Daimler Mercedes-Benz is one of the most valuable companies around the world; it is ranked number ten out of 100 leading brands worldwide (Bestglobalbrands.com, 2014), Mercedes-Benz is part of Daimler AG which is one of the best leaders in automobiles brands. The Daimler AG brand aims to deliver services, value and premium quality to its customers. The company has 14 sub-companies that produce cars, vans, trucks, and financial services. It has more than 100 vehicle models in over 200 countries worldwide, offering high quality products is the company’s strategy and goal.
Daimler Mercedes-Benz cars have sold 1,565,563 million unit with revenues of over 64,307 million euros; with over 274,000 thousand employees in 2013, the company has also invested in plants and equipment worth over 3,751 billion euros (Daimler AG, 2013).
This management report includes an in-depth study of the operations management inside the company, by covering the most important parts of the company such as manufacture, assembly line and warehouses management. The aim of this report is to study current issues as well as the status of the company and how changes in demand can be handled.
At the end of this report, the conclusion and recommendations offer the company solutions to prevent any issues that they may face during the production life cycle. Part (A)
A-I: Operations Management at Daimler Mercedes-Benz Quality & Material Management
Mercedes Benz’ manufacturers use a global quality management system to ensure that their automobile products meeting their standards, which in return increase customer loyalty to the brand. Producing high quality automobiles is the goal of Daimler- Mercedes’ strategy to meet the customer’s requirements, as well as opening a new road for new customers to experience Mercedes automobiles.
Recently, the company has aimed to increase quality by adding extra environmentally friendly features to their products to help the global environment (Daimler AG, 2013).
However, Mercedes Benz’ customer satisfaction can be damaged by quality worries. Alarms led the company to take the decision to recall over 250,000 cars from the year 2008 until late 2014 for mechanical and safety concerns at the assembly line. Mercedes recalled these vehicles to be serviced immediately for customer safety (Jensen, 2014). On the other hand, BMW had to recall fewer vehicles than Mercedes Benz, for immediate maintenance related to mechanical issues. Such issues could cause a crash due to a power fault in the engine (CBS Miami, 2014).
Outsourcing outside Germany had increased this risk for Mercedes Benz, by decreasing the company quality and safety. The company recalled more than 55,000 vehicles that were produced in China because of a faulty circuit made by the manufacturer (Wantchinatimes.com, 2014). These issues are related to the quality management of the company, and can decrease customer loyalty, which could lead them to consider changing to other brands.
Quality and safety issues affect the company’s yearly ranking, which in return can increase or decrease their total revenues. Quality is one of the most important components for the company to keep ahead of the competition. Furthermore, according to (Miller and Lundegaard, 2002) Mercedes’ quality has to be bulletproof as the highest company priority, through closing any gaps that occurred through previous issues. The increasing numbers of sub-model cars can also affect the brand quality through increasing any risk issues once launched to the public.
Furthermore, according to (Stephen, 2004) Mercedes customers have high expectations about the high quality promised by the company. In 2003, the company disappointed many customers when they sold over 2000 vehicles with an extra option for a navigation system, which were not ready to be delivered at the right time, also accompanied by other mechanical issues. On the other hand, the company made an announcement about its new high quality hydraulic breaking system, which increased its competitiveness in terms of safety and quality against other competitors in the industry.
Our company should make sure that manufacturers deliver products with the highest design specification, in order to be order-winner quality conformance, by delivering products with no defects (Hill and Hill, 2012). Furthermore, improvements in quality lead to a decrease in cost for the company. According to (Evans, 1997) higher quality products lead to a decrease in costs for the company through higher productivity: ‘improvements in quality leads to lower cost because of less re-work, fewer mistakes, fewer delays and snags’ (Evans 1997, P.55).
According to (Hill and Hill, 2012), synchronising all supply chain activities through using the same data, and completing production at the scheduled
time, coordinated between the manufacturer and suppliers, enables manufacturers to respond quickly to the demand changes. Therefore, synchronisation ensures that our manufacturers are able to deliver products faster and more flexibly to the customers. Furthermore, Daimler Mercedes-Benz understand what customers are looking for, therefore the company is expanding our dealers network to meet the customer requirements for vehicle availability.
Our company’s relationship with the current suppliers is improving every day to minimise any risk of supplying defective vehicles (Automotivesupplychain.org, 2013). In addition, working closely with suppliers reflects positively on our brand’s customer service. In 2008, the company faced a problem with one of its suppliers, which caused a delay in one of our products models. The supplier was supposed to deliver special battery materials to the manufacturer’s warehouses (Ireson, 2008). However, the supplier refused to meet Mercedes-Benz’ requirements, which caused a delay in delivery and to use of low quality batteries which were defective.
