AF ELS Combined Pre-reads


Toyota Motor Corporation: Target Costing System

Value engineering was not purely intellectual work that a design engineer could do at a desk, working from drawings. Instead, value engineering was based on efforts to improve production on the shop floor. It was not effective if production was not well-organized.

From Cost Planning to Mass Production

Because cost planning focused on design, cost planning was effectively finished when the project entered the mass-production stage. Unless something unusual happened, Toyota almost always attained its cost-planning goals. Follow-up studies were done for about a year after start-up to ensure that mass production was going forward at the planned standard cost. The standard cost and target cost for a product were not identical. The target cost was established before all of the details of production were known; therefore, it did not reflect current conditions, such as the going rate for labor and materials or the specific plant in which the vehicle would be manufactured. In contrast, the product's standard cost was adjusted for all these factors. Target cost in cost planning and standard cost for mass production were treated as different standards with different functions. In cost planning, costs were estimated from the cost tables as the sum of the differences between the current and new models, though at this point the planners do not know on which lines the model's production will occur. Standard cost at the mass-production stage changed depending on which production line the product was manufactured and the prevailing conditions at the time. For instance, production on lines working below capacity pushed costs up, while production on lines working at close to full capacity led to the best cost performance. At the cost-planning stage, it was difficult to imagine the details of line conditions for every part and thus accurately to reflect these conditions in cost estimates. At the mass-production stage, the lines that work best under the current circumstances were chosen for production of the new model. ("Best" in this context means at the optimum for the entire company, which was not always optimal for the new model.) Once the lines were chosen based on these criteria, the standard cost was calculated. The production division then began its effort to maintain or even improve on the standard cost. Such improvements were under the auspices of Toyota’s kaizen program.


Made with FlippingBook - Online catalogs