Target Costing Works and You Can Do It Too!

A recent article in Purchasing on how purchasing learns cost modelling noted that smart buyers are working with engineers, finance and suppliers to identify cost drivers in product development and eliminate them and that Whirlpool was able to close a gap of 30% between the target cost for an aesthetics module on one product and the initial design cost by way of a cross-functional team that included purchasing, marketing, sales, engineering, global design, production, and quality control. This greatly improved Whirlpool’s chances of hitting its profit target while saving it a bundle of money up front.

The concept, which dates back to the Toyota Production System and the beginning of Lean, is starting to take hold in a number of big companies like Boeing, Olympus, Komatsu, LG, and CAT and getting great results. But it’s not just limited to large companies, even though most of the articles I see, including this one, give you that feeling.

Thanks to not-so-new players in the market, like Akoya, which was founded in 2004 and offers an impressive industry-leading competitive banding solution, and Apriori, which was founded in 2003 and offers impressive industry-leading virtual production environments, mid-size companies can get in on the action at relatively low cost and save millions for literally pennies on the dollar.

With one (or both) of these partners on your team (as their solutions can be used complementarily, and I know of at least one big mutual customer that does so to great success), you can jump-start the process and see savings in a matter of weeks. Literally. But don’t just take my word for it. Take their customers’ words — and results. If you call them, I think you’ll find that they’ll happily give you relevant references. Their products help you get Lean fast, and it’s a shame they get so little press because it doesn’t take a massive Lean transformation to get started on your target-costing journey (even though that should be your ultimate goal).

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