Our company is using the powerful application to manage our suppliers, this application is called SAP, it is making our supply chain management more efficient, flexible, and at the lowest cost. The SAP solves any gaps in the company’s capabilities by using the supply chain fingerprint system to scan all the parts and materials; these technologies is helping the company to reduce any extra cost (mSE Solutions, 2012). In addition, the SAP increases the flexibility of our manufacture as well as increasing the speed of delivery for the customers, through just in time (JIT). It does this by enabling many features for the dealer to calculate the vehicle price of the order during the order stage and at the same time getting an order-number to track the order. All these steps are integrated together into the supply chain management system, and are informed by each stage of the order (Infosys, 2005).
This synchronises the information in real-time, reflecting on the company strategy to change with demand. Also, there are advantages in using the SAP application to manage our company warehouses where the company stores materials for vehicles. By sending orders for the warehouse to get ready to deliver an order to the assembly line, this can achieved by using the just in time (JIT) efficient method for manufacturing. In the meantime, this creates an extra space for new materials in the storage area at the warehouse; the SAP system will already be sending a new order to fill and stack those storage areas for future orders from the system (Bayigen, 2012). All these measures combine to increase the speed, therefore reducing the cost of manufacture, and maintaining dependability in an efficient way. For our company dependability is an important factor of the company’s success, it reduces any ambiguity within the supply chain management (Slack et al., 2012).
Dependability and Flexibility
Our company had dependability issues in 2014. This dependability issue started after launching the new high quality CLA-Class model at an affordable price. Dealers of Mercedes-Benz could not deliver the new model on time, meaning customers had to wait at least two months until they are available in stock. Not keeping up with high demand could lead to loss of brand-loyal customers or interested buyers who are willing to trade in or paying cash immediately. This makes our company less flexible in terms of adapting to changes in customer demand (Flierl, 2014).
Our company differentiation strategy to produce high quality luxury cars is inspiring in itself, in terms of the creation of unique high quality vehicles that exceed our customers’ expectations. Our company charges a premium price for most of its models. This differentiation strategy helps the company to increase the brand image positively in our customers’ eyes, by including high-end technology and unique services (Tanwar, 2013). Also, our company provide different vehicles types with unique colours including high variety and volume to attract new costumers as well as reducing the unit cost from the supplier side. On the other hand, our company variation in demand is high due to the complexity of the production and the way that we keep in touch with the demand.
A-II: Process Management at Daimler Mercedes-Benz
Process management is a vital part of our company success. According to (Slack et al., 2012), operations and process management can break the whole business at any stage or place when they are managed in the wrong way. Furthermore, processes at Daimler Mercedes-Benz are internationally the same. Our processes include inputs, via a transformation stage, to create and deliver high quality outputs that meet the customer expectations and more. Customers’ orders are processed through the operations system as soon as they ask for a particular model.
Types of Daimler Mercedes-Benz customers
1) Customers asking for a particular model through the dealer: Most of the time, Mercedes-Benz dealers have all the models in the showroom and ready to be sold. In the case of high demand for a model, dealers will have to order a new delivery from our company in order to manage the demand.
2) Customers asking for a particular model through the website: The company’s website gives customers details about car models. The website also allows customer to customise their desired car by adding extra features to the interior or exterior of the car model. Furthermore, when the customer is at the order-check out, it will automatically locate the nearest dealer to the customer to confirm the order.
Once the dealer confirms the order, the order is entered into the SAP application and sent to the manufacturer. Where our company has already launched the new vehicle model, these models are produced using these processes:
Advanced Design Process
Daimler Mercedes-Benz’ models are designed by 440 designers from all over the world, from countries including the United States of America, Europe, and Asia. These designers are responsible for designing future cars using their creativity and imagination. Our company has invested millions of dollars into building high technology designing studios to meet the future of these automobiles. Here, designers are involved in the development of each model through strategic management, to operation management of the vehicle design.
Designers at Mercedes Benz control the design process as well as the model’s lifecycle, from the drawing stage to the stage where the interior and exterior meets the company’s quality standards. From here, the design is moved into a virtual digital design on computers, to add features and a superior look. The design process takes a long time, in some cases more than three years (Media.daimler.com, 2010).
According to (Slack et al., 2012), designing process types depend on the complexity of the project. Mercedes-Benz vehicles tend to take too long to be designed, making their projects low volume as well as having a high variety of projects. The design process is sent to the board of management at our company with a planned schedule for the production life cycle. Approval is sought from the board of management: this stage of accepting or rejecting the new design impacts on the production process. The production process then involves the body shop and the assembly line.
