2. i
Preface
The creation of this report about Value Chain Innovation of Mercedes-Benz is made possible by our
teacher Mr. Sakwe. We would like to thank our teacher and the indirect contributors that helped us to
gain knowledge so we could write this report. Our group consists of Fei Yang, Houyang Zhang, Jun An
Lee, and Yuhao Xie.
All team members of this group have a Chinese background with two members with a Dutch
nationality. Houyang has been living in the Netherlands since his eleventh and Jun An since his birth so
both know the Dutch and Chinese language/culture. Fei and Yuhao got to the Netherlands since 2013.
Although the whole team has a Chinese background we are still able to look at subjects from different
perspectives.
During the creation of this report we will apply the knowledge from other management courses of
Fontys University of Applied Sciences, especially from Mr. Sakwe’s Performance and lean
management, operations management, and supply chain management. We aim to learn more from
the Automotive Industry and get more insight in the direction of Value and Supply Chain.
We wish you a pleasant reading experience and hope you are also able to learn from our research.
3. ii
Table of Contents
Preface...................................................................................................................................................... i
1. – Introduction...................................................................................................................................... 1
1.1. – Value Chain Innovation............................................................................................................. 1
1.2. – Company Background ............................................................................................................... 1
2. – Value Chain Strategies...................................................................................................................... 2
3. – Business Pyramid.............................................................................................................................. 3
3.1. – Business Intelligence................................................................................................................. 3
3.1.1. – Political ............................................................................................................................... 3
3.1.2. – Economical.......................................................................................................................... 3
3.1.3. – Social................................................................................................................................... 3
3.1.4. – Technological...................................................................................................................... 4
3.2 – Competitive Intelligence ............................................................................................................ 4
3.2.1. – Brand .................................................................................................................................. 4
3.2.2. – Technology ......................................................................................................................... 4
3.2.3. – Market Overview................................................................................................................ 5
3.2.4. – Supply Chain....................................................................................................................... 5
3.3. – Competitor Analysis .................................................................................................................. 6
3.3.1. - BMW.................................................................................................................................... 6
3.3.2 – Audi...................................................................................................................................... 6
3.3.3 – Lexus.................................................................................................................................... 7
3.4 – SWOT Analysis............................................................................................................................ 7
4. – Maturity Level of Supply Chain......................................................................................................... 8
5. – Value Chain Innovation..................................................................................................................... 9
6. – Recommendations.......................................................................................................................... 10
6.1. – 3D Printing Technology ........................................................................................................... 10
6.2. – Hubs-and-Spoke models ......................................................................................................... 10
7. – References...................................................................................................................................... 11
8. – Appendices ..................................................................................................................................... 14
8.1 – Appendix I: Unit of Sales Mercedes-Benz Cars ........................................................................ 14
8.2 – Appendix II: Current Value Chain............................................................................................. 15
8.3 – Appendix III: 14 Largest Original Equipment Manufacturers................................................... 16
4. 1
1. – Introduction
This report is about the Value Chain Innovation of Mercedes-Benz which is in the automotive industry.
1.1. – Value Chain Innovation
The value chain is a series of activities including primary and support activities, that could add value to
products and services. It enables the company to gain marginal value for these products or services
and eventually competitive advantage (Porter, 1985). The supporting activities consists of categories
firm structure, HRM, technological development, and procurement, whereas the primary activities
consists of the inbound logistics, operations, outbound logistics, marketing and sales, and service.
Primary activities relate to the creation and distribution of the product, each of these activities create
value for the end product or service. Value activities are dependent on the organisational strategy and
also the importance of each generic category might differ per industry. The role of the supporting
activities are, however, to back up the primary activities (Eelants, 2015).
Innovation has significant effect on firms’ survival and growth in the market, especially in the longer
term. Innovation has been defined as “the development of new values through solutions that meet
new requirements, inarticulate needs or old customer and market needs in value adding new ways”.
1.2. – Company Background
Mercedes-Benz is a division part of Daimler Group, one of the biggest producers of premium cars and
one of most successful company word-wide (Daimler AG., n.d.). The company started as two separate
companies, Daimler-Moteren-Gesellschaft, also known as DMG, founded by Gottlieb Daimler and Benz
& Cie. founded by Carl Benz. They are the inventors of automobile in 1886 and merged in 1926 (Daimler
AG., n.d.).
