Target costing based on theory of technical systems.

Dvorak, Josef ; Kopecky, Martin

1. INTRODUCTION

Target Costing is a known means for control of costs in product development process. This metodology, invented in Japan in 1960s, is based on structuring the manufacturing costs to product constructional units according to customer preferences. If it is possible to recognize so called "product functions" that are required and which are customers willing to pay for, then we can recognize potential to make savings. Determination of these factors is a joint task for marketing, product development, etc. The steps of Target Costing metodology according to [Hundal 1997], [Kleinova 2009] applied on a product depicted in Fig. 1 are outlined in the following chapter.

2. USUAL PROCEDURE

The traditional steps of the Target Costing methodology are as follows:

1) Structuring of an analysed technical product/system (TS) into individual constructional units (i.e. groups or components) and allocation to them relevant ratio of manufacturing costs by percentage (Tab. 1) is performed at first.

[FIGURE 1 OMITTED]

2) The most important attributes of the designed product required by customers, called Customer Functions, are then listed, and their respective weighted shares by percentage in the Total Product Usefulness are then established (Tab. 2).

3) Determination of the shares by percentage in which the respective Constructional Units contribute to fulfill required "Customer Functions" is performed now (Tab. 3).

4) The weighted shares of the respective Constructional Units in the corresponding share in their fullfillment of the respective Customer Functions (Tab. 4) is now calculated by multiplication of the respective property "weightings" (Tab. 2) and their corresponding "unweighted" shares (Tab 3.).

5) Target Costs Indexes are determined (Tab. 5), and Real Costs of the respective Constructional Units are compared with Target Costs derived from customer requirements (Tab. 6). Those Constructional Units that have Target Cost Index less then one are too expensive from the customer viewpoint, and their costs to be reduced in another step.

3. ENHANCED PROCEDURE

The outlined methodology can be enhanced by several simple modifications based on the above mentioned TTS. (1) We propose to replace the term Customer Function by the term Product Property covering both real functions performed by a product as well as all other required product attributes related not only to the product customers. Any product has to satisfy not only assigned and other stated requirements, but also a number of other obligatory and generally implied requirements [CSN EN ISO 9000]. (2) Similarly we propose to replace too narrow term Manufacturing Cost by a more appropriate term Expended Cost. (3) Next due to both theretical and practical impossibility to separate the shares of the respective CUs in the fulfilment of the Product Properties (Tab. 3), we propose to replace the coresponding and related steps by determination of Values of the respective CUs as described in the following partially modified steps. (4) Finally we propose to add CUn+1 covering holistic Product Properties and corresponding Expended Costs which cannot be covered by single CUs:

1) Structuring of an analysed technical product/system (TS) into individual constructional units and allocation to them relevant ratio of exerted costs by percentage (Tab. 7)

2) Values V for each CU defined as follows are calculated now:

[V.sub.i] = [Q.sub.ji]/[C.sub.i] (1)

[Q.sub.J]--Judged Quality evaluated for the specified weighted requirements, e.g. with use of the systematic Product Design Specification and Evaluation based on TTS [Hosnedl 2010]

C--Expended Costs

3) The weighted shares of the respective Constructional Units i of their Values [V.sub.i] to the total Product Value [V.sub.Prod] are then calculated. For example the share of the Value Usefulness of CU1 makes %[V.sub.1] =100*[V.sub.1]/[V.sub.Prod] (Tab. 9 left). The remaining steps of the enhanced procedure are analogous to the current procedure incl. Tabs. 9 and 10.

4. CONCLUSIONS

A described procedure of Target Costing based on TTS (Eder 2007) was developed and verified. We plan to further improve this procedure regarding enhanced knowledge support of prediction of product properties especially cost and more transparent depiction of results in a form of diagrams.

5. ACKNOWLEDGEMENTS

This paper includes results from Project No. 402/08/H051 Optimizing of multidisciplinary designing and modelling of production systems subsidised by the Czech Science Foundation and from Project SGS-2010-049 Complex support of design engineering of technical products to improve their properties and competitiveness subsidised by the Czech Ministry of Education.

