M-B searches for savings to offset rising costs
Mercedes-Benz spends more on materials, emissions controls and other expenses. Klaus Zehender, vice president of procurement for Mercedes-Benz cars and vans, is looking for savings in various areas to offset those costs.
He was interviewed in German by Matthias Krust, staff reporter for Automobilwoche, a sister publication of Automotive News. The first installment of this interview was published in the Aug. 6 edition.
Q: Mercedes-Benz Cars wants to drive down its material costs by 6 billion euros by 2017. How did the company arrive at this figure?
A: For starters, this is not about driving down costs but rather about offsetting charges in the range of 6 billion euros that we expect over this time frame, in terms of a five-year plan. They mainly result from increases in raw material prices, from the technology to meet CO2 emissions guidelines, and our goal to give Mercedes-Benz customers more and more vehicle for the money.
And what contribution must purchasing make?
I would not like to cite a specific figure. But of course it is clear that production material accounts for a substantial portion of a vehicle’s costs. So it goes without saying that a large part of the cost optimization must occur in the area of production material. Overall, however, this is in no way solely a procurement effort -- it is always about optimizing material costs in a team involving our sales, development and procurement departments.
To what extent?
One example: Together with our development department, we are looking at opportunities for technical optimization, relying also on proposals from our suppliers.
For example, if a component can be made from fewer individual parts, this leads to lower tooling costs and variances, and thus the technical optimization of the cost of that component. And together with our colleagues from sales and development, we are investigating how we can keep increasing a vehicle’s value and benefits for our customers.
In this way, we can prioritize those elements that boost customer experience and optimize the costs in areas which are not part of that experience. At the end, we in procurement naturally negotiate the prices.
What are your most important control levers?
In this context, we do not launch special price negotiations with our suppliers, but continue the dialogue that we have held for some time now, based on our reference-price calculation. In that process, we determine target prices for components and modules with a benchmark calculation.
We want to further increase the dynamics and the rollout of this system. Another important control lever is increased regional purchasing, as our production network is continuing to become increasingly international.
In addition, there will of course be economies of scale from the higher volumes resulting from our Mercedes- Benz 2020 growth strategy. We want to take full advantage of them, and they naturally offer corresponding opportunities for our suppliers as well.
What role does the so-called module strategy 2.0 play?
We have defined about 100 modules across model lines as part of the first stage in our module strategy. This is already concluded and it’s paying off -- starting in 2014 with the launch of the next-generation C class, we will save more than 1.5 billion euros a year.
The second stage -- or module strategy 2.0 -- is about further development and increased dynamics of this approach, in order to fully utilize optimization potentials across the board. Levers used here include the ones I just mentioned, for example.
Furthermore, we are including alternative powertrain modules as well as our performance-oriented subsidiary AMG. We are also deepening the modularization of our powertrain components, meaning our engines and transmissions. This is a matter of consistently utilizing common parts -- parts that we already have today.
How many modules might the 2.0 strategy encompass in the future?
I would not like to cite a figure today. But one thing is clear: The number of relevant modules will continue to grow as innovations continue to flow into our vehicles.
When will significant savings result from 2.0?
The effect will appear continuously over the years, not with a specific model line. As I mentioned before, this is about increasing the dynamics and depth of our module strategy.
We will continue to further develop our reference price calculation by expanding the scope to include additional component groups, such as body shells and alternative powertrains.
We will also introduce these benchmark calculations into our change management process.
What does that mean?
In the time frame between the awarding of a contract and the start of production, there are usually numerous changes in a component. We will also include these changes in our benchmarking approach. The same applies to the corresponding cost of tooling changes, which we also want to optimize.
You mentioned economies of scale resulting from higher volumes as another important lever ...
Right. These come from several directions: As part of our Mercedes-Benz 2020 growth strategy, we plan to increase our sales significantly. Moreover, thanks to our module strategy, there will be substantial increases in volume for certain components. That opens opportunities in terms of economies of scale for us and for our suppliers, and we want to discuss and capture those economies together with them. There are also additional effects of parametrization.
What do you mean by that?
There are parts that are known as self-similar components. Their function is identical, but they may have different dimensions -- various glass thicknesses are a good example The parametrization approach for such components thus allows us to award suppliers an overall volume across various model lines.
The agreement then covers both the description of the basic component as well as its extrapolation based on defined parameters. Those parameters can vary, depending on the vehicle. So, we can unlock additional economies of scale with this approach.
You can reach Matthias Krust at email@example.com.