Target Costing Nissan
1. What are the strengths and weaknesses of the target costing system?
Strengths:
● Target cost system is ideal for assembly-oriented industries with great involvement in the diversification of product lines, usage of technologies of factory automation, development of systems for reducing cost during all the stages of product’s life cycle such as is the case of Nissan Motor
1
.
● Since Nissan cost system is continuously undergoing modification and improving processes to ensure high productivity (Kaizen), in the case that the target cost cannot be achieved, the products may still be launched if management are still confident that the process of continuous improvement will enable the target cost to be achieved early in the product’s life
2
so the actual cost can be driven down to the target cost with the help of a multi-disciplinary team.
● This cost system is oriented toward the customer who is the most important shareholder in any organization, here the customer requirements together with the target profitability of Nissan, are the primary cost drivers. The very first stage requires market research to determine the customer’ perceived value of the product based in its functions and its attributes (mind-sets to identify design attributes), its differentiation value relative to competing products and the price of competing products. This cost system seems aligned with the plan to obtain the number-one rating in terms of customer satisfaction in the case of Nissan.
● The implementation of this system contributes to the awareness and empowerment of all employees involved in all stages of the product and incentives partnerships with suppliers. ● Through a value analysis, it is possible to determine the cost of each function, thus the modification or elimination of low cost added-value activities can take place.
Weaknesses:
● For the implementation of target costing the development of detailed cost data and the
Strengths:
● Target cost system is ideal for assembly-oriented industries with great involvement in the diversification of product lines, usage of technologies of factory automation, development of systems for reducing cost during all the stages of product’s life cycle such as is the case of Nissan Motor
1
.
● Since Nissan cost system is continuously undergoing modification and improving processes to ensure high productivity (Kaizen), in the case that the target cost cannot be achieved, the products may still be launched if management are still confident that the process of continuous improvement will enable the target cost to be achieved early in the product’s life
2
so the actual cost can be driven down to the target cost with the help of a multi-disciplinary team.
● This cost system is oriented toward the customer who is the most important shareholder in any organization, here the customer requirements together with the target profitability of Nissan, are the primary cost drivers. The very first stage requires market research to determine the customer’ perceived value of the product based in its functions and its attributes (mind-sets to identify design attributes), its differentiation value relative to competing products and the price of competing products. This cost system seems aligned with the plan to obtain the number-one rating in terms of customer satisfaction in the case of Nissan.
● The implementation of this system contributes to the awareness and empowerment of all employees involved in all stages of the product and incentives partnerships with suppliers. ● Through a value analysis, it is possible to determine the cost of each function, thus the modification or elimination of low cost added-value activities can take place.
Weaknesses:
● For the implementation of target costing the development of detailed cost data and the