Mercedes Benz All Activity Vehicle Essay

The can damage case literature contains numerous examples of Japanese live management practices however, few cases describe the use of arse be by large companies outside Japan. The purpose of the Mercedes-Benz AAV case is to trade the rivalrous environment of a leading German automotive manufacturer and the federations response to changing competitive conditions. The teaching plan principally follows the suggested student assignment questions. In places, I recommend considering additional veridical during the case give-and-take. These questions are identified by a check mark.bookman Assignment Questions1. What is the competitive environment faced by MB?Students provide tell apart a number of changes, including significant market share alienated to Japanese companies such as Lexus. Stress the greatness of a ethnical change taking place within top management at Mercedes. Reinforce that Mercedes is a company that had never lost money. They simply construct the best car t heir engineers could figure of speech and priced it above hail. Demand often exceeded supply. As a result, terms had never been a primary consideration. Changes involve cost competition crossway innovation.2. How has MB reacted to the changing world market for sumptuousness automobiles? Students should bring out the following changes implemented by management at Mercedes pick up to get them to explain how different these approaches were from traditional strategies at Mercedes many cutting product introductionspartnering with suppliersreduced system complexitynew emphasis on cost controllayers of management reducedlead time from creation to introduction reduced.3. Using Coopers cost, quality, dish upality chart, discuss the meanss on which MB competes with other automobile producers such as Jeep, Ford, and GM. If the instructor wishes to give a brief mini-lecture on Robin Cooperssurvival troika and confrontation strategy, this is a good point in the case discussion to do s o. (Robin Cooper, When Lean Enterprises Collide, Boston Harvard Business School Press, 1995.) The factors areprice-at mid(prenominal) to upper range of zonequality-at upper range of zone liaisonality-at upper range of zone.An interest point to discuss is that Mercedes does non produce the virtually expensive sports utility vehicle. This distinction is reserved for the Land Rover however, they strategically placed themselves toward the luxury end of the spectrum. Also, unlike many Japanese examples, Mercedes does not use target be as a strict cost control mechanism to produce the lowest priced product in its class. 4. How does the AAV barf link with MB strategy in terms of market coverage? The new introductions expand the product line of the traditionally luxury-oriented manufacturer. Recent product introductions include the followingA classC classSLKE classM class.These new introductions include new sports cars and off-road vehicles. The C-class is a mid-sized vehicle sometim es referred to as the baby-Benz.Lets discuss the elements of the target costing model and how these elements are developed. At this point in the discussion I usually write the target costing formula on the bill of fare and ask students to consider sources of various inputs selling pricemargintarget cost.What are the sources of input for the projected selling price? Students will savagely likely identify the following sources of training customer focus groups similar products real potential.Stress the broad, cross-functional aspects of acquiring consumer information. To compare products, the company had to evaluate existing competitive vehicles as well as vehicles under development.What factors are considered when developing the required margin? This question provides a link to finance classes. some students have studied the concepts of weighted-average cost of capital. I recommend spending a few minutes reviewing these concepts and linking cost of capital to net present time value (NPV) analysis. Because of the capital-intensive structure of automobile manufacturing, production volume is a critical factor in determining each models NPV. Students whitethorn identify the following points for determining a required margin. long-run profitabilitycost of capitalprofitability across the entire product mix (classes of vehicles) sales volume by class.The MB case suggests the target cost is alive. Is this conformable with the ideals of target costing? I generally emphasize that Mercedes did not consider the target cost to be locked in. It was a moving target. As design changes became necessary, the target cost was allowed to move. However, before fashioning a change, market forces were considered. For example, changes include the addition of side airbags. In addition, the European press was critical of a simulated wood-grain part. Management decided the part would remain plastic because cost could not be passed on to the consumer. The main point to emphasiz e is the design of the vehicle is dynamic thus costs must evolve to shine the changing design characteristics.5. Explain the process of developing a member splendour magnate. How can such an mogul guide managers in making cost reduction decisions? The index development process has five steps, as follows consumer importance course of study rankingstarget cost percentage by function groupcategory function group matriximportance indextarget cost indexI recommend making slides of skirts 1-5 to make haste discussion. Index development is an important element in the early conceptualization phase of the AAV. The indexes help to quantify some precise abstract concepts. put back 1. From conversations with potential consumer groups, a list of key categories was developed. Next, potential customers were asked to rate the importance of each category. Their responses were computed as a percentage. Thus, safety and comfort of the AAV were viewed as significantly more important than ec onomy and styling. put over 2 represents a rough estimate of the cost by function group and the relative percentage. The information is used later to create a target cost index. Table 3 is best understood by reading each category as a column.The rows explain the relative importance of each function group to satisfying each category defined by customers. An interesting aspect of this table is that the link between consumer preferences and engineering components is made explicit. Table 4 builds on Table 3 by weighting the percentages computed in Table 3 by the importance percentage calculated in Table 1. The key point is to understand which function groups contribute the nearly (least) to important (less important) consumer categories. Table 5 results in a target cost index that attempts to capture cost and benefit trade-offs. As discussed in the case, this index may indicate a cost in excess of the comprehend value of a function group. Thus, opportunities for cost reduction (align ed with customer requirements) may be identified.6. How does MB approach cost reduction to achieve target costs? At this point, ask students to identify various value-engineering strategies. At Mercedes, reduce the cost of each function group was accomplished by reducing costs of various components that make up the function group. Stress the importance of this approach over an across-the-board cut.7. How do suppliers factor into the target costing process? Why are they so critically important to the success of the MB AAV? From the conceptual phase through the production phase, the suppliers of systems for the AAV truly were partners. Suppliers attend regular meetings with the cost planners throughout the entire process. Thus, suppliers were design and development partners from very early stages of development, responsible for meeting cost targets. Why is the relationship with suppliers a crucial element in the success of the AAV? Suppliers provide entire systems for the AAV.The adroitness uses a JIT production system. In fact, many suppliers deliver directly to the manufacturing line, rather than to a small warehouse. The Black Warrior River separated Mercedes and a major system supplier. This supplier built a new production induction on the same side of the river as the Mercedes Benz plant to avoid practicable delays associated with accidents on a major bridge.8. What role does the accounting department melt down in the target costing process? Stress the fact that accountants were watchdogs in the target costing process. Their primary responsibility was to ensure costs did not exceed targets during the production phase. Thus, the accountants role was as follows cost control literal vs. targetdevelopment stageproduction stage.What are some of the organisational barriers that may challenge managers attempting to introduce TC systems? Try to get students to identify various impediments to target costing systems in the United States. Examples may includ ewillingness to share cost data with supplierssuppliers treated as adversariesgovernment regulations affecting exchange of information.