M-B purchasing boss wants to tap emerging markets
Klaus Zehender, vice president of procurement for Mercedes-Benz cars and vans, aims to buy more parts in emerging markets and to encourage suppliers in those markets to export to Western countries.
He spoke in German with Staff Reporter Matthias Krust of Automobilwoche, a sister publication of Automotive News.
What do you expect to gain from buying more components in growth areas such as China and Mexico?
Local sourcing will grow considerably because we are increasingly manufacturing internationally as part of our growth strategy. For example, we are expanding our factories in China, South Africa and the U.S. Many interesting opportunities emerge from cooperation with local suppliers. With their market knowledge and support, for example, there are opportunities to successfully pursue complex in-depth localization, meaning with subcontractors, and to unlock the corresponding cost potentials.
But we do not have top-down goals for local purchasing beyond mandatory guidelines in specific countries. After all, localization for us is not a goal in and of itself. In each individual instance we are rather determining what makes more sense, global or local purchasing. The crucial factor is the so-called total landed cost, meaning the ideal economic combination of logistics, tooling and production costs. We're also using our so-called reference calculation here.
Are there then benchmark prices for every region?
Precisely. We use regionalized versions of that approach and thus can determine, for instance, what is possible for a specific component in China -- including the supplier chain. Our purchasing offices work accordingly in Mexico and other regions.
Are these new suppliers as good as established ones?
Our experience with localization shows that new suppliers are at least as good as established suppliers in terms of quality and performance. In addition, these kinds of new players bring dynamism to the industry with their innovative ideas, and increase the intensity of competition globally.
Especially in commodities with an oligopolistic supplier structure, additional competitors emerging from new regions are helpful. For example, we are already using local suppliers of this type in China for export, and we plan to use them increasingly in the future. For example, we are sending wheels from China to the U.S.
Couldn't Mercedes save more money by reducing its value creation? BMW doesn't build its own transmissions, for example.
We have deliberately developed a core competency in the powertrain area, and we believe it is a competitive advantage. We consider manufacturing to be part of that competency. In the context of our growth strategy, we will complementarily analyze how we can handle additional volumes in an optimized manner.
How do you intend to proceed?
This is the question of whether we can achieve a better cost position with localized production at a supplier than with an own investment to build new local production facilities. In the end, such a decision is the result of a business-case analysis in each individual situation. We are hoping for proposals from our suppliers on how production, especially in the growth markets, can be achieved across manufacturers at the best possible cost, primarily by bundling volumes in the pre-production phases. The resulting economies then offer a cost position that could not be achieved on a stand-alone basis.
With a modular strategy, the risks of quality rise sharply. How do you intend to limit the risk?
We see no increase in risk, on the contrary. Our quality figures for Mercedes are outstanding today, and we will even get better. With the modular strategy, you achieve a reduction in complexity and the number of variations, which simplifies quality processes for us and our suppliers. At the same time, with fewer different parts, the levels of maturity at our suppliers increase. This is a significant advantage especially during new product launches. So I am assuming that modularization will bring another boost in quality.
Renault-Nissan is a key partner with Mercedes in vehicles and engines. Are you considering a more extensive purchasing collaboration?
Our cooperation is clearly defined in all projects. For example, we have agreed on who has the development lead for which modules of the next Smart and Twingo generations. The procurement responsibility is tied in with that. So we are bringing the best of two companies together. There is no general cooperation in procurement -- beyond the specifically agreed-upon projects -- or a joint procurement organization. Since we regularly check with our partners to see where cooperation might make sense for everyone in further fields, however, I wouldn't want to completely exclude this in the future.
You can reach Matthias Krust at firstname.lastname@example.org.