Throughout the years Mercedes-Benz has grown significantly and is now distributed world-wide. It
focusses on the production of premium cars; however other than passenger cars it also sells camper
vans, transporters, trucks, and buses. In addition, it separated corporate and diplomatic sales. The
product line of Mercedes-Benz’s passenger cars consists of 25 series. The unique selling point of
Mercedes-Benz goes as following: “the best or nothing“. By comparing the sales of 2014 and 2015 it
can be seen that Mercedes-Benz is having sales growth in the most important markets such as the
United States, Japan, China, and West Europe. Some segments received negative changes such as the
Sport Cars (-4%), E-Class (-7%), and S-Class (-8%). A detailed overview of the sales is displayed at
Appendix I.
5. 2
2. – Value Chain Strategies
Originally Mercedes was a product focused company and now the company transformed its focus from
product leadership to customer intimacy. For the transition, Mercedes was required to improve
customer service and experience. Therefore, it started with the research on the customer journey map
and spread meaning and the best practice to stakeholders. Enhancing the customer service and
experience required an education program. In the past, a large number of Mercedes dealers never
drove a Mercedes-Benz themselves. This lead Mercedes to have every dealer to drive a Mercedes-
Benz themselves to experience what customers are experiencing. In addition, Mercedes was bad at
listening at customer feedback, these feedbacks were not processed. For this matter, the company
designed a software to serve or counter customers worries or problems immediately (Brouwer, 2016).
With a base on product leadership and improved customer intimacy Mercedes can only make further
improvement on the aspects of operational excellence. Appendix II displays a concise Value Chain.
Support Activities
Firm Infrastructure General management, finance accounting, legal
Human Resource
Management
Recruitment, training design, contracting, safe working conditions, health
care & compensation policies.
Technology
development
Smart factory (networked value chain) natural energy, BlueTEC,
BlueEFFICIENCY measures, Hybrid technology, BlueTec Hybrid, F-Cell
Procurement Purchasing, management supplier network, utilization of natural materials,
supply chain management, funding, uses of particular input (e.g. sheep’s
wool in new C-Class Saloon), renewable raw materials, natural gas,
hydrogen energy
Primary Activities
Inbound Logistics Purchasing the raw material from all around the world with different
supplier, maintain the relationship between the company and supplier,
and applying the JIT approach for handling the raw material.
Operations 33 production locations world-wide, manufacturing: pioneering
technologies (Hamburg, GE), assembling, dealership management,
integrating logistics management system, IT and communications
management.
Outbound Logistics Distribution channel, logistics system
Marketing & Sales Car exhibitions, (social) media (e.g. TV commercials, main stream
magazines), marketing and production mix
Service After sales service, complaints handing
Source: Mercedes-Benz Group
6. 3
3. – Business Pyramid
3.1. – Business Intelligence
3.1.1. – Political
Taxation in the automotive industry is one of the important factors that affects the sales price of the
car. According to Uni Assignment Centre (2013), duties for each country differ based on the type of
car, CO2 emission, economic life span, and engine power. Due to protectionism for the import and
export of goods and services, tax has to be taken into consideration for the entire value chain process.
Moreover, based on the report by Kalmbach, Bernhart, Kleimann and Hoffmann (2011), it could be
said that behaviour of customers could also be affected by regulation, legislation, tax and rating
recommendations. The automakers have to adjust their production methods and manufacture
different models to adapt to the regulations in country where they sell their products (Audretsch,
Lehmann, Richardson, & Vismara, 2015).
3.1.2. – Economical
The automotive industry is one of the most important economic driver around the globe. It consumes
nearly half of world’s consumption of oil (Papatheodorou & Harris, 2007). This industry creates millions
of jobs in the world. The report by Hill, Menk, Cregger and Schultz (2015) stated in the US, automotive
industry creates 7 million jobs directly; one car production job creates 7 other jobs; each employment
in this industry can create 4 additional jobs in other industries. The automotive sector attracts foreign
direct investment which are valued to be 74 billion USD, it accounts for 3 percent of all FDI in America.
The automotive industry has provided the government a total of 206 billion USD in tax which includes
100 billion USD in state government tax revenue and 96 billion in federal government tax revenue.
