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Book part
Publication date: 29 March 2016

Marc Wouters, Susana Morales, Sven Grollmuss and Michael Scheer

The paper provides an overview of research published in the innovation and operations management (IOM) literature on 15 methods for cost management in new product…

Abstract

Purpose

The paper provides an overview of research published in the innovation and operations management (IOM) literature on 15 methods for cost management in new product development, and it provides a comparison to an earlier review of the management accounting (MA) literature (Wouters & Morales, 2014).

Methodology/approach

This structured literature search covers papers published in 23 journals in IOM in the period 1990–2014.

Findings

The search yielded a sample of 208 unique papers with 275 results (one paper could refer to multiple cost management methods). The top 3 methods are modular design, component commonality, and product platforms, with 115 results (42%) together. In the MA literature, these three methods accounted for 29%, but target costing was the most researched cost management method by far (26%). Simulation is the most frequently used research method in the IOM literature, whereas this was averagely used in the MA literature; qualitative studies were the most frequently used research method in the MA literature, whereas this was averagely used in the IOM literature. We found a lot of papers presenting practical approaches or decision models as a further development of a particular cost management method, which is a clear difference from the MA literature.

Research limitations/implications

This review focused on the same cost management methods, and future research could also consider other cost management methods which are likely to be more important in the IOM literature compared to the MA literature. Future research could also investigate innovative cost management practices in more detail through longitudinal case studies.

Originality/value

This review of research on methods for cost management published outside the MA literature provides an overview for MA researchers. It highlights key differences between both literatures in their research of the same cost management methods.

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Abstract

Details

Servitization Strategy and Managerial Control
Type: Book
ISBN: 978-1-78714-845-1

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Book part
Publication date: 23 September 2014

Marc Wouters and Susana Morales

To provide an overview of research published in the management accounting literature on methods for cost management in new product development, such as a target costing

Abstract

Purpose

To provide an overview of research published in the management accounting literature on methods for cost management in new product development, such as a target costing, life cycle costing, component commonality, and modular design.

Methodology/approach

The structured literature search covered papers about 15 different cost management methods published in 40 journals in the period 1990–2013.

Findings

The search yielded a sample of 113 different papers. Many contained information about more than one method, and this yielded 149 references to specific methods. The number of references varied strongly per cost management method and per journal. Target costing has received by far the most attention in the publications in our sample; modular design, component commonality, and life cycle costing were ranked second and joint third. Most references were published in Management Science; Management Accounting Research; and Accounting, Organizations and Society. The results were strongly influenced by Management Science and Decision Science, because cost management methods with an engineering background were published above average in these two journals (design for manufacturing, component commonality, modular design, and product platforms) while other topics were published below average in these two journals.

Research Limitations/Implications

The scope of this review is accounting research. Future work could review the research on cost management methods in new product development published outside accounting.

Originality/value

The paper centers on methods for cost management, which complements reviews that focused on theoretical constructs of management accounting information and its use.

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Article
Publication date: 1 March 2005

Marilyn M. Helms, Lawrence P. Ettkin, Joe T. Baxter and Matthew W. Gordon

The target costing method works “backward” from traditional cost‐plus methods and begins with a targeted sales price for a product. This price is set based on what the…

Abstract

The target costing method works “backward” from traditional cost‐plus methods and begins with a targeted sales price for a product. This price is set based on what the customer is willing to pay. It considers not only the preferred current selling price but also the later life cycle pattern of prices. This technique has key managerial implications. This article considers these implications along with implementation guidelines. Examples of industries successfully using target costing are included. Ongoing controversies concerning where the techniques can best be used are discussed. Further considered are international differences in target costing as well as challenges of global outsourcing along the supply chain. The article ends with implementation challenges, significance for practice, and suggestions for future research.

Details

Competitiveness Review: An International Business Journal, vol. 15 no. 1
Type: Research Article
ISSN: 1059-5422

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Article
Publication date: 2 May 2019

Norhafiza Baharudin and Ruzita Jusoh

Drawing from dynamic capability theory, this paper aims to examine the implementation of target cost management (TCM) in a non-Japanese environment.