The Body and paint Shop (Raw Materials and Workers job commitment)
High technology robots create the vehicle bodies including the metal shell. After the board of management have accepted the new vehicle design, the robots transform the design concept into reality by producing the body parts. Over 1200 robots are in daily operation at Mercedes Benz U.S. International, in order to increase the speed of production. These robots are used to guarantee quality and fast delivery. This means the workers can knows exactly when supplies are coming.
This ensures that the line is not stacked with vehicle parts in order to make the process more flexible. Furthermore, the SAP application helps to reduce the chance of late delivery by ensuring that the parts are on time and by checking availability of the materials at the warehouses. Our company ensures that customer quality and safety standards are met by increasing the welding parts to more than 5000 welds on each vehicle. When the process is done, engineers have to check the quality of the vehicle as well as following the ‘just in time’ method in sending them on to the next process. Workers at the body shop are well trained to meet standards such as safety and cleanliness of the work place (Mbusi.com, 2012).
The Assembly Line
Implementing innovation in the Mercedes-Benz assembly line is one of its drivers to success. An example of this is our assembly line at Mercedes Benz U.S. International which contains four lines. When parts are finished at the paint shop, our assembly line and its workers are ready to build up the final vehicle shape. Our strategy makes the assembly line moves while the workers are working, which decreases waste in terms of time. Suppliers respond to our strategy to be environmentally friendly by using re-usable plastic packages. At the end of the assembly line stage, there is a new stage of quality checks, including a rattle test, wheel alignment test, roll test, and shower test. These all ensure that the quality meets the company standards. After the quality check results are confirmed (Mbusi.com, 2012), the vehicles are made ready for worldwide shipping by transporting them to the marshalling yard, containing the transportation areas.
Customer Service Strategy
At Daimler Mercedes-Benz, customer service plays a big role in the brand image. It helps the company to ensure that customers are satisfied and their expectations are met. To satisfy customers, their perception of the product needs to match the delivered product (Johnston et al, 2012). Our company had created a new service called customer service assistant system CSA in order to provide customers with a broad range of services in each country.
This customer service assistant system is available 24/7in order to assist owners of the vehicles, so they can be in contact with any issues that may occur. Furthermore, the company is also investing in research for future customer needs. Staff can speak many languages, making the service more efficient and more flexible. The CSA allows customers to complain about any issues relating to their vehicle. The CSA system studies and checks each issue, while also sending the customer to their nearest Mercedes-Benz dealer to resolve the issue as soon as possible. This strategy helps our company to ensure that the functionality of the customer services meets and exceeds customers’ expectations (sustainability.daimler.com, 2012).
The company’s current customer services include:
Safe-Driving courses for the safety of the owners
Rescue services booklet
24/7 emergency breakdown assistance
According to (Hill and Hill, 2012), quality is determined by how well a company’s services meet their customers’ requirements and expectations. Our company CSA system is meeting the customers’ expectations by contacting them after their purchase to ensure that they are happy with the service. Including customers by ask for recommendations. This strategy provides our company with extra information about areas that we should cover in the future, which increases the company sales revenue; and decreases vehicle defects, which saves time. Furthermore, accepting customers’ complaints helps our company to look again at how the manufacturer produces car models in the future. This ensures that our customers are satisfied by the services provided. The after-sales services should be prepared for any mistake in the manufacture, by informing customers one-by-one once any issues have been discovered. Inventory Management
At Daimler Mercedes-Benz, each region has its own warehouse where the company stores all the parts of the car models. Each region has its own geographic areas where temperatures can range from below zero degrees to over 35 degrees. These parts are either sent to the manufacture or to the after-sales services. Furthermore, our company is the owner of the most warehouses across the world. Our company uses SAP to control these parts in each region. However, the company failed to ensure that the warehouses were ready to send vehicles for its new CLA model.
This is an alarm for the company, warning it to look into the system in order to catch up with high demand. It also shows that there was a time-waste issue between delivering the materials to the manufacturers and new orders for new materials to be stocked in the warehouses. This may cause issues in the future when it comes to high demand orders. There may be an increased risk of unavailable parts. Furthermore, when the inventory management fails to catch up with demand by putting customers in queues, this can make these customers unhappy, which can affect the company’s revenue in other ways (Slack et al., 2012).
Purchasing and Supply Chain Management
Our company is facing material shortages from the suppliers. These shortages notified our managers to focus more on research from around the world, in order to implement new ideas by finding solutions. At Mercedes-Benz’ our suppliers are local suppliers in each country, working under specific conditions and requirements. The aim in commissioning local suppliers is to reduce time, so materials can be delivered to the ware house ‘just in time’, further decreasing extra costs for the company (BayIgen, 2012). One of the issues that faced our company when a certain supplier was not able to deliver batteries on time was the resulting delay in the production process. This delay affected customer demand, causing customers to look at other products. Therefore, the company is now using the SAP application to manage their suppliers.
