Mercedes Benz

10-4. Mercedes-Benz All Activity Vehicle (AAV)

The target costing case literature contains numerous examples of Japanese cost management practices; however, few cases describe the use of target costing by large companies outside Japan. The purpose of the Mercedes-Benz AAV case is to consider the competitive environment of a leading German automotive manufacturer and the company's response to changing competitive conditions. The teaching plan generally follows the suggested student assignment questions. In places, I recommend considering additional material during the case discussion. These questions are identified by a check mark.

Student Assignment Questions

1. What is the competitive environment faced by MB?

Students will identify a number of changes, including significant market share lost to Japanese companies such as Lexus. Stress the importance of a cultural change taking place within top management at Mercedes. Reinforce that Mercedes is a company that had never lost money. They simply built the best car their engineers could design and priced it above cost. Demand often exceeded supply. As a result, cost had never been a primary consideration. Changes include:

* cost competition;

* product innovation.

2. How has MB reacted to the changing world market for luxury automobiles?

Students should identify the following changes implemented by management at Mercedes; try to get them to explain how different these approaches were from traditional strategies at Mercedes:

* many new product introductions;

* partnering with suppliers;

* reduced system complexity;

* new emphasis on cost control;

* layers of management reduced;

* lead time from concept to introduction reduced.

3. Using Cooper's cost, quality, functionality chart, discuss the factors on which MB competes with other automobile producers such as Jeep, Ford, and GM. If the...