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Editor's Note: Take a look at our featured best practice, Cost Reduction Opportunities (across Value Chain) (24-slide PowerPoint presentation). Though there are multiple levers to maximizing an organization's profitability, costs are the most directly controllable by any organization. Profitability is being challenged by increased costs, stagnated revenue growth, and increased capital costs in today's economic climate. Therefore, a [read more]
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A commonly quoted statistic is that 80% to 95% of the cost of a product is determined by its design and is therefore set before the item
enters manufacturing. This assumption suggests that the dominant focus of Cost Management should be during Product Development and not during Manufacturing.
However, contrary to a widely held assumption, companies can integrate a variety of Cost Management techniques not only in the design phase but throughout the product life cycle. This is to ensure that there is a substantial reduction in costs. In fact, companies achieving Operational Excellence and competing aggressively on cost might consider the adoption of some form of an Integrated Cost Management Program that spans the entire product life cycle.
An organization must have a good understanding of Integrated Cost Management and the 5 Cost Management Strategies that they can use to reduce costs but still attain the desired level of functionality and quality at the target costs.
The 5 Cost Management Strategies play a crucial role in the company’s integrated approach to Cost Management.
The 5 Cost Management Strategies can be applied throughout the product life cycle with one technique used during the product design and the rest during manufacturing.
Kaizen Costing as known as continuous improvement costing. It is a method of reducing managing costs. Kaizen Costing has a similarity with Target Costing but it also has its differences. (Note: Kaizen is the Japanese term for Continuous Improvement and often tied to the philosophy of Lean Management.)
Both Kaizen Costing and Target Costing can achieve results with lower resources. This is basically their similarity. On the other hand, the differences lie in their usage and involvement.
Target Costing is used on the design stage and requires the involvement only of designers. On the other hand, Kaizen Costing is used during the manufacturing stage and requires high involvement of employees. The general idea of Kaizen Costing is to determine target costs, design products, and process to not exceed those costs.
Interested in gaining more understanding of these Cost Management Strategies? You can learn more and download an editable PowerPoint about 5 Cost Management Strategies here on the Flevy documents marketplace.
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