I'm very impressed with both yours and Luber's comments. That process flow was also very helpful. Out of curiosity, have you deployed target costing with global suppliers? I know that some large Tier 1 automotive companies are having some success with target costing and Chinese suppliers. I'd love to hear your experience with this. Anyone else care to comment?

As a supplier, I believe that target prices can be helpful, especially if I'm trying to support a customer's needs at the lowest possible price. My goal, when given a target for a product is to beat that price by any means possible. The problem occurs, when buyers give you a false target. If I know a part regularly goes for around $5.00 ea, and a buyer gives me a target of say, $1.00, it makes it difficult for me to quote that product. Knowing the market price is $5.00, I would like to be able to quote that person $4.00 if it is within my means to do so. But at that point I am already 400% higher than their projected spending.
To summarize, I think targets are a great reference, when the buyer is honest.

As for leaving money on the table, it is the risk you take, and you have to trust your sources to whom you give these targets. Unfortunately in the electronics industry there are so many opportunists out there, that will take advantage of a buyer and his immediate necessities, that it destroys the integrity of the industry to some degree. I have had experiences on both sides of this coin, and if I were to average them together, I think that knowing the target price has helped me save my customer money more times than not.
If I can't beat a target, (that I know is reasonable) I won't even quote the parts, and tell the buyer to go ahead and use their regular source.

The fear of leaving money on the table is definitely a factor in target pricing. But if I may use a recent example;
I had a customer looking for 100 pieces of a memory module. He gave me a target price (the last time he purchased these items) of 47.99 each. I was able to not only supply the parts, but at a significantly reduced price. I sold him those 100 modules for 38.95 each. Giving him an overall savings of 904.00.
I still made money off the deal, of course, and was able to save my customer a significant amount of money. I understand that this is not applicable in all instances, but at the same time is proof of the value of target pricing. List price for the modules was over 50.00 each, and I could have easily quoted that, or his target. But, why not go the extra mile and support the customer's need while you make money.
I had the manager of a restaurant tell me recently, "I can take your money once, and thats easy. But I want you to come back every day, if not at least once a week. So when you walk through my doors, I'm going to make sure that you have the best possible experience."
Of course not everybody follows these ethics, and it is important to trust your sources when using target pricing. I know that when I purchase components, I am careful about revealing too much information. But when a history of trust has been established, the doors are open to many savings opportunities.
Especially in the business of electronic components. Since there is no set pricing for these parts, and they follow a market trend of supply and demand.
The opposite side of this coin can be seen clearly in the scramble to acquire Burr-Brown components right now. Last year buyers that were paying 3.00 a part, can now see increases of more than 1000%, as they are being bought and sold regularly for 30 dollars or more. Target pricing is out the door on these components. In an instance like that, no matter what you once paid for those parts, you have to weigh the necessity of acquiring that part versus the potential loss by doing so. I would allow my supplier to quote his best possible price, and work from there.
I also have experiences where buyers have set absolutely unreasonable target prices for parts that they require. I have had buyers tell me their target is 0.25 on a 2.00 part. The lack of integrity by buyers in these instances makes it difficult for suppliers like myself to support their needs, as well as initiates a lack of trust between supplier and buyer. It makes my work that much harder, because now I have to do extra research to determine if our cost, and sales margin are withing market value for that product.
So much can be said for, and against using target prices, but as long as both parties involved have a good reputation for trust, then, I believe it can be a successful practice.