Critical Review of Materials Management of Mercedes-Benz

This report provides a critical review of the approach to materials management of Mercedes-Benz, including the role of relationships in the organization's approach to materials management and logistics.

SYSTEM AND
OPERATION
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Critical Review of approach to materials management of Mercedes-Benz...........................1
TASK 2............................................................................................................................................6
Critical Review of role of relationships in the organisation’s approach to materials
management and logistics.......................................................................................................6
TASK 3............................................................................................................................................8
Critical Review of role of emerging technologies in the subject organisation’s approach to
supply chain............................................................................................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
System and Operation Management is a very detailed area of study and practice that is
related to appropriate planning, organising and controlling of all the systems, as well as
operations of an organisation. These activities are the ones which support the strategies, tactics
and goals of the company in a manner that provides effective sustainability and competitive
advantage to a firm. Furthermore, it is imperative for a company to indulge into practices which
allows them to appropriately handle several operations and management of resources
competitively, which supports and aids to other functions within the firm (Cotruvo, Craun and
Hearne, 2019).
Thus, in regards to this, the report below is based on Mercedes-Benz, which is one of the
world’s biggest car manufacturing organisations headquartered in Germany. The assignment
would be covering a specific area of its operations, which is materials management. Moreover, in
context of the organisation, the report would be including critical review of approach of the firm
towards materials management, which involves its approach to intermediaries. Furthermore, the
assignment is also inclusive of critical analysis of role of relationship in the company’s approach
to materials management and logistics. Critical review of role of emerging technologies in the
company’s approach to supply chain is also an integral part of the report.
TASK 1
Critical Review of approach to materials management of Mercedes-Benz
Materials Management within an organisation refers to a prominent function within the
supply chain which involves the planning, as well as execution of the overall supply.
Furthermore, it is the capability of the company to determine the requirements of the materials
that is currently being needed by the firm.
The firm which is chosen for this purpose is Mercedes-Benz, which deals in manufacturing
and distribution of premium vehicles throughout the world. It is considered to be one of the best
companies when it comes to providing services and products that are high in quality,
sustainability and durability. In addition to this, the company is known to have a very large
supply network across the world that is associated with individuals and large organisations which
supply high quality raw materials to the company (Chen, Preston and Swink, 2015).
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Below is the structure of the supply chain of the organisation which covers all the aspects
and organisations that is involved within the company’s supply chain management.
Illustration 1: Mercedes Benz' Supply Chain Network
(Source: Mercedes-Benz Cars Operations (MO) Transforming Production, 2020)
As mentioned from the company’s supply chain above, the company divides its supply
chain globally according to the types and varieties of cars it manufactures (Mahadevan, 2015).
Furthermore, there are multiple supply channels within the company that are linked end-to-end
for the company to ensure proper segregation and management of the same according to the
product groups related to the same. However, the structure of Mercedes-Benz’s supply chain
network seems a bit complex. The reason is associated with a huge network of intermediaries for
different product categories manufactured by the firm (Castka and Corbett, 2015).
Hence, it becomes necessary to evaluate the approach of the company towards its suppliers. The
company adopts an End-to-End approach, which has helped the company to expand the logistics
operations and ensure higher production of vehicles annually. The fact that underpins this
discussion is that the firm is effective enough to produce around 1 million cars every year, which
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invites only few competitors, such as BMW. However, the firm’s supply chain has seen an
appropriate expansion quite lately, when the firm produced an output of 2.4 million passenger
cars in 2017 (Mercedes-Benz: Taking an end-to-end approach, 2020). However, this expansion
is quite complex for the company to manage and handle, It can cause issues that are associated
with straining the capacity of its production plants, as well as high cost maintenance of the
logistics function.
In relation to materials management however, there are several types which are necessary
to be analysed in order to determine the approach of the organisation in relation to its
management. Hence, below are several components of materials management, along with critical
evaluation of how Mercedes-Benz has been managing all these elements: Planning the Materials Requirements:
The very first element of materials management is planning the requirements of materials
that are necessary in order to ensure manufacturing of its products and services. Currently, the
firm indulges itself into extensive market research, which provides an inside into the current
trends, gaps within demands and supply, anticipated advancements in the sector and so on. This
has allowed the company to plan its materials requirements according to latest components and
vehicle parts that are environmentally sustainable, as well as are technologically advanced.
