Benchmarking as Cost Mgt Technique
The rapid evolution of the corporate environment necessitates the implementation of new strategies,
techniques, and measures in order to address the challenges of the fast moving environment and obtain
a competitive advantage (Hayes et al., 2005). Many organizational theories, improvement techniques,
and methodologies have been developed in response to these demands (Yasin, 2002). Benchmarking is
amongst such developments (Cook, Seiford, & Zhu, 2004) that should be closely related to
environmental change and those traditional approaches to business improvement (Neely et al., 2001).
Benchmarking has grown in popularity and is now one of the most widely utilized cost management
techniques (Chen, 2002). It is widely used as a tool to improve performance (Yasin, 2002), significantly
improve the efficiency of developing new products by eliminating the need for trial and error (Hong et
al., 2014), as well as increasing client satisfaction (Brah, Lin Ong, & Madhu Rao, 2000).
Benchmarking, according to Kumar, Antony, and Dhakar(2006), strives to improve an organization's
performance by recognizing, understanding, and applying effective practices from other businesses..
Moreover, it is seeking to find best practice and then trying to apply to achieve the organization's goals.
In addition, according to Maire, Bronet, and France (2005), benchmarking strives to compare and
contrast specific defined areas of organizational performance with others, allowing businesses to
discover gaps and weaknesses and take necessary remedial action.
Benchmarking isn't just about making improvements; it's also about adding value to the organization. In
other words, if the benchmarking activities do not add any value to the organization, they should be
discontinued (Mollaee, Rahimi, & Tavassoli, 2009). Furthermore, comparing data and copying the best
practices from other organizations are not considered as benchmarking. Instead, benchmarking is a
broad process that seeks to know strengths and weaknesses in organization to apply the best practices
that are learned from other organizations (Camp, 1989).
Hayes, R. H., Pisano, G. P., Upton, D. M., & Wheelwright, S. C. (2005). Operations. Strategy and
Technology: Pursuing the Competitive Edge.
Yasin, M. M. (2002). The theory and practice of benchmarking: Then and now. Benchmarking: An
International Journal, . http://dx.doi.org/10.1108/14635770210428992
Cook, W. D., Seiford, L. M., & Zhu, J. (2004). Models for performance benchmarking: Measuring the
effect of e-business activities on banking performance. Omega.
http://dx.doi.org/10.1016/j.omega.2004.01.001
Neely, A., Filippini, R., Forza, C., Vinelli, A., & Hii, J. (2001). A framework for analysing business
performance, firm innovation and related contextual factors: Perceptions of managers and policy
makers in two European regions. Integrated Manufacturing Systems
http://dx.doi.org/10.1108/09576060110384307
Chen, H. L. (2002). Benchmarking and quality improvement: A quality benchmarking deployment
approach. International Journal of Quality & Reliability Management.
http://dx.doi.org/10.1108/02656710210429609
Hong, S. M., Paterson, G., Mumovic, D., & Steadman, P. (2014). Improved benchmarking comparability
for energy consumption in schools. Building Research & Information.
http://dx.doi.org/10.1080/09613218.2013.814746
Brah, S. A., Lin Ong, A., & Madhu Rao, B. (2000). Understanding the benchmarking process in Singapore.
International Journal of Quality & Reliability Management.
http://dx.doi.org/10.1108/02656710010306157
Kumar, A., Antony, J., & Dhakar, T. S. (2006). Integrating quality function deployment and benchmarking
to achieve greater profitability. Benchmarking: An International Journal.
http://dx.doi.org/10.1108/14635770610668794
Maire, J. L., Bronet, V., & Pillet, M. (2005). A typology of "best practices" for a benchmarking process.
Benchmarking: An International Journal. http://dx.doi.org/10.1108/14635770510582907
Mollaee, N., Rahimi, R., & Tavassoli, S. (2009). Conforming benchmarking to project management. In
Proceeding book of the 5th International Conference on Innovation and management, UNU-MERIT,
Maastricht
Camp, R. C. (1989). Benchmarking-The Search for Best Practices that Lead to Superior Performance.
Quality Progress.
It's a tool that companies use to learn best practices from other businesses in order to improve their
own performance and stay on track. To put it another way, businesses can enhance their performance
by learning from other organizations, whether they are similar or not. (Watson, 1993; Whiting, 1991).
In industry, it has become widespread as a business method consisting in “searching for best practices
that lead to superior performance” (Camp, 1989)
Watson, G. H. (1993). How process benchmarking supports corporate strategy. Planning Review, 21(1),
12-15.
http://dx.doi.org/10.1108/eb054395
Whiting, R. (1991). Benchmarking: Lessons from best-in-class. Electronic Business, 17(19), 128-34
Target Costing as Cost Mgt Technique
Target costing was originally used as a cost-management strategy in operations in Japan in the 1960s.
