operatıons management project report
Cost management through product design: target costing approach, Yasemin Zengin and Erhan Ada
In this paper, target costing tool combined with other management techniques, namely Quality Function Deployment (QFD) and Value Engineering (VE), has been focused with a case study. In this case study, QFD-TC (Target Costing) methodology has been executed in a SME (Small and medium enterprises) and it is showed that, integrating target costing with QFD and VE techniques is highly effective on managing the costs of product and overall production process. Introduction / Motivation
In today’s world, customers demand increased functionality and quality with lower prices. Therefore, standard cost minimization or reduction techniques are not sufficient to satisfy this demand because they do not take quality and functionality demands into consideration. Target costing differs from other conventional cost reduction techniques as it combines customer’s technical and functional demands and market data with production phase so it enables the remove unwanted functions and consequently reduces costs. Target Costing
Target costing is a method to satisfy customer’s demands while remaining cost competitive. In other words, it is a “reverse costing” methodology, in which allowed cost is found from selling price and required profit margin. It can be used for both new and existing products. It needs detailed market research in order to determine customers’ quality and functionality demands and the price they want to pay as well. Target costing method also requires co-operation of different departments such as marketing, engineering, design and sales teams during and before production phases. QFD (Quality Function Deployment) – TC (Target Costing) Process Step 1 and 2 depend on market research data gained by QFD methodology. After having sufficient data, target cost is determined according to company profit policy. Value engineering methodology is used during step 4 and 5 in order to reduce the cost to target cost. After finishing all, improvement should continue during production phases and after production.
The aim of the case study is to observe an application of target costing integrated with QFD analysis and VE in a small manufacturing company, and to develop a target costing module that will encourage its use in SMEs. Small manufacturing company that produces high pressure testing systems/units is chosen for this case study. As explained in the previous section, six steps of QFD-TC process have been implemented in this small manufacturing company. Formulas below will help us to calculate the target cost:
Ct = Current cost of the product
ci = Cost of an item
qi = quantity of item
πD = Desired profit
Pt = Current price of the product
TP = Target price
α = Price cut
TC = Target cost
As seen from the equations, target price is determined at first. Then according to company’s profit policy, a target cost is determined which will direct the other phases. Step 1: Desired quality specifications and functionality.
In this step, data from the customers and also system experts are collected via questionnaires. Customers are asked about qualifications and functions which they most value about the product. According to customer evaluations, 10 quality factors have been selected. Correlations between customer requirements and technical attributes were defined by customers and experts. In accordance to the QFD findings, design improvements on the testing unit will be implemented on the chassis, to enable low cost, convenient maintenance, employing an ergonomic and user-friendly design, ensuring safe use, portability, low weight, easy revision for new tests and the ability of testing with different test fluids. Step 2: Target selling price
According to market conditions, customer feedback and price quotations received from domestic...