Toyota Motor Corporation: Target Costing System
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engineering was repeated three times over a period of about a year. The design was complete when the performance and cost goals were attained. The final mass-production plan was then established.
Value Engineering Methods
Value engineering generally started with performance checks on the test parts. Designs were changed to give the parts their specified performance, neither more nor less. Then discussion turned to possible ways to cut costs while maintaining performance. There were no formulas or manuals for value engineering but there were several areas where it was possible, including:
• Material specifications and consumption;
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Yield;
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Number of parts;
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Ease of work; and
•
Man-hours
For instance, a part might be redesigned so that it contained fewer fasteners. Or a design would be changed to reflect a change in shape that would make production much easier. Special parts would be replaced with mass-produced ones if the final performance was unchanged. Value engineering was undertaken on the basis that a "cost savings of a yen here and a yen there eventually mounted up." Concentrating effort on expensive parts and parts for which cost had increased markedly sometimes works to increase the effectiveness of the value engineering process. The objective was not to change the target cost of the product but to increase the savings achieved from this area of the product. Designers, in order to be effective, must know how their decisions affect costs through material consumption, yield, machining methods, and line time. The best designers were ineffective if they did not fully understand production techniques. Thus, design engineers were expected to work closely with the production divisions to build their practical design skills. About 100 members of the cost planning and accounting divisions (the cost-planning group) were assigned to gauge changes in cost following design modifications. Several were assigned to each product line in order to support the design engineers. These estimators informed designers of the effect on cost of a change in the machining process and the cost per minute of machine time. Cost estimators used cost tables to calculate unit prices for manufacturing. Cost tables were developed for five major production steps: machining, coating, body assembly, forging, and general assembly. Cost tables detailed the machine rates for each step in the production process, including labor, electricity, supplies, and depreciation costs. The exact form of the cost table rate depended upon the type of production step being analyzed. For example, the cost table for stamping contained the cost per stroke; for machining, it contained the cost per machine hour. Cost tables were highly detailed and each production line had its own cost table identifying the cost per stroke of each press. Rather than the basic costs used for budget management, a cost table used for cost planning showed cost per production line, which was manufacturing costs broken down into direct labor costs and indirect line costs. In standard costing, shops or cost centers were groups of two or more lines. Knowing the Effect of Design Changes
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