Increased Focus on Logistics has Helped Mercedes-Benz Grow

Logistics and planning the location of production plant or warehouse has many more factors than just computing a break-even analysis. Our textbook discusses BMW and their strategy and the factors in the decision to create a production facility in Spartanburg, South Carolina. Another German automobile company that places focus on logistics and location is Mercedes-Benz. “Logistics is becoming more and more important for us,” says Markus Schäfer, member of the divisional board of Mercedes-Benz Cars for production and supply chain. Mercedes has been growing very rapidly, expanding “by around 1m units in sales and production in just five years, with passenger car output at around 2.4m in 2017”. A rapid expansion such as this can be a logistics and supply chain nightmare. In response, the company “has overhauled its supply chain management department, moving from a transport-focused organisation to a global end-to-end approach that integrates planning and capacity planning, purchasing and operations across inbound, in-plant and vehicle logistics.” The article discusses factors that can affect a company’s strategy in determining a location for manufacturing plants or distribution centers. These factors are similar to what we have discussed in class and read in the textbook and they are: “shifting customer demands, regulations, currency changes or even in response to tariff or customs barriers – like Donald Trump’s plans for elevated duties on steel and aluminum, or fallout from the Nafta and Brexit negotiations.” Germany is ranked 20th in ease of doing business according to “data.worldbank.org”. As usual, the advancement of technology brings forth a lot of benefits but also brings forth the ability for companies to improve, and in this specific situation it is the ability to improve logistics with the help of technology. “Logistics also has an essential role to play as production and distribution use more digital technology. The carmaker’s plans for a new facility at its Sindelfingen plant, near Stuttgart, known as ‘Factory 56’.” This new facility will have driverless transport systems and the use of automated driving features for vehicle logistics handling. According to the wikitravel page of Sindelfelgen, it is “characterized as an industry city with a large Mercedes-Benz manufacturing plant dominating large parts of the city.” Even in the first description of the city, it includes a mention of Mercedes’ manufacturing plant which demonstrates the colossal impact of the plant on the city. Would it be possible to incorporate customers into a company’s supply chain? Yes it can, Schäfer “envisions further links between customers and the supply chain, with the potential for customers to modify their orders and deliveries via smartphone.” Incorporating customers into the supply chain could create a competitive advantage in terms of flexibility. In the article, Schäfer was posed the question, “How important is logistics in this strategy?”. He answers, “Logistics is becoming more and more important for us because of several different elements. One is in controlling inventory, which a global company like ours has huge potential to reduce. There is also a lot of cost involved in transporting goods from supplier to plants, moving material within factories, and delivering the product to market.” This was the motivation to create their own operation that covers the whole supply chain.

Is location and logistics (in terms of production) the most important aspect that determines the success of an automobile company?

https://automotivelogistics.media/intelligence/mercedes-benz-end-to-end-approach

https://data.worldbank.org/indicator/IC.BUS.EASE.XQ?name_desc=false&view=map

Here’s a link for more info on automotive logistics:

https://automotivelogistics.media/intelligence/production-logistics-part-4-logistics-organisations-skills

 

5 thoughts on “Increased Focus on Logistics has Helped Mercedes-Benz Grow

  • April 19, 2018 at 8:50 am
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    Mark,

    Thank you for your thoughts on Mercedes and their supply chain. I read a great article from Automotive News on how and why Mercedes changed their supply chain and logistics to trim costs. The article discussed their supply chain issues and stated that the supply chain costs often exceeded the manufacturing costs, which the company wanted to change. They have begun establishing centers in growth regions like China and North America to help with their supply chain costs. Mercedes-Benz made the lofty goal of decreasing their logistics costs by 20% per vehicle. In their effort to achieve this goal, they built a new consolidation center in Germany to repack parts for shipping to plants to places like China, the U.S. and South Africa.

    Mercedes, being an international provider of high-end vehicles, has to focus on delivering the right part to the right factory at the right time, which must all be done while keeping lean inventory to lower costs. Mercedes is a great example of a company that has room to improve on their supply chain, but is taking great strides towards improvement.

