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Target Costing

DFMA generates cost estimates you can believe in and provides a method for meeting cost targets during product development.

Target Costing is a product development process that helps manufacturers create products which are profitable while being sold at a price customers are willing to pay.  The process begins at the earliest scoping stage of product development, before the systems within the new product are defined.  A competitive selling price is determined using input from the customer, market research, or evaluation of a competitor’s pricing.  From this competitive selling price, an expected profit margin is subtracted to yield the target cost for the new product.  In later stages of product development, this target cost is appropriately divided amongst the various systems within the new product and designers are frequently held accountable for meeting their system’s cost target.

DFMA assists the product development team in key areas of Target Costing:

Set system appropriate cost targets
Appropriately setting system cost targets is a unique problem.  Targets that are too high leave profit on the table while targets that are too low are viewed as unachievable and quickly lose credibility.  DFMA can help set these targets appropriately by providing independent true manufacturing cost information even when no historical data exists.  Using DFMA, quick cost estimates can be generated early in product development long before CAD models are created.

Determine if cost targets are met
Later in product development, when the product is better defined, the earlier quick cost estimates generated using DFMA can be refined to reflect changes in the product’s bill of materials.  These DFMA cost estimates can be used to determine if costs targets are met as well as the value of any cost gap.  Systems that come in below target cost can have their quantified surplus redistributed to other systems within the product.  These cost estimates are quite detailed and accurate and can be used to verify supplier price quotes for reasonableness.

Reduce cost to meet targets
DFMA is much more than a simple cost estimating tool; it has also proven useful for cost reduction through product simplification.  DFMA can help optimize selection of material and manufacturing process combinations and quantify the cost associated with detail design decisions so that performance objectives can be satisfied at minimum cost.

When a customer evaluates various products for purchase, cost is quite frequently one of their most important concerns along with functionality and quality.  A Target Costing process that incorporates DFMA can be an important part of a new product development process that improves these three product attributes.

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Additional topics:

Design for Manufacture

Design for Assembly

Design for Environment

Supplier Costing

Target Costing

Concurrent Engineering