Target Cost

Target Cost refers to the upper limit of procurement or production cost pre-set by the buyer in foreign trade business based on market research, product positioning, and expected profit. It is commonly used in supply chain management, OEM/ODM cooperation, and project bidding as a benchmark for negotiations with suppliers, design optimization, and cost control. Usage scenarios include: during new product development, the buyer requires the supplier to complete production within the target cost; in long-term procurement agreements, annual cost reduction targets are set. Precautions: Target cost must be based on reasonable data analysis to avoid being unrealistic and unexecutable for suppliers; full communication with suppliers is needed to ensure they understand the cost structure; also, target cost should be distinguished from standard cost and actual cost—the former is an actively set goal, while the latter two are used for budgeting and accounting respectively. Unlike 'cost-plus', target cost is a backward deduction method: first determine the selling price, then the cost, emphasizing market orientation and collaborative cost reduction.