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Toyota Motor Corporation: Target Costing System
Design Policy and Cost
There were more opportunities for cost reduction during product planning than during the actual development stage. These opportunities varied, depending upon the specific stage of product planning. The turning point was when styling was determined and production of the first prototype was about to begin. Decisions before this point had more effect on cost than those that were made after this point. For example, the Celica line consists of four sister versions -- the Celica, the Corona Exiv, the Carina ED, and Curren. Toyota planned the 1990 models to be mass-produced at the rate of 7,000-10,000 units per month. About 3,000 Celica units were designated for the Japanese market; the rest, more than twice that number, were for export. The three versions look quite different, but they have much in common in the engine and chassis. Differentiating the versions while using as many common parts as possible was vitally important to the product lineup. Before going into details of design, the components for each car type were identified. The number of different parts required by the new model and the resulting total equipment investment change depended heavily upon the degree to which parts were shared across the different versions of the automobile. Generally, mass-produced parts as opposed to small-lot parts reduced cost. If the three versions share common parts, cost can be calculated based upon production volumes of 20,000 units per month. If each uses certain parts specific to it, the cost will be calculated based upon a volume of 10,000 units. If parts were common across other product lines, additional cost savings were typically achieved. Body styling also had a major influence on cost. Some designs created complex part structures and required higher tolerances, thereby increasing the number of labor-hours required in production. For example, in the early 1990s, a trend had emerged to make the bumper look as if it was an integral part of the body. The space between bumper and body had been reduced from several millimeters to less than a millimeter on recent models to achieve this objective. This change inevitably tightened the required tolerances, thus increasing manufacturing costs. When a certain body style required a cost increase, it was up to the chief engineer to decide how large an increase was acceptable. Determining Components Once the cost-planning goals -- the amounts of cost to be cut -- were distributed to the design division, value engineering began. The designers' top priority was to create high-quality, high- performance products that satisfied the customer. At the same time, they were expected to attain their cost targets. Each design division was responsible for attaining its respective cost reduction goal. The specifics of parts, materials, and machining processes were left to their discretion. Exceptions were made for large, especially costly parts. The chief engineer would sometimes specify cost-reduction targets for specific parts to the related divisions; these targets were set at the same time as the divisional targets. For example, if it is judged that a cost break on a - 3,000-part will contribute significantly to attaining the target goal for the entire model, the chief engineer may ask the related design division for a part-specific cost reduction of perhaps - 500. The design divisions often organized value engineering meetings to help attain their cost goals. At these meetings, the design engineers would discuss how to reduce costs without affecting the new model’s functionality (e.g., reducing the use of expensive materials). Since test parts were developed at about this time, value engineering could be based upon the prototype. Three test models were usually made, which meant that the cycle of drawings, part production, and value Value Engineering
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