    SOURCE: http://www.autonews.com/article/20150719/COPY01/307209957/mercedes-revamps-supply-chain-logistics-to-trim-costs

  • April 19, 2018 at 12:17 am
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    Mark,
    Answering your question, I believe that location and logistics is not the most important factor that determines success in the automobile industry. In my opinion, the product itself is what defines the company, and therefore is the most important factor when looking at automotive companies. However, as Erin said above, the logistics and location side to manufacturing can largely influence how the company is viewed by customers, which affects the final product. I have a personal record with Mercedes, as my first car was a 2000 clk 320, a hand me down from my dad. Seeing as when I got the car from him it was 13 years old, it was going to need some work. I made many trips to the Mercedes dealership near me, and got very familiar with their service department. Looking back on it now, I can see how much the retailer had to work with the other parts in the supply chain to keep up with the large demand they had. There were a number of times where a specific part was required and was not available at that time due to being out of stock, not just for me but others nearby. As you noted, logistics will become a larger part of how companies compete with one another. The company that has less stock outs will become more favorable in the eyes of their consumers, who will spread the word about their amazing product. So as I said at the beginning, the product itself might be the important part of the company, but logistics will play a large role in who comes out on top.

  • April 18, 2018 at 10:28 pm
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    Mark,

    I really enjoyed reading your insightful post about the increasing importance of logistics and monitoring supply chains in today’s global economy. Every single year, the world’s economy is becoming increasingly integrated and this means there is more and more competition, even for luxury brands like Mercedes Benz. Your post was particularly interesting to me because I have always thought of Mercedes Benz as a luxury brand that maintained a smaller-scale level of production which kept the brand name strong and “elite”. But your post highlighted how Mercedes Benz is increasing their level of production, which was surprising to me. This upscale in production output would not be possible without paying closer attention to logistics. According to the Mercedes Benz manager interviewed, this increased attention to the logistics of the company has helped to drastically reduce both inventory costs and transportation costs. As we have learned from class, a closely managed inventory system has a myriad of advantages, and Mercedes Benz is realizing the benefits and the power of logistics. Managers of Mercedes Benz set out to create their own inventory management system and supply chain monitoring operation that covered their production process from end to end, and it has significantly improved Mercedes Benz’s operations during this move to increase their production levels.

  • April 18, 2018 at 8:39 pm
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    Mark,

    I have attached an article at the bottom that is part of how I will answer your question you posed at the bottom of your post when you asked if location and logistics are the most important aspects for the success of an automobile company. It is an interesting question. Not only do you want to remain profitable, but you also need to be in a location where you can get not just the customers but also the employees. This article is dated in September about two huge projects Mercedes-Benz started. They chose to put two large new buildings for Mercedes-Benz very close to a huge production plant of theirs (both within five miles of this plant, in fact). It discusses not only the profitability of doing this, but also the jobs it will create. As a company, it is important to maintain your public image. If Mercedes-Benz can do that while also generating profits, then this will be a very successful project. If location and logistics are not the most important aspects of automobile industries supply chain processes, then I am not sure what is.

    http://www.al.com/business/index.ssf/2017/09/mercedes-benz_breaks_ground_on.html

  • April 18, 2018 at 7:39 am
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    Mark,

    While it appears that logistics and location have an important role in the success of an automobile company, I believe that it is not the most important aspect that determines a company’s success. In my opinion customer demand and satisfaction are the most important determinants of a company’s success. As we have seen from numerous blog posts and in-class examples, customers can have a major influence on the success of a company. However, logistics and location could influence a customer’s opinion of a company depending on the competitive priorities of the company. If a company is known to be timely in its deliveries, then location and logistics are important in maintaining customer satisfaction. Additionally, customers want to know what a brand is about and appreciate transparency.

    Mercedes-Benz has recently released a new campaign entitled, “What Makes Us”, which tells the story of the brands primary virtue (https://www.forbes.com/sites/dalebuss/2018/04/09/new-mercedes-benz-campaign-in-u-s-doubles-down-on-attributes-that-have-made-brand-no-1/#5ee183bb6f3b). The collection of ads informs customers on the priorities of Mercedes-Benz. In addition, to being conscious of the company’s customer relations, the luxury-car brand stays ahead of its competitors by taking advantage of change and challenging the status quo. Mercedes-Benz is on top of knowing the ever-changing customer demand and implementing those changes into its future lineups. For example, Mercedes-Benz has seen the shift from sedans to SUVs, electric cars and the desire for digital connectivity in vehicles. As result Mercedes-Benz has upgraded its vehicle lineup to feature these shifts in demand. In conclusion, I believe that for an automobile company such as Mercedes-Benz customer relations is the most important determinant of success and logistics and location have an part in the big picture of customer relations.

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