6. REFERENCES

Eder, W. E., Hosnedl, S.: Design Engineering, A Manual for Enhanced Creativity (2007), CRC Press, Taylor & Franciss Group, ISBN 978-1-4200-4765-3, Boca Raton, USA

Hosnedl, S., Dvorak, J., Srp Z., Kopecky, M.: Design Specification and Evaluation Tool for Design Engineering and its Management. In: Proceedings of the 11th Int. Design Conference--DESIGN 2010, D. Marjanovic et al. (Eds.), p.p. 799-810, ISBN 978-953-7738-07-5, 2010, FMENA, Zagreb

Hundal, M. S.: Systematical Mechanical Designing: A Cost and Management Perspective (1997), ASME Press, ISBN 07918-0042-3, New York

Kleinova, J.: Economic Evaluation of Manufacturing Processes, Case Studies, 2009, ZCU, Pilsen (in Czech) idt ISO 9000:2005--Czech version of the European Standard EN ISO 9000:2005 Quality management systems Fundamentals and vocabulary. 2006. Prague: Czech Institute for Standardization

Tab. 1.Constructional Units and allocation of ratio of their
Manufacturing Costs by percentage respectively

Constructional Units (CU) Share in Manuf. Costs (%C)

CU1 frame 10%
CU2 sensors 20%
CU3 door 40%
CU4 modular covers 20%
CU5 safety equipment 10%

Tab. 2. Shares of the required "Customer Functions" in the
Total Usefulness of the analysed product by percentage

 Share in Product Usefulness
Customer Functions (Fi) (%U)

F1 reliability 25%
F2 safety 25%
F3 adjustability 20%
F4 capability 20%
F5 design 10%

Tab. 3. Shares of the respective Constructional Units
in the fulfilment of the "Customer Functions"

CU F1 F2 F3 F4 F5

CU1 20% 15% 15% 30% 40%
CU2 20% 35% 15% 25% 20%
CU3 10% 25% 35% 25% 20%
CU4 15% 10% 20% 20% --
CU5 35% 15% 15% -- 20%
[SIGMA] 100% 100% 100% 100% 100%

Tab. 4. Weighted shares of the respective Constructional Units
in the fulfilment of the Customer Functions

 %[SIGMA]
CU F1 F2 F3 F4 F5 [F.sub.i]

CU1 5.00% 3.75% 3.00% 6.00% 4.00% 21.75%
CU2 5.00% 8.75% 3.00% 5.00% 2.00% 23.75%
CU3 2.50% 6.25% 7.00% 5.00% 2.00% 22.75%
CU4 3.75% 2.50% 4.00% 4.00% -- 14.25%
CU5 8.75% 3.75% 3.00% -- 2.00% 17.50%
[SIGMA] 25% 25% 20% 20% 10% 100%

Tab. 5. Calculations of the Target Costs Indexes

 Share in
 Custom.
 Usefulness Share in Target
 (%[sigma] Manuf.Costs Costs Index
CU [F.sub.i]) (%C) (TCI)

CU1 21.75% 10% 2.18
CU2 23.75% 20% 1.19
CU3 22.75% 40% 0.57
CU4 14.25% 20% 0.73
CU5 17.50% 10% 1.75
[SIGMA] 100% 100% --

Tab. 6. Comparison of Real Costs and Target Costs

 Costs
 Real Costs Usefulness Targ.Costs diff. (AC)
CU (RC) [[euro]] (%[SIGMA]Fi) (TC) [[euro]] [[euro]]

CU1 1000 21.75% 1957.5 957.50
CU2 2000 23.75% 2137.5 137.50
CU3 4000 22.75% 2047.5 -1952.50
CU4 2000 14.25% 1282.5 -717.50
CU5 1000 17.50% 1575.0 575.00
[SIGMA] 10000 100% 9000.0 -1000

Tab. 7. Shares of the respective CUs in Product Expended
Costs (corresponding to Tab. 1)

Constructional Units (CU) Shares in Expended Costs (C)
CU1 %[C.sub.1]
etc. etc.

Tab. 8. Values of the respective CUi (corresp. to Tabs. 2 - 4)

CU [Q.sub.J] C V

CU1 [Q.sub.J] [C.sub.1] [V.sub.1]
etc. etc. etc. etc.

Tab. 9. Calculations of the TCIs (comp.to Tab.5)

 Share of Share in Target Costs
 Value Usefulness Exp. Costs Index
CU (%[V.sub.Prod]) (%C) (TCI)

CU1 %[V.sub.1] %[C.sub.1] TC[I.sub.1]
etc. etc. etc. etc.
[n+1.summation 100% 100% --
 over 1]

Tab. 10. Comparison of Real and Target Costs (comp.to Tab.6)

 Usefulness
CU Real Costs (RC) [[euro]] (%[V.sub.Prod])

CU1 [RC.sub.1] %[V.sub.1]
etc. etc. etc.
[n+1.summation [n+1.summation over (1)] --
over (1)] [RC.sub.i ]

 Targ.Costs Costs diff.
CU (TC)[[euro]] (AC) [[euro]]

CU1 [TC.sub.1] [DELTA][C.sub.1]
etc. etc. etc.
[n+1.summation [n+1.summation [[summation].sup.n+1.sub.1]
over (1)] over (1)] [TC.sub.i] [DELTA][C.sub.i]