By using this technique, Toyota sets goals for cost reduction, and then tries to achieve these new targets through design changes that will accomplish the cost reduction goal. Toyota goes through a vigorous testing phase to judge the costs of the new design in comparison with the old one, in order to guarantee a cost reduction after implementation of the new technique. This is the main idea that Toyota uses to achieve their company wide goals.
Toyota Co made changes to existing automobiles and not the design of new ones.There are several steps in the sequence of price, production, and cost decisions.Toyota first decides what the new retail price of the automobile is going to be by taking the old price and adding the value of any new functions.The sales division comes up with the suggested production volume, by taking past numbers and indexing them to market trends and the state of competitors.After all these figures have been set, the focus switches to cost planning.This cost plan is based on the product plan and the targets for retail price and production volume.Toyota establishes a profit target that is subtracted to determine their target cost. These cost planning decisions are made three years before they release the model.
When Toyota estimates the approximate costs of a