The Process Chart
A-III: Lean Management at Mercedes Benz
At Mercedes-Benz, lean management has been in place for more than 15 years; lean management is a vital part of our operation management. This is achieved through using the Mercedes-Benz production system (MPS), which refers to: layout, standards, tools of the production, and the methods for operating our company plants worldwide. Furthermore, MPS is divided into two systems: one for training and the other for support. The MPS training centre ensures that our trained experts are working hard and are well motivated on the production line as well. It also ensures that improvements are made by managers, meeting the minimum company requirements and standards. The process of training employees and managers at Mercedes-Benz takes more than six months.
This involves the employees in the operation processes, in order to deliver the quality of services that our customer expects. MPS trainees receive one type of training that covers the theories and four types of training that put what they have learnt into practice. MPS aims to enhance communications between the plants, leading our company to ensure that lean synchronisation processes are well constructed, in order to eliminate waste. A significant approach to eliminating waste of time is used by our company. When the our workforce understands exactly how important high quality is to the company, each employee has the experience and is well enough equipped with the minimum tools to do the given job role. Then the employee can find the car set up, with the tools next to him and ready to be used (Daimler AG, 2012).
A new strategy has been developed by the company to take a closer look at customer demand. This strategy is based on launching our products in public. At the same time the plant has started production of a new model to test and catch up with demand in each country, by applying the lean and just in time principles to reduce overproduction as well as producing what our customer needs at a given time, and delivering a high quality car model (Azok, 2014). This new strategy strengthens our company view on demand as well as producing high quality car models as soon as possible, meeting our customers’ expectations. Other plants around the world are, one by one, each month, preparing to start production. It is clear that the company is doing its best to forecast customer demand.
Furthermore, according to (Slack et al., 2012), implementing lean synchronisation in a company operations means that they can produce at the lowest possible cost and the highest quality. This is achieved through delivering exactly what the customers expect from the company. Also, applying this method our plants in other countries, to produce cars at different times, enables our company to handle any mistakes or errors that may occur at the first plant by compensating and changing at other plants. Thus, it will decrease quality issues, since information can be shared between our plants ‘just in time’. In return, this will ensure that efficiency and improvement principles are in place, reducing costs as well as eliminating unnecessary steps.
The ‘just in time’ (JIT) concept of Mercedes-Benz is similar to Toyota’s concept. The assembly line at Mercedes-Benz can handle producing new models, reducing the time needed to build a new assembly line and to commission new plants. This represents a cost incentive for the company. Since the assembly lines at our company are able to handle new models, this will decrease the setup time, which in return will reduce waste of resources. According to (Evans, 1997), setup time reduction will increase the flexibility of the production line by decreasing the production time as well as decreasing the inventory; furthermore, it increases company productivity.
The similarities between Mercedes-Benz’ production system (MPS) and Toyota’s production system lie in their JIT, pull production and kanban systems. These enable both companies to produce any quantity of vehicles depending on demand. They help the company to use available materials depending on the demand level. At this point, our company is going to replace containers of used materials with new containers by asking our long-term suppliers to send a new order. This uses a high technology card that can be removed from the container and scanned using the MPS system. It then sends the new order to our supplier. In this way, MPS minimises the inventory as well as using minimum inputs to produce the highest outputs (Clarke, 2006).
Our company has already received many awards for its lean production as well as for reducing the production of many models from 43 to 30 hours in 2015. This is enabled by our lean production system, which has reduced waste in terms of time (Hamprecht, 2012).
Part (B) Capacity Management at Mercedes Benz
Daimler Mercedes-Benz’ capacity management failed to chase the demand for our new CLA model. According to (Hill and Hill, 2012), capacity means serving customers by delivering products through matching the organisation’s resources to current demand. Our company could not cope with the high volume of requests for this model due to an inaccurate estimation of demand. The management team needs to be more efficient in chasing demand by tweaking the output to match the current demand of this model.
This would start with hiring more labour and asking workers if they are able to take overtime shifts in order to fulfil the high volume production. This could then decrease the number of customers who were dissatisfied by the delay, waiting for more than three months in the queue. Also, since that our company already has a long-term strategy for achieving high demand, the company should consider asking the nearest plants outside the country whether they have products ready to be dispatched directly. Weak cooperation between those countries could cause delays.
