Competitive advantage for the organized sector in India is the need of the hour and many companies in India are going `lean'. Hence, the use of target costing to aid the companies going lean needs to be addressed in a more focused manner. The modifications required in costing strategies, policies and practices are discussed in this article. The article provides an introduction to lean concepts and discusses the impact of target costing on lean. Suggestions and pointers for further study are indicated, which would go a long way in practical sustained implementation of lean practices. A research is also being conducted to study the practices of target costing in India, the number of companies practicing it and the methods that they follow.

Manufacturing and service industries in India have taken to lean concepts and techniques as these provide many advantages. Some of the advantages are: increased productivity, better control on quality, lower cost, and improved employee involvement; all of these, concurrently resulting in greater customer satisfaction. Customers, on the other hand, have become choosy. Unless a company caters to the exact choice of the customer, another crane may catch the fish. Choice of the customer needs to be met by producing a product at his desired quality level, affordable cost and timely delivery, which will give him satisfaction and may lead to repeat purchase. However, for this to result in a sustained competitive advantage, the need for target costing and the corresponding modifications required on the costing policies and practices needs to be examined.

Taichi Ohno first developed the lean concepts at Toyota (Womack, 1998). The principles he developed are applicable, both to the manufacturing and the service sectors (Lakshminarasimha, et al., 2005). To enable a proper perspective on the concepts of lean, an attempt is made to briefly recapitulate them.

Value Stream: The value stream is the list of all the activities/processes required to bring a product or service passing through the critical tasks of problem solving, information gathering, and physical transformation or service compliance, e.g., is the customer for a can of cola really concerned where the metal for the can is mined or the wasteful (MUDA?) transportation it undergoes from the mine to bottler (or rather canner?). Mined in Australia, it is then converted to powdery alumina and transported to Norway or Sweden for smelting into aluminum. From there to Germany to a hot rolling mill and then onwards to England for making the cans. The amount of transportation which goes into the manufacture of Cola cans is literally MUDA. This is depicted in the Figure 1. As depicted, the value stream would include all value-creating activities right from the decisions at the concept stage of the product or service to a cost target, to the processes used to deliver it to the end customer, continued service till the maturity of the product (or till the product is retired, renewed, assigned or extinguished).

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