Since the early 1990s, it has been regarded as an important instrument for increasing competitiveness
(Ellram 1999). Target costing is introduced as a technique that aims to manage product costs throughout
the design stage. It is a vital tool for manufacturers to maintain their overall efforts to remain cost
competitive while satisfying client requirements and demands (Ellram 2000). It is a costing process for
determining the selling price that customers are willing to pay for a specific level of product quality.
Target costing is a reverse costing methodology that uses the selling price and needed profit margin to
establish the acceptable cost for manufacturing a new or current product (Dekker and Smidt
2003).Target costing, in contrast to traditional costing, determines product costs based on market price
information. It employs client requirements received from the market in addition to price information.
Target costing, in contrast to traditional approaches, considers product cost as an input rather than an
output of the product development process (Cooper and Slagmulder 2000).
Target costing is a product development process, according to Borgernas and Fridh (2003), since it
examines all elements from market price to product design. 'Target costing aims to predict expenses
before they are incurred, optimizes product and process designs on a continuous basis, and externally
focuses the business on customer needs and competitive threats' (IMA 1998). As a proactive costmanagement tool, it necessitates ongoing market research, including price considerations and trend
changes, in order to comprehend target customers' perceptions of quality and functionality, as well as
the price they are prepared to pay for desired characteristics. Furthermore, target costing addresses
concerns such as profits and mark-up (percentage) policies, as a fair level of operational profitability is
critical for a company's competitive survival. Furthermore, because of its ongoing and dynamic
character, target costing helps to preserve market share and profitability.
Finally, target costing, as stated in the IMA report (1998), is an integrated approach to product design
and development that entails active and ongoing participation of personnel from various departments
inside SMEs. Target costing is not just a cost-management technique, but a strategic management tool
involving other useful managerial tools and practices such as quality function deployment (QFD) and
value engineering (VE). Customers, engineers, designers, accountants, and salespeople should all work
together as part of a multi-functional team. This means that target costing isn't a procedure that only
management accountants are concerned with. Target costing demands active teamwork and support
from all members of the organization to be executed effectively. It is best executed by a team that
strives to produce the appropriate degree of quality and functionality while maintaining reasonable
price (Cooper and Chew 1996).
Ellram, L.M., 1999. The role of supply management in Target costing, [online] CAPS Research, A Global
Research Center for Strategic Supply Management. Available from:
http://www.capsresearch.org/publications/pdfs-public/ellram1999es.pdf
Ellram, L.M., 2000. Purchasing and supply management's participation in the Target costing process. The
Journal of Supply Chain Management
Dekker, H. and Smidt, P., 2003. A survey of the adoption and use of Target costing in Dutch firms.
International Journal of Production Economics
Cooper, R. and Slagmulder, R., 2000. Develop profitable new products with Target costing. IEEE
Engineering Management Review
Borgernas, H. and Fridh, G., 2003. The use of target costing in Swedish manufacturing firms
Available from: http://www.handels.gu.se/epc/archive/ 00003329/01/03-04-3D.pdf
IMA., 1998. Statement on management accounting, implementing Target costing, Montvale, from:
https://www.imanet.org/secure/SMA%204GG%20FINAL-ToolsTechTargetCosting.pdf
Cooper, R. and Chew, W.B., 1996. Control tomorrow's cost through today's design. Harvard Business
Review
Value Chain as Cost Mgt Techniques
The business of every firm is made up of a series of operations that are carried out in the course of
creating, producing, marketing, delivering, and supporting its product or service. The value chain of a
firm is the interconnected set of value-creating activities that the company does internally. Because a
markup over the cost of performing the firm's value-creating activities is customarily included in the
price (or total cost) borne by buyers—a fundamental objective of every enterprise is to create and
deliver value to buyers whose margin over cost yields an attractive profit margin—the value chain
includes a profit margin (Thompson, Gamble and Strickland,2005).
The major aspects of a company's cost structure are revealed by disaggregating its operations into core
and secondary activities. Each activity in the value chain generates costs and ties up assets; allocating
the company's operational costs and assets to each activity in the chain generates cost estimates and
capital requirements. The internal cost structure of a corporation is defined by the total costs of all the
various operations in its value chain (Thompson, Gamble and Strickland,2005).
Thompson, A., Jr., Gamble, J., E. and Strickland, A., J. (2005), Strategy: Winning in theMarketplace,
Second International Edition, New York: The McGraw−Hill Companies