Week 7 Homework 8-47 Mercedes Benz

a) What is the competitive environment faced by MB as it considers

launching the AAV?
Mercedes Benz was faced with an environment that was primarily dominated
by Jeep, Ford and GM. Fortunately, this market was still considered newly
introduced and growing with opportunities to create a niche within the highend vehicle segment.
b) How has MB reacted to the changing world for luxury automobiles?
During the early 1990s, Mercedes Benz struggled to keep its production
costs low while searching for new market opportunities. So in order to avoid
a total collapse of the company, it restructured and streamlined its entire
core business, reduced parts and system complexity, and established
simultaneous engineering programs with suppliers. Once Mercedes Benz
successfully aligned itself with the current market trends, it was able to
introduce several new lines of automobiles. Additionally, it expanded
production and built a new facility in the United States.
c) Using Coopers cost, qualities, and functionality chart, discuss the
factors on which MB would have to compete with other automobile
producers, such as Jeep, Ford, and GM.
When a customer purchases a Mercedes Benz, he is expecting high-end
luxury from the comfort of the seats to the way in which it drives on the road.
In order to compete against other automobile manufacturers, Mercedes Benz
can use the costs, qualities, and functionality charts in order to see what
aspects matter most to potential customers. According the charts in the text,
MB can focus on the function groups that customers expressed the most
demand as a requirement in their vehicle. By using their requirements as a
baseline, MB can then focus on exceeding those expectations.
d) How does the AAV project link with MBs strategy in terms of market
coverage?
The AAV project links very well with MBs market strategies. When MB was
introducing new products in the 1990s, it was discovered that an emerging
market was available to enter. This market was the SUV market that Jeep,
Ford and GM were already present. By offering these vehicles, MB was also
able to expand its market coverage to the United States.

e) Explain the process of developing an importance index for a function

group or component. How can such an index guide managers in
making cost reduction decisions?
To develop an importance index for a function group or component, an entity
must first develop a list of product components and functions and their cost
contribution to the product. Secondly, the firm must determine the relative
importance of customers requirements. This step is very important in order
to receive the proper feedback to make decisions. Once customer responses
are analyzed, the firm can develop a relative functional ranking on the
function components of the product.
f) How does MB approach cost reduction to achieve target costs?
Mercedes Benzs approach is to use fewer suppliers that offer more
components to their vehicles rather than having a large amount of suppliers
that supply fewer components. This strategy promotes a streamlined supply
and logistics process that in turn results in lower costs. It must be noted
that MB does not strive to offer the least expensive product. It has a
philosophy of offering slightly more expensive products all the while the
customer has a greater perceived value of the product.
g) How do suppliers factor into the target costing process? Why are
they so critically important to the success of the MB AAV?
When a company decides to streamline suppliers, it has the opportunity to
work closer with the fewer suppliers in order to find solutions for its business.
For example, MB relied on high-value-added suppliers and as a result, the
entire AAV cockpit was purchased as a unit from a systems supplier rather
than having many suppliers providing fewer components.
h) What role does the accounting department play in the target costing
process?
For MB, accountants played a lesser role than usual. Mercedes Benz primarily
used cost planners who were engineers. Because of their design and
manufacturing experience, they could make reasonable estimates of costs
that suppliers would incur in providing various systems.