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This paper describes “target costing” as a key element of the cost management function utilized by the Purchasing Division of Honda of America Mfg., Inc. and its supply base. The target costing process started in the early 1990s and has steadily improved to a more efficient and effective process. Honda of America's purchasing operation is responsible for approximately 80 percent of the manufactured cost of a vehicle. Thus, effective management of the cost of parts supplied is critical in assuring that products offered to customers in the marketplace are of highest quality, yet at reasonable prices. Successful cost management also has significant impact on the profitability of the company and its suppliers.