The complexity of the operation process affected the delivery of the CLA model. The management team could have waited longer before launching the model to the public, by checking all the available resources. Nevertheless, our company manufacturers were not ready to deliver ready products on time to the customers. This led to a hard decision for managers to decide what is best for both the company and customers. The decision to make customers wait in queues for three months until this model is available is, in the customers’ eyes, harming our company’s image. Furthermore, the warning signs of being out of stock were not checked properly; from this it is clear that our staff should be more skilled.
Also, asking for recalls for defective models due to manufacturing issues, affects the quality of the production inside the manufacturer as well as our customers will be unhappy. Quality is a high priority problem, which negatively affects our company relationship with the customers, leading to queues, as with the shortage of CLA models. Lack of dependability and flexibility can decrease our company sales revenue as well as increasing in costs, which in return reduces our lean synchronisation. The company was aware of these risks yet our company decided to launch the new CLA model.
Our company is already scheduling our future growth by investing in expanding our capacity. This will lead our company being more flexible in the future, as well as better able to serve high customer demand. Our company has realised that there is a lack of space for expansions in many places, therefore our company is looking to find more locations to build up new assembly lines to enhance our production (Daimler.com, 2013). It is important that the company should always attempt to catch up with demand to ensure that our customers are satisfied, as well as to increase our sales revenues. An automobile manufacturer should always match the existing material flow with production, and also ensure that the company record the capacity planning in order to get more details about our actual capacity. This will enable our company to control the demand properly.
Also, when our company could not control the demand, this led the company to face many challenges relating to our supply chain management. When a company cannot meet customer demand, this makes it more difficult for the company to manage their capacity. This complexity is called the ‘bullwhip effect’, suppliers should expand their current capacity in order to be more flexible to catch up with the high demand on the materials (University Alliance, 2015).
Capacity management has many levels. In the case of our company, the capacity level depends on demand, especially as most of the services that Mercedes-Benz offer are related to physical materials such as vehicles and service parts. This is considered to be a mixed long-term capacity which depends on demand. The demand forecast in our company is different from one year to another. Accurately forecasting the demand means that our company has the ability to evaluate uncertain risks that may occur.
Also there is a value in operational terms, in knowing our company’s limits: knowing what we can and cannot do. On the other hand, our company already has experts who control our capacity. Controlling capacity means planning at an advanced level for companies to be well-prepared in terms of: responding to uncertain changes in terms of demand; and controlling the inventory and warehouses so that inputs are ready to be transformed into outputs. This will benefit companies and manufacturers in terms of increasing revenues, and through establishing an organisation where high demand places pressure on the parties inside the company (Slack et al., 2012).
Part (C) Conclusion and Recommendations
Dependability is an important factor that can help the supply chain to deal with high demand. According to (Slack et al., 2012), focusing on dependability at an earlier point may reduce uncertainty about any risks that the manufacturer may face. This is especially important when it comes to dealing with quantities; our manufactures should focus more on delivering products on time. Dealers should be prepared for such an event and could be warned by the manufacture of high demand in order to be prepared to be flexible at an earlier stage in the order. Covering a high demand of orders from customers is important. In order to satisfy them, our company should be more flexible to reduce the impact of any events that may occur.
The company should address quality issues at an earlier stage. The company already conducts high quality checks on each process and stage. It is highly recommended to report any concerns that may appear during the product life cycle. Reporting these at an earlier stage will give our company extra time to find proper solutions.
In the case of covering the inventory management, our company failed with the new CLA model. The company should consider looking again at the whole warehouse system. It is recommended that the operations manager should focus on increasing the physical quantity stored in warehouses inside the company, in order to anticipate future demand as well as increasing the company’s value to its customers. Also, since that our company is the owner of most of the warehouses, it is a competitive advantage to never be out of stock, even when the demand is increasing. Furthermore, the warehouses at Daimler Mercedes-Benz should become more efficient through using the SAP application. The company should consider giving more opportunities for the employees to gain more skills and experiences.
Since our company is investing in capacity, it is also a competitive advantage for us to always be ahead of demand; this will ensure that the company increases levels of customer satisfaction, whereby products meet customer demand. Being able to forecast the demand on a daily basis will help the company to decide whether they should invest more in capacity or reduce the number of suppliers.
Mercedes-Benz should focus more on suppliers’ entry requirements and how a long-term or short-term arrangement can be an advantage or disadvantage for the company. Managing suppliers in an effective way will reduce any extra cost as well as making sure that our suppliers realise the company requirements in terms of JIT. In addition, our company should enhance its relationships with all suppliers. This will ensure that the suppliers are happy when they are dealing with our company and are not likely to provide the company with defective products.
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