurred.

PCB manufacturer: Recommendation

• PCB manufacturer should offer target costing knowledge to

every employees or level to understand exactly of benefit of

target costing and they will work by alignment direction

working, as Sony and Toyota.

Banking IndustryThe Central Bank of Morocco

• Established in 1959 with the head quarter in Rabat, Morocco.

• As the replacement of the former Banque d’Etat du Maroc

• To issue banknotes and coins under legal tender along with set

up monetary policy and regulation to ensure price stability

• The alliance for financial inclusion is the world's largest and

most prominent network of financial inclusion policymakers from

developing and emerging economies who work together to

increase access to appropriate financial services for the poor.

Bank Al-Maghrib History

Why the Central Bank of Morocco plan to implement ABC?

• To upgrade capacities in competes in international as the strategic

plan cover from 2004 to 2006.

• To set the new standard in action plan of the organization to

established a policy in manage the activities to improve

performance and quality of service.

• To be modernizing organization to have equipment to understand

clear cost calculation to perform financial service.

Bank Al-Maghrib

• The bank purchasing package software for ABC system with the

concerning on the accessibility of employees to the system

• The manager also well cooperate in the project with consultant

• The Bank of France support in technical assistance and training

(Bank of France also as one of the first central bank to use ABC)

• implementation ABC in four levels of activities including Activity

Analysis (AA), Activity Cost Analysis (ACA), Activity Base

Costing(ABC) and Activity Base Budgeting.

Bank Al-MaghribHow to implement ABC in the Central Bank of Morocco?

Bank Al-MaghribHow to implement ABC in the Central Bank of Morocco?

Activity Base Budgeting (ABB)

Using ABC to plan on ABB

Activity Base Costing (ABC)

Using information from AA and ACA to analyze ABC

Activity Cost Analysis (ACA)

Information added the explanation in cost of activity

Activity Analysis (AA)

Identify activity and process in convert labor, material and other resource to be output

Bank Al-MaghribHow to implement ABC in the Central Bank of Morocco?

To identify cost through different

department

• 7 primary departments

in charge for the bank

basic tasks

1) monetary operation

and exchanges

2) banking supervision

3) network and corporate

relation

4) industrial to

responsible for banknote

production

5) currency museum and

research

• 5 support departments

1) audit and risk

prevention as controlling

department.

Bank Al-MaghribHow to implement ABC in the Central Bank of Morocco?

To learn ABC with the

support from

consultant team with

the flow of information

circulating in different

department in

organization.

To analyzed and the

observe and recorded

to be the evidence of

decision making

under ABC

information

To interview the

position in charge

including managers,

consultants, and

department head to

confirm result during

phrase 2.

• Staff satisfied with new ABC system

• The research found that the support departments uses this

information more than primary departments

• The better flow in ABC information then contact with all

departments

• The applying of ABC can bring benefit to the bank in

improvement in data processing

• The better ability to track down change in cost and profit margin

and cost performance, and product from similar family

• The better ability to focus on higher profitability customer with

lower relevant cost.

Bank Al-MaghribThe result of implementation ABC?

Bank Al-MaghribThe Benefit of implementation ABC ?

Financial improvement

• increasing in profit by remove the no value-added activities by better in select contractor, reducing lead time, improving efficiency in utilize resource

Organization performance

• improvement in communication across different department can caused from the better ability to control cost of non-quality in poorly organized activities lost in excess demand of customers and lost to redo and correct customer’s order

Bank Al-MaghribKey Success Factors / Obstracles / Recommendations

KE

Y S

UC

CE

SS

FA

CT

OR

S • Level of technological equipment

• Cooperation among employee

• Accurate analysis skills

• Reengineering structure

• Good relationship

• Management intention

OB

STA

CL

ES • Investment in

technological advancement

• Skills of employee in analyzing relevant information

• The more complex service provide the more difficult to identify cost R

EC

OM

EN

DA

TIO

NS • Regular basis in

software upgrade is needed

• Accurate measurement is needed

• Accurate ability to link data to analysis is needed

• Concern more on non-banking system

Key success factory Obstacle1. structured problem-solving

approach somehow based upon

the Plan-Do-Check-Act circle, thus

preventing “jumping to conclusions”

2. Working through those steps with

a bottom up approach; which is

fundamentally different for most of

the Western companies where

“experts” tend to bring solutions top

down into the organization.

-

TOYOTA

Key success factor Obstacle1. work awareness to procurement

2. Supplier loyalty: give a reward to

supplier when they can meet

cost target and quality by offer

more order in the future.

1. More pressure to R&D, how

R&D launch the product meet

quality and functionally with

very low cost.

2. Balance performance and cost:

3. Hard to control external cost

HP

Key success factors Obstacle1. Good relationship with

suppliers

2. Reduce manufacturing costs by

created awareness of Valued

Engineering to leaders

3. Using Activity-based costing

(ABC) system to support and

cover costing price change

when customer requires

different designed.

1. PCB manufacturer cannot

reduce completely in gap of

allowance cost and Cost

management occurred.

Printed Circuit Board Manufacturer

(PCBM)

Key success factory Obstacle1. Technology Advancement

2. Cooperation among staff and in

charge person

3. the ability of management

4. the structure of the organization

5. Processes management

6. Relationship management

7. Management intention.

1. the investment in advance

technology that quite high to

purchase

2. the well trained employee need to

be ensured in skill to analyze or

use the ABC

3. the more differentiate service

provide lead to the more complex

costing analysis

Bank Al-Maghrib