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Le The Genka kikaku, also called DFC (Design for Cost), LCC (Life Cycle Cost), CCO (Target Cost Design), TCMS (Total Cost Management System) or Target Costing, aims to design products with the highest costs. just..

Introduction

Le Genka kikaku, Also called DFC (Design For Cost), LCC (Life Cycle Cost), CCO (Target Costing Design), TCMS (Total Cost Management System) or Target Costing, aims to design products with the lowest costs. The method leads to new relationships between suppliers and customers involved in development.

This practice of cost analysis first appeared in the 1930s for the development of the Ladybug. In order to achieve Adolf Hitler’s target of 990 Deutschmark and to design “the people’s car” , technical alternatives were studied and weighted on the basis of costs 1 . This technique will be found under the term Value Engineering in the United States during the Second World War and will be adopted by the Japanese in the 1960s. Toyota will use this technique for the first time in 1963 under the term Genka kikaku.

Definition of Genka Kikaku

Genka Kikaku is not just a tool for reducing costs. ” It’s about designing and manufacturing a product that meets the market’s expected price, whether or not current processes can do it »2.

Widely used on military equipment and in the aerospace industry, the method leads to continually monitor the probable cost (s) during the development of the product. New development contracts are made with suppliers, who will propose trade-offs between: quality, costs and deadlines.

Classical Approach VS DFC Approach

In the traditional approach of cost reduction, a cost target is set after having made the first prototypes. In the Genkakikaku approach, cost identification is done from the outset, following identification of the client’s needs.

Processus classique

Genkakikaku

This phase of “Identification of minimum price and balance price / expectation ” is specific to this approach, we detail below :

Detail of the phase ;: Identification of the minimum price and balance price / expectation

Step 1 : Establish the target price

The initial step is to set the price / customer target. It’s mainly the work of the marketing department. For this, the work will consist of :

  • Ask potential customers what price they are willing to pay.
  • Evaluate competing products, their prices and estimate costs.
  • Via an analysis of Kano, relate the cost to the type of function.
  • S’appuyer sur le QFD to transform customer expectations into functional and technical expectations.
  • Finally, establish the target cost. Several elements will have to be taken into account as the image, the level of innovation…

Concept of value

The selling price will also depend on the value that our product brings to the customer.

The value depends on many parameters, both objective and subjective: capability, aesthetics…

Attention, the value is not necessarily only a notion of cost.

Etape 2 :Set the target margin

The margin of a product comes from the company’s long-term strategy and short-term financial goals. So the margin will depend on :

  • Historical levels.
  • Level of competition on the market.
  • Long-term profit objective.
  • Sales price target.
  • Real cost.

Etape 3 : Determine target costs

To identify the target costs, the formula is :

Cost Costs = Target Price – Target Margin

However, depending on our situation, we have 2 approaches for calculating :

  • Either from production costs only : in this case, we only look for the target production costs. This is the thinking logic for new versions of products where we have little innovation and little R & D costs. Our production cost is:
  • Cost in production = Price – (gross margin * target price)

  • Starting from the total costs: In contrast to the first method, all the costs are taken into account: from R & D to sales through distribution and production. Our total cost is: 
  • Total cost = price – (margin * target price)

    Step 4: Identify the estimated costs

    From our knowledge, we will identify the estimated cost of each of our product functions.

    Step 5: Identify the gaps

    From all the collected data, we deduce the gap. Priority will be given to the gaps that have the most difference between the target cost and the estimated cost, while having the lowest value for the customer: in short, the parts having little value for the customer are having a real cost. higher than the target cost.

    The Table of Assignment of Costs in Functions

    This table allows us to represent on one side the costs, on the other the importance of the function vis-à-vis the customer. here is an example

    Understandably, we should allocate more resources for functions with high value for the customer and vice versa. As a result, this array must have a pyramid shape.

    Step 6 : Achieving our target cost target

    At this point, we know where to work, we will continue our study and ” attack” the costs according to 2 ways:

    6.1 : Cost analysis

    Called CCR, this analysis aims to compare costs of functions and value regarding the customer. For that :

      1. Cut out each of the functions in pieces
      2. For each part, identify direct costs (materials used, labor …) and indirect costs via preferably the ABC method of cost allocation.
      3. For each piece, construct the function Cost = a + b * X with a fixed costs and b variable costs.
      4. Calculate the “weight” of each part in relation to the cost of the entire product.
      5. Calculate the Value Index : Value Index = cost of the function * relative importance (F1 of the QFD))
      6. Build the Cost Analysis Table and identify the actions.

    Part X

    Part Y

    Part Z

    Relative importance regarding the customer (QFD F1)

    10%

    5%

    2%

    Relative cost of the part regarding the whole

    5%

    20%

    10%

    Value index

    5% * 10% = 0,005

    20% * 5% = 0,01

    10% * 2% = 0,002

    Action to be performed

    v.

     

    6.2 : Put in place Genkakaizen

    This phase of cost reduction aims to use known methods of product design and reduction of production costs (Lean, DFA, DFM, QFD…), to implement the best design and production choices.

    Le Genkakikaku : a question of philosophy

    Genkakikaku is above all a question of philosophy. She asks :

      • Mutual trust : Always in a long-term working desire, cost reduction should not go through a shopping war near at all from suppliers.
      • Cost Management : cost management is essential in Japanese culture for process control. Everything is measured, monitored … to provide reliable data and to make the right decisions.
      • Information : Collection of customer information, classification, prioritization … are key points of the design. Special attention is given to this point and aims to collect as much data as possible.

    LCC – Life Cycle Cost

    LCC consists of 2 costs :

    • Design Costs: Design, testing, proto…
    • Usage costs : maintenance…

    Project cost management

    During the project, the managers must put in place cost control tables to make a point on the progress in economic terms of the project. An example :

    1

    2

    3

    4

    5

    6

    7

    8

    9

    10

    Code

    Task

    Initial budget

    Cost of changes

    Revised budget

    Engaged

    Physical progress

    Budget at the end of the project

    Still to engage

    Expected difference realized

    Validated by the client = 3+4 Measured Measured Estimate of the project manager = 8-6 = 8-3

    Source

    1 – F. Rösler (1996) – Target costing für die automobilindustrie

    2 – T. Hiromoto (1988) – Another hidden edge – Japanese management accounting

    P. Feil, K-H Y, I-W Kim (2004) – Japanese target costing : a historical perspective

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