Target costing

Supply Management, May 7, 1998 by Jackson, Robin

Authors: Shahid Ansari,Jan Bell and CAM-I Target Cost Core Group

Publisher: McGraw Hill

Price: L42.99

Many readers will be familiar with the term target costing. However, unless you have worked in an environment that eats and sleeps target costing, the understanding is that it is an adjunct for current purchasing cost reduction efforts. This book is the first to define target costing as a "strategic profit and cost management process" and to link it to end-customer value delivery.

As usual, the early practitioners and refiners of the approach were the Japanese. Although a few companies in the US, notably Chrysler, have adopted target costing as their preferred modus operandi (with startling results), it is generally an unknown or misused process in the majority of companies in the UK and Europe.

This book should be read by all purchasers and senior business managers whose commitment and understanding is the key to successful implementation. It describes the impact of that commitment on the business, including the technical, marketing and manufacturing functions as well as suppliers. There is also an excellent analysis of the need for fundamental change in business process, individual behaviours and cultural and political environments for target costing to be institutionalised.

The authors have provided the reader with an in-depth study of target costing, broken down into simple and understandable chapters. The examples given, such as a coffee percolator and the Chrysler Neon car, bring the concept to life and leave no doubt as to its potential power.

The weakness of the book lies in its sub-title "The Next Frontier in Strategic Cost Management". Target costing, as defined by the authors, is a business process not a purchasing activity. The book underestimates the problems of the changes needed, not only in process but in individual day-to-day roles, to be successful. It is excellent in defining what target costing is and what is needed to make it work. However, it fails to address the "how to implement" in sufficient detail.

This may be deliberate. If, as the book suggests, target costing is the "next frontier" then it may be the next opportunity for business gurus such as the authors of this book.

Robin Jackson ADR