Supply management's involvement in the target costing process

Abstract

This article investigates the role of purchasing/supply management in the target costing process. It is based on case studies of eleven firms that use target costing. In addition to exploring the role of purchasing, purchasing's interface with suppliers was investigated.

Research results indicate that supply management plays a substantial role throughout the target costing process. Its contribution is particularly critical at the initial stages, when developing component level target costs, and when activities/modifications are occurring to achieve target costs. Supply management also plays a lead role in managing, monitoring and improving costs.

Importantly, there is no single function that is more important than others in target costing. A cross-functional team approach, including suppliers, is critical to the long-term success of target costing efforts.