A stylish car is completed on the production line as a result of the "Why Target Costing" project.
Target costing—known in Japan as Genka Kikaku—was established in Japanese manufacturing in the 1960s. With more than half a century of history, it is one of the most proven management methodologies in industrial operations.
Yet today, target costing is once again drawing intense attention in the automotive industry.
Why?
Because companies now face unprecedented levels of uncertainty:
In this environment, companies can no longer survive without designing profitability in advance. Target costing has evolved from a cost-control tool into a core survival strategy.
Today’s automotive market is characterized by:
Without upfront cost design, companies face serious risks:
Target costing is the only way to break this negative cycle.
OEMs are struggling to protect margins due to tariffs and intensifying competition. As a result:
Future success depends on building cost structures that remain profitable even without price increases.
Electrification has fundamentally changed cost structures:
Simple “unit cost reduction” is no longer sufficient.
What is required is integrated value design that connects:
Function × Performance × Software × Cost
Prices of lithium, cobalt, and nickel fluctuate dramatically within short periods.
Relying on market conditions alone is no longer viable.
Target costing must incorporate from the design stage:
Conflicts, trade frictions, and political instability generate invisible costs such as:
These risks must be embedded into cost planning from the outset.
Modern automotive development requires:
The new mission of target costing is balancing environmental responsibility and profitability.
Today’s consumers compare:
In uncertain demand environments, pricing flexibility is limited.
This makes market-driven target cost design the most powerful competitive weapon.
Despite its importance, execution is never easy.
Manual management has reached its limits.
Ideally, cost planning should be based on platforms and modules.
However, major obstacles include:
Excel-centered management leads to:
This severely limits decision speed.
Many companies underestimate:
As a result, long-term profitability becomes unclear.
Target costing is based on:
Market Price − Target Profit = Target Cost
This requires full organizational alignment.
In reality, companies face:
To overcome these challenges, companies must redesign target costing as an integrated system:
Partial optimization is no longer sufficient.
Target costing must function as a core management process.
This article highlighted the importance of target costing in light of:
In the future, target costing will no longer be a “management technique.”
It will be a corporate strategy.
Breaking away from fragmented and individual-driven practices and integrating:
will determine corporate survival.
Target costing requires:
To make it efficient and transparent, digital platforms are essential.
In the next article, we will explore how SAP enables next-generation target costing and cost planning transformation.
SAP Product Lifecycle Costing for Automotive Suppliers
Parts of this article were developed with reference to generative AI suggestions and were reviewed, refined, and supplemented based on the author’s professional expertise and judgment.
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