Name: Darshil R Gudhka
Roll number: 40
PGDM E- Business
1. What is the competitive environment that creates the range of products sold?
• The dynamic external system in which a firm competes, and works is known as the
competitive environment. The environment in which one competes becomes more
competitive when there are more suppliers of a similar product or service.
• It is a system in which multiple firms compete by employing various marketing channels,
promotional techniques, and price approaches, as well as assisting in the development of a
product line.
• In Nissan's instance, the competitive climate was largely determined by changes in
customer preferences.
• Their focus was on continual improvement in operations to get a larger part of the market,
as well as focusing on customer happiness in order to carve out a niche in a crowded industry
by providing items tailored to their target's tastes.
2. How does Nissan determine its future product mix?
There are three primary approaches used:
• A product matrix depicting the variety of items the firm wished to offer in the following ten
years. By main market and body type, Matrix was described in a matrix.
• Market research organisations conducted consumer study on a variety of factors in order to
obtain customer input on their desires. This aids Nissan's vehicle planning. • Consumer
mindsets were elicited in order to determine how they want their automobile to be, as well as
what features and designs, they desire.
3. Describe Nissan’s cost system. Is it strong enough to support its target costing
system?
Nissan’s cost system was based on the production cost system which divides the cost
into 2 subjects: direct and indirect expenses.
They also calculated product profitability using direct material marginal profit,
product contribution and operating profit. These ratios were used for long range
strategic planning, for cost control and to select the product mix and identify
unprofitable variants for discontinuance.
The cost system underwent constant modification to ensure that the target-based
costing to maintain profitability was adhered to.
4. What is value engineering and how it is used in Nissan?
Value engineering is a systematic, organized approach of providing necessary functions
in the project at the lowest cost.
It is used in Nissan in the conceptual design stage to determine the excess of current
manufacturing costs over the allowable costs and then in product development stage to
identify the allowable costs for each of the component in every major function of the
automobile.
5. What is target costing?
In target costing product cost is determined by market price in order to be a price taker
rather than price maker and ultimately reducing product cost over its lifetime
Target selling price for each model is established
Then target margins are decided based on corporate profitability objectives
Finally, target cost was identified as a difference between target selling price and
margins.
6. What role does the consumer play in the target costing system?
Target costing system works on customer preferences and need to design, develop and
manufacture a product.
So, here customer help set the required level of functionality of a product according to
the given price.
7. What role does the consumer play in target costing system?
Target cost is fundamentally consumer-focused due to its focus on the competitive
market.
The business must identify the margin it needs to get the maximum acceptable cost
for the product and its variants.
It plays a multidisciplinary, multifunctional role and is integral to the business model
that generates
value for consumers.
It is important to partner with all the disciplines involved and to understand the
impact of decisions made to achieve target costs on customers.
Hence, we can conclude that it is not just about merely reducing costs but also about
giving value to consumers.
8. How does Nissan determine its target margin for a new product?
The target margin was determined by examining the information on the target
segment, the firm’s future product mix, and the long-term profit objectives that the
firm want to achieve The new model's target margin was decided upon using
simulations using the firm's overall profitability for the next 10 years trying to
understand if the given model would actually sell at desired sales volumes.
The simulations plotted the actual profit margins of existing products followed by the
desired profitability of planned models was then added and the firm's profitability
determined for the years at different sales levels.
The determined overall profitability was then compared to the firm's long term
profitability objectives.
The target margins for each new model were determined post receiving a satisfactory
future product matrix that achieved the firm's profitability goals.
9. What role does profitability play in the Target Costing System?
First stage of value engineering determines whether new model could be
manufactured at acceptable profit
Current cost compared with models allowable cost to determine the level of cost
reduction required to achieve desired level of profitability
Higher the targeted profitability margin - lower the target cost & vice versa
10. What is the role of suppliers in Target Costing?
Provided with a description of each component and their potential production volume.
Expected to provide price and delivery estimate for each part of the product
Asked to generate cost reduction ideas & an incentive plan to motivate them.
Target costs compared to the prices quoted by the suppliers.
Inflation or other factors caused cost to rise- suppliers were pressurized to keep
component cost at their final target level.
11. Why is the accounting role so limited?
Accounting Team’s primary responsibility - determine the final selling price for new
model
Duty was to only set the final target cost and the selling price of every model.
Beginning of the production model - report deviation - target cost and actual cost.
More of monitoring than evolution because engineering team rectified using the
Value engineering Process
12. Why is there no attempt to reduce the cost of vehicles after it enters production?
Offsets caused by disturbances could exceed the incremental savings to the
production process.
Protocol of Nissan - unless the production cost exceeded the target cost, no efforts to
be put in order to reduce the cost further.
13. What barriers exist for introducing target costing into western companies?
No negotiation between marketers, designers and engineers.
Periodic cost reduction instead of continuous cost reduction.
Only return to the design phase when the cost is too high.
14. What barriers exist for introducing target costing into western companies?
No negotiation between marketers, designers and engineers.
Periodic cost reduction instead of continuous cost reduction.
Only return to the design phase when the cost is too high.
