Target sheets how to#

These include the indirect resources needed to run the plant the amortization of one-off investments in R&D, equipment and tooling, and the effects of currency exchange and taxes. As the validity of the final cleansheet target cost depends fundamentally on the use of a high quality, current source data it is vital that companies trust their chosen data source, and that they understand its limitations.įinally, often using the same databases and tools, overheads are added to the model. Companies may use their own or a commercially-available database to do this. With the process description in place, the third step is the allocation of resource costs for material, labor and equipment.

In other cases they will have to use their production expertise to make estimates for novel production processes or those used by suppliers. Sometimes, companies may be able to use data from their own on-going manufacturing activities here, or from their experience with similar parts. This detail includes raw material requirements obtained from a product’s bill-of materials, and, for each production step, the equipment and tools used, staffing requirements, cycle time, scrap and rework rates.

The second step is to populate that outline with the detail required to bring it to life. This may be known, in the case of products already being manufactured within a company’s own facilities, or it may be hypothetical in the case of products not yet in production or manufactured elsewhere. The first step in the process-the creation of the basic outline of the story-is visualizing the manufacturing flow.

Target sheets how to#

The skill in building an effective cleansheet, is understanding where and how to find the vital missing information, and making educated assumptions for the rest. Just like a historian, or a journalist working on a story, the team responsible for the cleansheet cost model may have to cope with varying amounts of primary evidence on which to base that story. Cleansheet cost transparency helps companies to generate ideas for design and process improvements, for example by adopting a different process flow, production technology or manufacturing footprint.īuilding a cleansheet is like telling the story of the journey of a product under ideal conditions through its manufacturing process. Second, because it indicates the principal sources of product cost. First, they provide a “should cost” figure for a product, allowing purchasing teams to understand how much room they have for negotiation with suppliers, and letting product management staff see whether a proposed design can be sold at an appropriate margin. The calculation starts with a “clean” “sheet” which is populated with a fully optimized manufacturing scenario, not just the reverse-engineered cost structure of an existing manufacturing process.Ĭleansheet cost models help companies in two basic ways. A cleansheet calculates the cost of each step during the creation of a product, component or service using a database of information on the materials, labor, factory space, equipment, time and energy required to complete each step and the implications for the desired product volumes on the utilization of those resources.Ī “cleansheet” is not only the result of a cost engineering process the name also defines the approach used to calculate target cost. Suppliers rarely want to reveal too much about their own manufacturing processes and costs, for example, and even internally, factory accounting systems often group many activities together into cost centers (for example, “machining,” “heat treatment”) which makes it hard to identify the true costs of individual components or features.īottom-up cleansheet target cost calculations have risen to prominence in recent years as a tool to deliver exactly this information.

Armed with this information, procurement teams can be much smarter in their detailed negotiations with suppliers, engineers can apply their cost reduction efforts where they will have most impact, and product managers can build more robust business cases for the development of new versions or the integration of new features, to name but three examples.Īll too often, however, those actual costs aren’t clear. Decision-making in many business situations is easier if those responsible have a good idea of what a product or component actually costs to make.