Instead of this the last stage is referred to genka kaizen and describes how to improve continuously the cost after a product in introduced in the market.
4.1.1 Stage one - Corporate - wide product planning.
Target costing is directly connected with the organization's strategy. When a new product or change of a product in introduced the impact to the existing product portfolio has to be considered. In particular, the top management of a company has to develop at first a profit plan that extends three to five years. This profit plan includes the expected contribution margin, the marginal income, and the operating profit. The plan is an implemental to ensure that all products are in balance and will generate a positive cash flow currently and in the future (Jahn, Domenico; Krystek, Ulrich).
4.1.2 Stage two - Developing new products.
After the top-management has called for a change or for developing a new product in step one the product planning department requests the engineering planning department to construct a new product or to modify a model.
Often the development department uses value engineering to achieve the established product standards for quality, functionality and target cost. Value engineering is a tool, which examinees all cost factors of a product.
When the product plans are complete they are given to the cost management department and the preliminary analysis is performed. Should the analysis indicate that the product in unlikely to be profitable the engineering department is asked to make cost-saving modification to the product (Jahn, Domenico; Krystek, Ulrich).
4.1.3 Stage three - Determining a new product's basic design.
During stage three the product underlies a grater design specification, a closer performance and cost valuing. The product development manager is responsible for the integration and communication among the different departments. He requests each department to review the material requirements, manufacturing processes and estimated costs of the new product to generate new ideas.