In Europe, automotive sector provides 12 million jobs which consisted of 3 million jobs for
manufacturing, 4.3 million jobs for sales and maintenance, 4.8 million jobs for transport. This industry
accounts for 4 percent of European GDP (European Commission, 2016).
3.1.3. – Social
Nowadays, automobile culture is still one of the important cultures in American and European
countries. Until July, 2015, the USA has 257.9 million sedans, trucks and SUVs. It means that out of five
people, four own a vehicle. Meanwhile, the average age of a vehicle also increased from 9.8 years to
11.5 years (Young, 2015); however, in China, the car culture is different from the American one.
Chinese consumers do not care that much about the economic life of a car. This group more concerned
about new models, fashion and luxury of the vehicle. The main reason is due to ability of cars to show
the owner’s social status (Branigan, 2012). Gabardi, Huang and Sha (2013) stated that in 2016 China
7. 4
will become the largest market for luxury vehicles and in 2015, quarter 1 to 3, the sales volume of
premium car of Mercedes Benz increased 30 percent in Chinese market, twice than the growth rate in
worldwide market (Bekker, 2015).
3.1.4. – Technological
The engine occupies a crucial position in a car for which most companies put significant effort on
improving ability with numerical funding and talents. According to Crawford (2013), one of main trend
regarding the engine are focusing on the improvement of the engine efficiency and fuel economy
which include downspeeding, direct fuel injection, and boosting. Other engineering trends focus on
improving the performance of batteries system, such as new battery chemistries and subsystems
which were designed for expanding battery operating range and reduce costs. Another trend is
downsizing and turbocharging which in the end also improves the engine efficiency. Besides, the
vehicle electrification and hybridisation technology are comprehensive applying in automotive
industry.
3.2 – Competitive Intelligence
It is of importance that Mercedes-Benz identify the factors of success within the automotive industry
in order to stay competitive. Some of these factors identified are brands, technology, market overview,
and supply chain.
3.2.1. – Brand
The car brand is an essential factor when people consider to purchase a car. Due to the existing
knowledge about car brands by customers they will immediately have a preconceived view on a certain
brand. These view could easily be influenced by commercials, celebrities, peers, and occupation which
is related to the effects of emotions and rationality of the human being.
Nowadays, there are numerous brands of cars which were established by 14 large automotive OEMs
(Original Equipment Manufacturer) have driving the automotive industry (Simoudis, 2015). A detailed
overview of these OEMs can be found in Appendix III.
3.2.2. – Technology
Technology component is one of crucial success factors in the automotive industry which has
generated 80% growth from 2000 to 2007. In today’s marketplace, automakers are heavily relying on
the technology development to maintain their competitive positions. Such as powertrain
electrification, which has become significant trend in automotive industry aim to reduce the CO2
8. 5
levels. Kalmbach, Bernhart, Kleimann, and Hoffmann (2011, p. 55) state that “OEMs will need to
expand their technology portfolio and add electrification of the powertrain in all forms, including plug-
in hybrids and pure electric drive vehicles”. Both of them can produce fewer emissions than
conventional vehicles. In 2025, the share of Hybrid cars would increase to 40%, while electric car will
reach 20% shares. Furthermore, some of the latest automated vehicle technologies are designed to
supplement the human operator to improve driver performance. For example, anti-lock brakes and
electronic stability control.
3.2.3. – Market Overview
For a company within the automotive industry, the ability to read the dynamics of a market is of great
importance. Markets throughout the world change, whether positively or negatively, these should be
tracked and companies have to react to these. For example, the BRIC countries, which are largest
emerging countries, are highly potential markets since these are still growing while European countries
and the United States are recovering from the economic crisis (Hanna & Kuhnert, 2014).
3.2.4. – Supply Chain
One of the key success factors is also supply chain which is complex for car manufacturers. According
to Hanna and Kuhnert (2014), car manufacturers that already have a strong presence in growing
markets decide to create an efficient and flexible production strategy and to fulfil their motives to
grow, these companies will have to control their supply chain. Within the production process, flexibility
can be created with standards although it may sound controversial. However, factories with similar
shared standards can manufacture different models which decreases down-time.
