Target costing support systems: lessons from leading Japanese companies

Abstract Some Japanese companies, such as Toyota, are now beginning to reassess their use of just-in-time (JIT) production systems. Problems are beginning to emerge, including environmental impacts. Furthermore, while it is recognised that JIT has achieved considerable cost reductions at the production stage, many Japanese companies are looking for cost reduction opportunities in other (earlier) stages of the process of bringing new products to the market. This paper explores the contribution which target costing is making to the cost reduction activities of Japanese companies and describes the information systems which are necessary to support the target costing philosophy. Target costing is not a costing system as such; rather it is an activity which is aimed at reducing the life-cycle costs of new products, while ensuring quality, reliability, and other customer requirements, by examining all ideas for cost reduction at the product planning, research and development process. The support systems described in this paper combine to make target costing a major element of a comprehensive profit management system.