Principal consultant of A T Kearney of Japan, Ken Mori, giving an overview of how cost management techniques have developed in Japan over the years, said tools like value engineering for target costing and the still evolving strategic cost management (SCM) have helped Japanese companies compete effectively in global markets.

Mori said SCM has been adopted by very few companies even in Japan and not only covers cost per product but also the bottomlines of companies because it takes into account the entire spectrum of activities even before the planning process starts.

According to him, because of SCM Japanese companies have changed dramatically from the sixties and moved to the nineties. Most companies have cost managementdivision as a separate division. SCM is now at the centre of all cost management efforts.

Presenting a case study, Mori spoke of the concepts like target profits set by companies like Toyota and Honda for the entire corporation, not just one product or one material. Overheads too were costed. A corporate strategy and corporate targets as well as profits of each product and cost potential of each activity were prepared and all techniques were linked and monitored closely.

Japanese companies call it cost planning which is reckoned as a parallel process to product development. In the overall corporate planning, even mid-term profits are defined and approved by top management. Target costs and target profits too are taken into account by some when framing corporate planning.

Project development costs are set out product by product and targets are set for capital expenditure. In all this cost planning division is closely involved. No single product is determined without proper cost evaluation.

Costmanagement, Mori averred, is a long-term goal. It is aimed at world class development of products. Companies classified as Japan 1 set target of 18 months for product development cycle.

In America, the cycle is 124 months and in Europe it is 27 months. Japan 2 companies target for 18 months but achieve it in 22 months. But these companies are very product oriented and put more emphasis on product strength.

Mori disclosed that Japan 1 companies after achieving completion of product development cycle in 18 months are gunning for completion in 12 months.

In 1993 Toyota for example took 30 months for completion of product development cycle and reduced it to 18 months because of human endeavour not information technology. But now with advances in IT industry the company is trying to complete the cycle more aggressively in 12 months.

Japanese companies also give a lot of weightage to what is called the heavy weight management system. Toyota has 10 chief engineers to head separate product groups and controlentire product performance, quality and costs.

Among the key strategies adopted is to bring about "effective supplier involvement". Nearly 30 to 40 per cent of engineering efforts for the products are done by suppliers who are given all encouragement to develop their own design and engineering for components and parts.

Those designs not selected from a vendor who is one of the many supplier of components for a product find place in the shelf of the OEMs and provide them the basis for a library of ready-made designs for use in other models or products.

But the biggest challenge, Mori admits, is to change the current ways of product development and process management. Cost management has to be instilled among managers even before starting production and after beginning the operations.

It is a continuous improvement struggle and implementation of strategies has become very important to manage costs.

His advice is to bench-mark each area of manufacturing process or products before commencing actualproduction. Supplier management has emerged as a potent force in the cost management effort.