Nissan Motor Company – Target Costing System – Extra Question
1 – What is the purpose of Nissan’s target costing system? Nissan deployed target costing system to achieve following benefits Systematic approach: The purpose of the target costing system is to have a systematic procedure to manage costs for new product introductions in order to allow them to earn the necessary profit margin to meet corporate profitability objectives. Customer Orientation: Target costing promotes customer focused rather than company focused approach. In order to use target costing method, Nissan needs to understand its target market and can select product features to better suit the target audience. By setting a price which customer will pay, Nissan ensures that its new/existing product will be positioned currently in the market i.e. higher price for a niche sports car and lower price for a family car. Understanding customer needs will help the development team maximise value added and minimise non-value added features. Value chain involvement: Target costing requires a team based approach where different members of value chain are involved in development of new model from the onset (design stage). This creates a team based environment where individual members of value chain contribute ways to reduce cost. By identifying cost reduction in design stage, Nissan minimise number of iteration require to match actual cost to allocated (target cost), hence minimising time and effort to reach market. Involvement of all department also reduced the information gap and promote co-operation by getting their buy-in the concept (model features) at an early stage. Drive Cost down: Target costing system signify parts and processes where cost reduction will have biggest impact. This will help design and engineering team to focus on aspects which are likely to generate highest cost reduction. Improve Efficiency: Target costing highlights commonalities and simplification which Nissan may be able...
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