Cost management through product design: target costing approach

TLDR

Target costing has been studied mainly in leading firms, and operations‑management tools such as QFD and VE have been evaluated for their integration into target costing. The study explores how target costing can manage product costs and meet quality requirements, develops a simplified target‑costing module for SMEs, and focuses on implementing the QFD–TC process. The authors implemented the QFD–TC process in a small manufacturing company to assess its effect. The QFD–TC process proved essential for managing product and production costs, and its combination with target costing, QFD, and VE gives companies a competitive cost advantage.

Abstract

The purpose of this study is to explore the role of target costing in managing product costs while promoting quality specifications that will meet customer requirements. In addition, it aims to develop a target costing module that will simplify implementation of target costing especially in small and medium enterprises (SMEs). Tools of operations management such as quality function deployment (QFD) and value engineering (VE) have been considered and evaluated in terms of their integration into the target costing. In order to investigate the total effect, an implementation of the QFD deployment–target costing process (QFD–TC process) was conducted in a small manufacturing company. Previous studies on target costing were mostly conducted in lead companies. This study focuses on implementation of the QFD–TC process in SMEs. Overall, it was found that the QFD–TC process was an essential technique in managing the costs of both a product and the overall production process. Combining target costing with QFD and VE techniques provides companies with a competitive cost advantage.