13-4 Mercedes-Benz All Activity Vehicle (AAV)

During the recession beginning in the early 1990s, Mercedes-Benz (MB) struggled with product development, cost efficiency, material purchasing and problems in adapting to changing markets. In 1993, these problems caused the worst sales slump in decades, and the luxury carmaker lost money for the first time in its history. Since then, MB has streamlined the core business, reduced parts and system complexity, and established simultaneous engineering programs with suppliers.
In their search for additional market share, new segments, and new niches, MB started developing a range of new products. New product introductions included the C-class in 1993, the E-class in 1995, the new sportster SLK …show more content…
Monthly departmental meetings were held to discuss actual cost performance compared with standards developed during the cost estimation process. Thus, the accounting system served as a control mechanism to ensure that actual production costs would conform to target (or standard) costs.

TARGET COSTING AND THE AAV
The process of achieving target cost for the AAV began with an estimate of the existing cost for each function group. Next, components of each function group were identified, with their associated costs. Cost reduction targets were set by comparing the estimated existing cost with the target cost for each function group. These function groups included the following: doors, sidewall and roof, electrical system, bumpers, powertrain, seats, heating system, cockpit, and front end. Next, cost reduction targets were established for each component. As part of the competitive benchmark process, MB bought and tore down competitors' vehicles to help understand their costs and manufacturing processes.
The AAV manufacturing process relied on high value-added systems suppliers. For example, the entire cockpit was purchased as a unit from a systems supplier. Thus, systems suppliers were part of the development process from the beginning of the project. MB expected suppliers to meet established cost targets. To enhance function group effectiveness, suppliers were brought into the discussion at an early stage in the process. Decisions