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3, pp 405{411
c Sharif University of Technology, June 2008
Research Note
TARGET COSTING
For more than a decade, target costing has been
recognized as an important tool for lowering costs and
increasing competitiveness [12-14]. The target costing
process is identied by its famous formula as follows:
target cost = target price desired prot:
Figure 3 summarizes the target costing process. Tar-
get Costing should be recognized as a totally new
accounting philosophy. It concentrates on the selling
price of the product from the very beginning phase Figure 3. Target costing process [13].
of the design process. Many rms, especially Toyota,
reported successful application of the target costing
process.
MODEL INTEGRATION
As discussed earlier, each method performs very well
in the area of cost management. Here, an attempt has
been made to incorporate these approaches into the
mathematical programming model, in order to achieve
the benets of each approach. The roadmap for this
integration is shown in Figure 4.
As discussed earlier, it is more benecial to apply
VE at the earlier stage of the design process. The
output of the VE analysis would be some design
solutions. It is proposed to put these solutions into
the second matrix of QFD. Therefore, dierent levels
of the solution exist for each component characteristics
at the House Of Quality (HOQ). HOQ, in this format,
is shown in Figure 5.
It means that the rst column of the matrix is
partitioned into three levels, namely, L11 , L12 and Figure 4. Model integration.
408 F. Jariri and S.H. Zegordi
Another point that should be mentioned here is 4. Industrial design consideration. This TA will per-
concerning the CkL parameters. CkL can be inter- form at two levels:
preted as the price of a specied solution or as the cost =fredesign all features, modify some featuresg
of developing this solution. These two interpretations
of CkL enhance the eciency of the model. L41 L42
C41 = 10000 C42 = 5000;
NUMERICAL EXAMPLE 5. Proper break system. This TA also performs at two
A simple automobile design example was designed to levels:
show the performance of the model. There are ve =fuse ABS system, modify current systemg
customer requirements and six technical attributes as L51 L52
follows: C51 = 5000 C52 = 8000;
Customer requirements:
1. Suitable acceleration, 6. Strength of body. This TA performs at three levels:
=fmodify current structure, redesign structure,
2. Suitable seats, reinforce the structureg
3. Internal Beauty,
4. Fuel Economy, L61 L62 L63
C61 = 5000 C62 = 9000 C63 = 3000:
5. Safety.
Technical Attributes: Voice of Customer or uijk Parameters
1. Proper performance of engine, After the determination of solutions or levels by VE
2. Ergonomical considerations, analysis, at the next step, the voice of the customer,
uikL parameters or the relationship matrix of the HOQ
3. Proper gear box, are gathered as an input for the model. These are the
4. Industrial design considerations, elements of the HOQ matrix, which in the presented
5. Proper break system, model are three-dimension and cannot be represented
as surface.
6. Strength of body. u111 means that, for the rst (i = 1) customer
For each technical attribute, VE analysis is used requirement, if one uses the rst (k = 1) TA and if it
to identify dierent solutions or, in other words, dif- performs at the rst (L = 1) level, then, the customer
ferent levels. For instance, in this case, for the rst satisfaction would be u111 . In this case:
technical attribute (proper performance of engine), the
solutions are to use either a 1600 cc engine, a 1800 i=1 ! suitable acceleration,
cc engine or a 2000 cc engine. In the same manner, k=1 ! proper performance of engine,
dierent levels (solutions) for each technical attribute
were categorized as follows; parameter CkL , for each L=1 ! use 1600 cc engine.
level of TA, will also be identied:
1. Proper performance of engine Then, the customer expresses his desire for in-
= f1600, 1800, 2000g stance 9, then u111 = 9.
Other uikL also would be identied by the cus-
L11 L12 L13 tomer. For the present example, the value of uikL is in
C11 = 5000 C12 = 8000 C13 = 10000; Appendix A. When there is a strong positive relation
between the second and fourth TA, then
i24 = 9,
2. Ergonomical consideration for all i. In this case, the customer weights for his
= fuse external consultant, use current modelg preference are:
L21 L22 (w1 ; w2 ; w3 ; w4 ; w5 ) = (4; 3; 3; 4; 5):
C21 = 15000 C22 = 0;
The complete mathematical program for the example
3. Proper Gearbox is in Appendix B.
=fOptimization of Gearbox, use current Gearboxg Dierent target costs for the problem were exam-
ined and dierent solutions were achieved, as shown in
L31 L32 Table 1. For each TA, the solution shows which level
C31 = 10000 C32 = 0; should be chosen to maximize customer satisfaction.
410 F. Jariri and S.H. Zegordi
Each row in Table 1 shows the answer for associ- quirements during the QFD planning process", IIE
ated target cost. It means that, if one has the target Transaction, 25(3), pp 59-65 (1993).
cost of 40,000, then, the rst TA should perform at 3. Fung, R.Y.K., Tang, J., Tu, Y. and Wang, D. \Fuzzy
level one, the second TA should perform at level two nancial optimization in product design using quality
and so on. function deployment", International Journal of Pro-
duction Research, in press (2000).
