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Benz Case

MB faced difficulty controlling costs and keeping up with customer needs in a changing market. It reacted by developing its own all-activities vehicle (AAV) to compete in the growing sports utility segment. MB involved customers, suppliers, and designers extensively in developing the AAV to meet expectations and make profits. MB competes by differentiating factors like safety, comfort and styling across systems. The AAV project helps MB expand into new market segments like sports utility vehicles, in line with its market coverage strategy. MB calculates a component importance index to guide cost reduction decisions, involving customers to assess important factors and functional groups to target for cost savings. MB works with suppliers to estimate costs and meet targets for cost reduction modularly across function groups

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1K views2 pages

Benz Case

MB faced difficulty controlling costs and keeping up with customer needs in a changing market. It reacted by developing its own all-activities vehicle (AAV) to compete in the growing sports utility segment. MB involved customers, suppliers, and designers extensively in developing the AAV to meet expectations and make profits. MB competes by differentiating factors like safety, comfort and styling across systems. The AAV project helps MB expand into new market segments like sports utility vehicles, in line with its market coverage strategy. MB calculates a component importance index to guide cost reduction decisions, involving customers to assess important factors and functional groups to target for cost savings. MB works with suppliers to estimate costs and meet targets for cost reduction modularly across function groups

Uploaded by

BannerLost
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Solution

go to problem
1. What is the competitive environment faced by MB? The competitive
environment was that the company faced difficulty in controlling costs,
material purchasing, and a fast changing market. The needs of the
customer were changing and MB was facing monetary losses. With
regards to the AAV market this was targeted at a segment that was
expanding, the sports utility segment. Jeep, Ford and GM dominated
this. 2. How has MB reacted to the changing world market for luxury
automobiles? MB has reacted by developing its own all activities
vehicle that would compete in the fast growing sports utility segment.
In addition, MB has moved its manufacturing facilities closer to the
market that is the USA. Most, importantly it has become more
customer oriented and has used customer opinions for developing
almost every part of the car. It worked extensively with customers,
suppliers and its designers to develop a car that would not only meet
customer expectations but would also help MB make profits. 3. Using
Cooper's cost, quality, and functionality chart,2 discuss the factors on
which MB competes with other automobile producers such as Jeep,
Ford, and GM. MB competes with other automobile producers by
differentiating its chassis, transmission, air conditioner, electrical
system and other systems. MB tries to develop its product along these
function groups by meeting the categories of safety, comfort, economy
and styling. In other words, MB is using the 'function groups' to meet
the concerns of the customers. MB is trying to differentiate its higher
priced product by positioning itself as better in terms of safety,
comfort, economy and styling.   4. How does the AAV project link with
MB strategy in terms of market coverage? MB strategy in terms of
market coverage is that it wishes to streamline its core business the
AAV project helps MB to streamline its core business. MB strategy was
that it should have additional market share, new segments, and new
niches. MB started developing a new set of products like the C-class,
E-class, SLK, A-class and M-class. To enter into the sports utility
vehicle market MB has used the AAV project. In accordance with the
MB strategy, AAV is expected to get additional market share with the
help of AAV, it expects to enter a new segment that is sports utility
vehicle segment through AAV and it expects to capture a niche for
itself by launching a premium AAV using the brand equity of MB. 5.
Explain the process of developing a component importance index. How
can such an index guide managers in making cost reduction decisions?
First, the potential customers were asked to consider the factors that
were important in the purchase of vehicle and the most important
rankings were tabulated as categories. Each category was given an
importance weight that was converted into a relative percentage. For
this calculation, the customers, suppliers and designers were
consulted. The target cost was calculated by first creating five
functional groups that is Chassis, transmission, air conditioner, electric
system and other function group. Each was allotted a percentage of
target cost. For example, the chassis was allotted 20% of the target
cost. Again potential customers were used to correlate the degree to
which each function group correlated to customer requirements. A
percentage was allotted to each category.  For, example chassis
contributed to 50% of the safety requirements. Finally, these
percentages were multiplied by the relative percentage allotted to each
category by the customer and results were added across each function
groups.  For, example when the chassis functional group was
multiplied by each relative percentage allotted and the sum was added
the sum was 0.33. This is the importance index of chassis. 6. How
does MB approach cost reduction to achieve target costs? MB
approaches cost reduction by first ascertaining through the suppliers
and designers to estimate the percentage of total cost for each
function group.  The basis of cost reduction was that the customer
group rated the importance of each of these functions and then the
target cost was modified to meet customer expectations. The basis of
MB's cost reduction was to use a modular construction process. First
tier suppliers provided the systems; this gave the company bargaining
power with its suppliers. 7. How do suppliers factor into the target
costing process? Why are they so critically important to the success of
the MB AAV? The product and manufacturing costs can remain close to
the projections or can change dramatically depending on the suppliers.
Most importantly, cost reduction targets had been set for every
function group like doors, sidewall and roof, electrical system,
bumpers and so on. If the suppliers did not cooperate and did not
supply high value-added systems then the entire project of AAV would
falter. MB expected that the suppliers would meet their cost targets.
This is why their role is so important.

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