Hanna and Kuhnert (2014) also argue that within a car or truck more than 60% of the value added
items are created by the research and products of suppliers; therefore, suppliers are essential partners
for the creation of innovative end-products. Suppliers deliver their products as parts, components or
even as systems. Research is driven by the higher expectation in the areas of safety, environment, and
fuel efficiency.
For car manufacturers to get a hold of innovative components developed by suppliers, relationships
have to be created. The study of Kalmbach et al. (2011) explains that R&D of car manufactures have to
create strong relationships with partners in the downstream section to access new technologies.
9. 6
3.3. – Competitor Analysis
3.3.1. - BMW
Bayerische Motoren Werke AG, usually known as BMW, is one of the most major competitors of
Mercedes-Benz. BMW is founded in 1916 as an aircraft-engine manufacturer and has become a
successful automaker in the automotive industry. It is now one of the most successful world leaders in
motorcycle production. The three most outstanding premium brand of BMW are Rolls-Royce, MINI,
and the BMW brand itself. These cars are manufactured with remarkably high standards in terms of
aesthetics, dynamics, technology and qualities. With the BMWi they designed something innovative
again. This series contains features such as electric drivetrain, revolutionary lightweight construction,
exceptional design, and new rage of mobility services. BMW follows a value-based approach which
means it is more towards product leadership (BMW Group, 2016).
World-wide, BMW has a large distribution consisting of around 140 Rolls-Royce, 1,550 MINI, and 3,310
BMW dealership. Its production locations are distributed world-wide into 30 locations in 14 countries.
An international production network helps BMW to balance the value added into the production chain;
however German production sites remains an important base for the continuation of developments.
Due to their strengths in innovation with digitalisation, modular concepts, and intelligent composite
manufacture it is leading the international production network (BMW Group, 2016).
Since 2005, BMW surpassed Mercedes becomes the sales leader of luxury vehicle (Stanley, 2014). In
2014, BMW maintained the title of most preferable premium car brand with 1,811,719 cars sold
(Vijayenthiran, 2015).
3.3.2 – Audi
AUDI AG is a German luxury vehicle producer, founded in 1909 and now is part of the Volkswagen
Group. The name “Audi” means “listen” in Latin. Since 2011, Audi ranked 2nd on world luxury cars’
market and becomes the market leader in European and Chinese markets. In 2014, Audi sold 790,945
units with only 7 months in these two markets (Stanley, 2014).
Technological innovations, modern design as well as high-calibre material and build quality are the
core values for Audi (Audi AG., n.d.).
The global network of the Audi family has already grown to expand across 136 countries. In 2014, there
are more than 1.74 million cars delivered by Audi, setting a new record for the unit sales. Their product
portfolio includes a series of models from the premium A4 Saloon, to the mid-range A4 Saloon, as well
as the R8 sports car (Audi AG., n.d.). In this content, Chairman Rupert Stadler (as cited in Pollard, 2014)
10. 7
revealed that the range proliferation of Audi will grow to 60 models by 2020. They are also investing
massively on areas like lightweight construction, vehicle networks and innovative driving technologies
(Audi AG., n.d.).
3.3.3 – Lexus
Lexus, the luxury class from Toyota is founded in the 1980s. It has three price categories for the models
that can be distinguished in low, medium and high price range. The low price category contains the CT
and IS models that approximately 20 to 50 thousand euros. The GS, RC, and NX series belong to the
medium price range which has a price tag from 50 to 70 thousand euros. And at last, the high class is
consisting of the LS and RX series which cost from 70 up to 120 thousand euros. The special feature
that Lexus added to each model is the four different lines that appeal to different segment of
customers. Each model has a standard line, on top of that it can be upgraded to Business Line, Sport
Line, Luxury Line, or President Line. Furthermore, the focus of the Lexus technology lies in the hybrid
innovations which resulted in the LS 600h L that consist of world’s first full hybrid V8 power train
(Toyota Motor Corporation, n.d.).
