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Mercedes Benz - Target Costing

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Suppliers & the Target Costing Process

The manufacturing process of AAV relied on high "value-added systems suppliers".

MB used their supplier linkages to ensure their systems suppliers were a part of the AAV development process from the concept phase to the production phase. Suppliers were required to produce components on time and within MB quality standards while remaining within their established cost targets. Decisions had to be made early in the development stages so suppliers were brought into the discussion early. MB used supplier knowledge to understand the costs of the manufacturing process by taring down competitors products and identifying components and their related costs. Supplier linkages were used to develop function groups by which all components could be grouped into and assigned costs. Target costing was used in conjunction with supplier knowledge to determine the costs of production on the basis of MB's pricing strategy so the AAV would earn the desired profit.

Supplier importance to AAV

Because MB was not producing vehicles at the lowest price they needed their suppliers to develop quality components that met MB quality control standards. Their strategy of producing vehicles that were more expensive and delivered a greater perceived value to customers meant that they needed the full cooperation of their suppliers so the production process could run smoothly and without faults. "Suppliers that fail to deliver goods as specified can doom a firm's efforts to provide only quality goods" (Blocher et al., 2002, p207). At full production a "finished vehicle will be leaving the end of assemble every 3.6 minutes" (Park Yet all 1998). If a successful supplier relationship was not established this would have affected the ability of MB to perform at their targeted costs and production levels, which could increase costs of production and the number of production faults occurring. If the suppliers are able to held find problems early in the concept phase they could be dealt before production of the AAV begins.

Activity Based Costing and Mercedes Benz




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