Target Costing

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Target Costing on Mercedez – Benz

Mercedes-Benz (MB) is one of the world's most successful car manufacturers since its establishment in 1886. They used target costing in the design and production of one of its products, the M-Class, which is a new sports utility vehicle model, in response to their first time suffering loss in 1993 because of cost inefficiency and problems with material purchasing and adapting to market changes. MB started developing a range of new products such as the C-Class in 1993, the E-Class in 1995, the new sportster SLK in 1996, and the A-Class and M-Class All Activity Vehicle (AAV). The issues could be raised from this case are how MB reacts to the environmental changes by applying target costing (TC) into the production of its new product, M-Class All Activity Vehicle (AAV). Competitive Environment and Strategy By taking advantages of its customer loyalty and sound brand image, MB was focusing on protecting their existing market share, which can be described as a defender (Miles and Snow, 1978). However, the first-time money losing in 1993 made MB realized that the market was changing rapidly and introducing new strategies is necessary, in order to remain alive in the market. Moreover, there are some concerns regarding the target costing application to the AAV product. First, this system will take overly-long development time. Cooperative, mutually beneficial, long-term relationships with suppliers should be maintained to diffuse cost reduction effort. MB’s strategy was producing vehicles that were more expensive and delivered a greater perceived value to customers. To run with this startegy, MB need an intensive cooperation with their suppliers to ensure the production processes could run effectively as they were planned. MB’s suppliers provided systems rather than individual parts or components for production of approximately 65,000 vehicles annually. Although the target cost might be met, development time may increase because of...
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