4. Cooper, R. and Slagmulder, R., Target Costing and
MODEL ASSUMPTIONS Value Engineering Productivity Press, Portland , OR,
USA (1997).
The assumption for the mathematical model is to as-
sume that the VE analysis generates dierent discrete 5. Younker, D.L., Value Engineering: Analysis and
Methodology, New York, Marcel Dekker (2003).
solutions. This assumption is not severe in practice and
does not limit the application of the model very much. 6. Dekker, H. and Smidt, P. \A survey of the adoption
and use of target costing in dutch rms", International
For future work, the same procedures that were Journal of Production Economics, 84(3), pp 293-305
applied for the second QFD matrix can be applied for (2003).
the third QFD matrix. In this scenario, the output of 7. Cavalieri, S., Pinto, R. \Parametric vs neural network
VE analysis is a dierent distinct production process models for the estimation of production cost", Inter-
and, therefore, the mathematical model can be used national Journal of Production Economics, 91(2), pp
as a \Process Selection" tool and the result would be 165-177 (2004).
useful accordingly. 8. Kulmala, H. \The role of cost management in network
relationships", International Journal of Production
Economics, 79(1), pp 33-43 (2002).
CONCLUSION
9. Benner, A.R. and Linnemann, F. \Quality function
It was proposed to incorporate three approaches, called deployment (QFD){Can it be used to develop food
QFD, VE and TC, into a mathematical model. It was products?", Food Quality and Preference, 14(4), June,
shown that with a reasonable amount of computational pp 327-339 (2003).
eort, one can achieve the best arrangement of TAs. 10. Elias, S. \Value engineering. A powerful productivity
If the methods perform the problem one-by-one, then, tool", Computers Industrial Engineering, 35(3-4), pp
there is a chance of an under-optimality condition 381-393 (1998).
because the methods interact with each other and aect 11. Cheah, C. and Ting, S. \Appraisal of value engineer-
the parameters of the problem. This incorporating ing in construction in southeast asia", International
overcomes this drawback. Journal of Project Management (2005).
It is proposed that the second matrix of QFD is 12. Baker, W.M. \The missing element in cost manage-
the best choice for applying the VE approach. In future ment competitive target costing", Industrial Manage-
ment, 37(2), pp 29-32 (1995).
work, an analysis of how the VE approach could be
applied for the third and fourth matrix of QFD could 13. Ellram, L. \Supply management's involvement in the
be undertaken. target costing process", European Journal of Purchas-
ing and Supply Management, 8(4), pp 235-244 (2002).
14. Brash, M. \Target costing for prole enhancement",
REFERENCES Management Accounting, 11, pp 45-49 (1995).
15. Pearson, K., Alidaee, B., Rego, C. and Kochenberger,
1. Bode, J. and Fung, R.Y.K. \Cost engineering with G. \Using quality function deployment in NAVY man-
quality function deployment", Computers and Indus- power planning", A Supply Chain Management Ap-
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An Integrated Framework in Design Cost Management 411
u111 = 1 u112 = 9 u113 = 3 u131 = 9 u132 = 1 + 9x21 x42 + 9x22 x41 + 9x22 x42 ;
u221 = 9 u222 = 1 u241 = 9 u242 = 3
u321 = 9 u322 = 1 u341 = 9 u342 = 1 y3 = 9x21 + x22 + 9x41 + x42 + 9x21 x41
u411 = 9 u412 = 1 u413 = 1 u431 = 9 u432 = 1
u551 = 9 u552 = 3 u561 = 1 u562 = 3 u563 = 3 + 9x21 x42 + 9x22 x41 + 9x22 x42 ;
All other uijk are 0. y4 = 9x11 + x12 + x13 + 9x31 + x32 + 9x21 x41
+ 9x21 x42 + 9x22 x41 + 9x22 x42 ;
APPENDIX B
y5 = 9x51 + 3x52 + x61 + 3x62 + 3x63 + 9x21 x41
max Z = 4y1 + 3y2 + 3y3 + 4y4 + 5y5 ;
+ 9x21 x42 + 9x22 x41 + 9x22 x42 ;
S.t.
5000x11 + 8000x12 + 10000x13 TC1 ;
x11 + x12 + x13 = 1;
15000x21 TC2 ;
x21 + x22 = 1;
10000x31 TC3 ;
x31 + x32 = 1;
10000x41 + 5000x42 TC4 ;
x41 + x42 = 1;
5000x51 + 8000x52 TC5 ;
x51 + x52 = 1;
5000x61 + 9000x62 + 3000x63 TC6 ;
x61 + x62 + x63 = 1;
TC1 + TC2 + TC3 + TC4 + TC5 + TC6 30000;
y1 = x11 + 9x12 + 3x13 + 9x31 + 1x32 + 9x21 x41
xkL 2 f0; 1g
+ 9x21 x42 + 9x22 x41 + 9x22 x42 ;