3.4 – SWOT Analysis
Strength Weakness
Strong brand image
Largely known for its safety and luxury
Incalculable goodwill
Innovation advantage
Strong authorised dealer network
33 production plants around the world
Advanced user experience design
High maintenance costs
Expensive Mercedes-Benz
Extremely high service costs
Speed and handling of the car
Complex and costly supply chain
Opportunities Threats
Trend of clean energy
Trend of Hybrid/Electric Cars
Increased purchasing power in
developing countries
Increasing price of petrol
Many dominant players in the market
Capital requirement
Governmental regulations
Increased tax for importing vehicles
11. 8
4. – Maturity Level of Supply Chain
Currently, the performance of Mercedes-Benz shows that they are at level 4 of the supply chain
evolution, which is called “Value Chain Collaboration”. It is positioned in level 4 because Mercedes is
heavily investing on the optimisation of the supply chain and especially focussing on the logistics
throughout the global production network. Since logistics plays an extremely important role in the
process of delivering value to the end customers. It ensures customers to get the right product, at the
right place, and at the right time. However, within the logistics operation of Mercedes, there are much
pressure coming from a large number of engine models and personal customisation options. By
reducing the cost of logistics per car could have a positive influence on Mercedes’ competitiveness,
since the logistics have a significant effect on their overall cost position. To this end, Mercedes
investing massively in the next few years to improve the efficiency and flexibility of supply chain, which
mainly focus on optimising logistics throughout the global production network. Especially in three
major Mercedes plants, China, the US and South Africa, will be operated by specialised local logistics
service providers. Moreover, a global supply chain management unit is integrated within the central
production organisation of Mercedes-Benz to have better control of these three regions (Donati,
2015).
Additionally, Mercedes-Benz is aiming to digitalise the whole organisation which combines products,
machines, and the entire work environment together. Digitalisation is required in order to create a
smart factory, which they call “Industry 4.0”. By transform the real world activities into a functional
digital world it will provide real-time representation of processes, systems and the entire production
process. They believe that digitalised integration will enable their products to be more individually
oriented, production even more flexible, and achieve a greater efficiency. The condition for a whole
connected and flexible production system is necessary that all components in the system have a
common language. As a result, Mercedes-Benz uses an integra control software from the bottom level
at an individual machine up to production control, and in the collaboration with suppliers and system
partners (Daimler Group, 2015).
12. 9
5. – Value Chain Innovation
This area looks at the possible changes that could be made to increase the value added in the value
chain activities.
Research & Development:
Recognising the desires and preferences of the driver and passenger.
Taking more pressure off the driver
Delivering even greater comfort and convenience
Predicting operating steps
Production:
Increasing the efficiency and flexibility of its supply chain.
Expanding the supplier network close to customers and markets.
Optimising logistics throughout global production networks
Reducing logistics costs per vehicle
Marketing & Sales:
Determining the social media channel, such as TV, main stream magazines
Organising the car shows event in core markets such as Paris, London, Las Vegas, New York to
attract the attention of the mass
Sponsoring/supporting prestigious world events to enhance the luxurious position
Distribution:
Maintain a long term relationship with car dealer in order to guarantee a high level of service
to all customers.
Carefully manage the emerging multi-channel distribution network
Customer service:
Establish a long lasting relationship with a customer by providing extended mobility services.
Together with customer and the car dealer evaluates the mobility needs of customers.
13. 10
6. – Recommendations
6.1. – 3D Printing Technology
3D printing within the automotive industry is nowadays only used for rapid prototyping. Mass
production with 3D printing technology has yet to be applied (Cassaignnau, 2016).
This technology is considered as a potentially economical viable solution, which can be applied in the
production of both exterior and interior car parts. Under this technology, Mercedes gains several value
added benefits. On one hand, they do not only reduce the cost of manufacturing, but also speed up
the overall production process. On the other hand, Mercedes is able to increase the capability to
provide more customised designs to customers, such as lightweight lattice structures and fancier
geometries (Bekiaris, 2015).
6.2. – Hubs-and-Spoke models
In a hub-and-spoke system, the distribution centers, which is the hub, serve as a purpose to transport
finished vehicles to the dealer, which are the spoke. When transporting parts, the part suppliers will
serve as hubs and dealers still stay spokes.
The issue in logistics regarding its cost can be improved by the hub-and-spoke models, which have
been success in the shipping and aviation industry. The notion of hub-and-spoke is to unite network
flows for the optimisation and utilisation of a variety of transportation resources and to lower the costs
through sharing equipment used in facilities (Ludwig, 2013). Mercedes is able to sell its premium cars
cheaper, which creates a competitive edge over BMW and Audi.
14. 11
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