Purchasing and Supply M anagement's Participation in the Target Costing Process

SUMMARY This article explores the participation of the purchasing and supply management function in the process of target costing. Target costing is an emerging process whereby organizations calculate the allowable cost (i.e., target cost) for buying/producing the product or service they offer for sale by first determining the acceptable selling price in the marketplace and the organization's required internal margin on the product. Based on case studies of organizations that use target costing, this research is both descriptive and prescriptive in nature. The four primary issues addressed in this article are: Why do organizations undertake target costing? Is there a common pattern of participation for the purchasing and supply management function in target costing? What should the role of purchasing and supply management be in the target costing process? How can purchasing and supply management be most effectively involved in the target costing process?