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 / First Quarter 1997 / Issue 6(originally published by Booz & Company)


Setting Supplier Cost Targets: Getting Beyond the Basics

Exhibit VIII

The New Cost Estimates: Closer to the Targets

Source: Booz-Allen & Hamilton

The team assessed whether further efforts to drive the individual subsystem targets closer to the value-based targets would be needed, but concluded that the current design was appropriate to the target consumer market. The team agreed that value-analysis efforts after product launch would focus on the remaining gaps and be incorporated into the next version of the product, which would also reflect evolving consumer desires.


Systematically applying all five steps in a product or service development process is rare -- especially when it comes to the steps for developing true value-based targets. Many companies are beginning to apply quality-function deployment techniques that are very effective at capturing and quantifying consumer needs. However, too few push the process far enough to generate value-based cost targets.

We believe that more companies should apply cost targeting systematically with the appropriate mix of techniques. As the case example illustrates, the targeting methodology is straightforward and logical -- though admittedly not simple to apply to complex products. However, even when applied with simplifying assumptions, it provides structure to the process of developing new products. It is an investment that will ultimately lead to better products, prices and margins for both customers and their suppliers.

Reprint No. 97103

Timothy M. Laseter, [email protected]
Tim Laseter is a vice president with Booz Allen Hamilton in McLean, Va. He has 14 years of experience building organizational capabilities in sourcing, supply chain management, and e-business strategy in a variety of industries.

C.V. Ramachandran, [email protected]
C.V. Ramachandran is vice president in the operations practice at Booz-Allen & Hamilton and leads the firm's thinking on the impact of electronic commerce on buyer-supplier relationships.

Keith H. Voigt,

Keith H. Voigt is a senior associate in Booz-Allen's operations management group and has recently transferred from Cleveland to Lima, Peru. Mr. Voigt supports the firm's innovation and strategic sourcing teams. He holds an undergraduate degree in electrical engineering, summa cum laude, from Michigan State University; a certificate in nuclear engineering from the U.S. Navy Nuclear Power School, and an M.B.A. with distinction from the University of Michigan.

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