Abstract

Purpose

Drawing from dynamic capability theory, this paper aims to examine the implementation of target cost management (TCM) in a non-Japanese environment.

Design/methodology/approach

Based on a case study at Company ABC, an automotive manufacturer in Malaysia, this paper investigates the differences in the TCM implementation process between Company ABC and companies operating in the Japanese business environment. The data were collected through in-depth interviews, direct observation and document reviews.

Findings

Using a single-case study approach, the findings show that although the case company follows similar fundamental steps of TCM as highlighted in the literature, it has modified the detail of the TCM steps to some extent to match with the company’s resources, business processes and strategic routines.

Research limitations/implications

As the study used a single-case study approach on an automotive company, the results cannot be generalized in other settings. The findings give an insight into the TCM implementation in a developing country such as Malaysia. Better understanding of TCM as a business competitive tool may help to promote TCM application in other developing countries. The findings help new potential TCM companies in the same industry to mitigate and leverage the risk of failure in implementing TCM by modifying the TCM implementation process to suit their contextual environments.

Originality/value

This paper attempts to explain in depth the TCM implementation process in the case company and highlights how the dynamic capabilities can cause differences in TCM practices compared to those practiced in the Japanese context.

Details

Qualitative Research in Accounting & Management, vol. 16 no. 1
Type: Research Article
ISSN: 1176-6093

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Article
Publication date: 1 July 2000

Archie Lockamy and Wilbur I. Smith

This article examines the use of target costing as a means to improve the management of supply chains. A discussion of the shortcomings of traditional and activity‐based…

Abstract

This article examines the use of target costing as a means to improve the management of supply chains. A discussion of the shortcomings of traditional and activity‐based cost management approaches to supply chain management provides the basis for exploring the use of target costing within supply chains. Customer requirements and supply chain relationships are identified as key criteria for selecting the most appropriate method of target costing for supply chains. Price‐based, value‐based, and activity‐based cost management approaches to target costing are discussed, and recommendations for their use based upon customer requirements and supply chain relationships are offered. Conclusions are provided on the use of target costing to enhance a supply chain’s ability to improve customer satisfaction.

Details

Industrial Management & Data Systems, vol. 100 no. 5
Type: Research Article
ISSN: 0263-5577

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Book part
Publication date: 10 December 2005

Chao-Hsiung Lee, John Y. Lee and Yasuhiro Monden

In this article, we examine the link between product development organization and target cost management. More specifically, we investigate the interactive effects of…

Abstract

In this article, we examine the link between product development organization and target cost management. More specifically, we investigate the interactive effects of alternative product development organizations, methods for setting target costs, and alternative decision-making authority in assigning targets. Based on the results of a questionnaire survey of Japanese manufacturers, we intend to provide some early evidence on those interactive effects to stimulate further research in this area of target cost management. We find that organizational efficiency is connected with cost reduction performance in target cost management from the two perspectives: (1) the relationship between the simultaneous involvement of project leaders and functional staff and the use of a particular target cost-setting method, and (2) the correlation of the simultaneous project-function involvement with the level of expected cost reduction performance. No particular product development organization shows any preference for the use of a target cost-setting method. The preference, however, is shown clearly when a particular target cost allocation decision authority is aligned with the use of a target cost-setting method. Companies with higher levels of cost reduction performance (expected or experienced) tend to make project leaders and functional staff get simultaneously involved in target cost allocation decisions.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-0-76231-243-6

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Book part
Publication date: 14 July 2006

Robert Kee and Michele Matherly

For firms using target costing, separating decision management from decision control helps to minimize the agency costs incurred throughout a product's economic life…

Abstract

For firms using target costing, separating decision management from decision control helps to minimize the agency costs incurred throughout a product's economic life. Prior literature focuses on decision-management issues related to target costing, such as new product development (i.e., initiation) and production (i.e., implementation). In contrast, this article highlights the decision control aspects of target costing, which consist of ratifying product proposals and monitoring the product's implementation. While products initiated with target costing are chosen because they meet their allowable cost, product ratification requires assessing how well products contribute toward strategic goals, such as improving the firm's market value. To facilitate the ratification decision, this article develops an equation for determining a product's net present value (NPV) based on the same accounting data used during the initiation process. The article also describes monitoring a product's implementation through periodic comparisons to flexible budgets and a post-audit review at the end of the product's economic life.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-84950-447-8

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Article
Publication date: 19 April 2011

Ari Pennanen, Glenn Ballard and Yrjänä Haahtela

Target costing determines the cost of a building before design. The cost of the product is based on the customer's requirements for the product's performance and the…

Abstract

Purpose

Target costing determines the cost of a building before design. The cost of the product is based on the customer's requirements for the product's performance and the customer's willingness to pay for such performance. However, if the designers cannot achieve the target cost, the benefits of target costing are wasted. The purpose of this paper is to describe design steering, a methodology for managing design process to achieve target cost and purposed value for the customer.

Design/methodology/approach

The design steering concept steers the complex design process by knowledge management and rapid cost feedback loops, especially in the very early stages of design. Traditional estimating together with CAD systems cannot produce feedback because of the cumulative nature of design. This paper introduces advanced building information modelling (BIM) that supports project management in cost and quality management. As CAD systems start from zero, this BIM starts from the full content. The BIM constructs all the quantities and costs of the building components before the design starts, basing on the client's needs. The model acts as a “defending champion” in relation to the designer's proposals during the design.

Findings

Design steering concept is already in commercial use with encouraging results. A case study explains how design steering affects to designers' decision making. Design steering has helped mutual understanding between the designers and management enabling to achieve the target cost.

Research limitations/implications

At the moment more transparency on goals, processes and information models of clients, project managers and designers are needed in order to support the commitment process of the participants.

Originality/value

Design process has not been earlier dealt with from top to bottom, but from bottom to top. New BIM technologies enable both perspectives.

Details

Journal of Financial Management of Property and Construction, vol. 16 no. 1
Type: Research Article
ISSN: 1366-4387

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Article
Publication date: 1 September 2006

Patricia Everaert, Stijn Loosveld, Tom Van Acker, Marijke Schollier and Gerrit Sarens

Despite appearing in the literature over 10 years ago as a potentially exciting cost management technique, there is still limited agreement about the nature of target

Abstract

Purpose

Despite appearing in the literature over 10 years ago as a potentially exciting cost management technique, there is still limited agreement about the nature of target costing. The purpose of this study is to explore the characteristics of target costing, and to test whether these characteristics were adopted in three European companies that used target costing.

Design/methodology/approach

This paper draws on case study data, collected at three manufacturing companies (consumer electronics, machinery, and transportation equipment).

Findings

The paper identifies eight characteristics of target costing, based on the early Japanese case descriptions. These characteristics are related to the way a target is set and how progress towards that target is measured. The findings of the case studies confirm these characteristics. However, some differences were found regarding the interpretation of the strict rule that “the target cost cannot be exceeded at product launch”.

Research limitations/implications

The results indicate that future research on the adoption of target costing cannot be disconnected from its characteristics. Further studies might investigate whether degree of openness to suppliers, leadership position, time pressure and position in the supply chain can explain the noted differences in characteristics among companies.

Practical implications

The characteristics identified in this paper provide an aid to researchers and managers considering target costing. Detailed case descriptions provide best practices examples for other companies.

Originality/value

This study is the first empirical paper concerned with describing the typical characteristics of target costing. By exploring the characteristics, we hope to inspire others to further explore this interesting phenomenon.

Details

Qualitative Research in Accounting & Management, vol. 3 no. 3
Type: Research Article
ISSN: 1176-6093

Keywords

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