Moreover, Mercedes-Benz has been planning its materials as per the new requirements within
the market, which is preferred by the customers (Fan and et. al., 2014).
 Purchasing:
The purchasing of raw materials, also called as procuring is an appropriate and effective
element of the materials management within the organisation. However, in the case of Mercedes-
Benz, there are certain negative, as well as positive elements of how it manages materials
management when it comes to purchasing the materials. With regards to positive, the firm
applied Due Diligence while approaching the intermediaries. It has developed several
questionnaires that are related towards sustainability and effective practices of suppliers and is
based on the Five Step framework for Due Diligence developed by OECD. Each organisation is
required to fill this questionnaire in relation to ensure that they are responsible suppliers. Hence,
the firm approaches only those suppliers which are responsible, sustainable and professional in
terms of delivering the quality and quantity of materials in the stipulated time frame (Hübner,
Holzapfel and Kuhn, 2015).
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However, there are negative elements related to its procurement as well. For instance, the
firm has planned to reorganise its supply chain network as its older one has been too costly for
the firm to maintain, as well as less efficient. The organisations involved in the supply chain of
this company are very much appropriate in delivering the quantity and quality, however, at a
much higher rate, which makes the materials management costly and complex both. To deal with
this however, the reorganisation of the same is a viable step to identify suppliers that are closer to
market and customers both, as well as provide effective guarantee in relation to effective and
certified products. Hence, the end-to-end approach, along with reorganising the network would
be providing Mercedes-Benz with appropriate competitive edge as it would allow the firm to
ensure sustainable procurement within shorter distances, with equally effective suppliers, that
would keep up with the company’s plans to enhance its capacity, as well as would be providing
cheaper alternatives for the enterprise to use (Hill and Baker, 2016).
 Inventory Control:
Controlling and maintaining the logistics and being efficient in the same is a strong basis for
competitive advantage. For automotive organisations, all the vehicle parts must be kept in a
manner that provides maximum performance to the end products. Moreover, the conditions of
the logistics and inventory control must be effective and contributing towards promoting better
quality of the raw materials. In relation to Mercedes-Benz, the firm operates in a fairly complex
scenario as most of the plants outside its home country still very much procure the raw materials
from Europe. Hence, the current economic and uncertain political conditions within the Europe
are causing the firm higher cost and more time to manage their inventory effectively. Hence, this
is an inappropriate manner through which the firm would be maintaining its cross country supply
chain. However, the firm is willing to change its arrangements in relation to procuring these
goods. To eliminate the time and other constraints, the shipping route is being changed by the
firm, to ensure that the goods are procured easily and securely, which would be keeping the
competitive advantage intact.
 Material Flow and Supply
The material flow and supply is another component of materials management which has an
appropriate scope of providing an organisation with utmost competitiveness and sustainability. It
refers to the constant flow of materials within the firm’s manufacturing plants that are later used
to complete the production of several products in an effective manner. In relation to Mercedes-
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Benz, the company is willing to expand its operations outside Germany, where it is expanding
the manufacturing and production capacity within several of its plants worldwide (Yang and et.
al., 2014). To regularise the flow, the company has opened up a new Consolidation Centre that
would be aiding to the need of specialised services for the company so that this flow is
maintained as per the requirements. Furthermore, to optimise the same, Mercedes-Benz is
incorporating a whole new procedure under which, the firm would be enhancing the optimisation
from the start of this supply chain network, which would be including load carrier planning,
modernisation in digital approaches towards packaging and labelling, enhancing control
processes and adopting driverless transport systems for better and more structured supply chain
management.
On the other hand, in relation to supporting its outbound logistics activities, the firm is
focusing on sustainability in operations which would ensure that a regular and constant flow is
maintained that could be more sustainable, reliable, as well as contribute towards time and other
activities. This would further aid the firm in maintaining competitiveness in the marketplace, due
to minimisation in delays within production that would enhance the quantity of the vehicles
which the company is willing to make in a year (Hitt, Xu and Carnes, 2016).
 Quality Control:
What makes an organisation competitive is the quality of materials which it uses within its
products and services and how reliable are the sources of the company through which these
materials are purchased. Within the automotive sector, all the businesses are required to
emphasise on the quality of materials in their vehicles as it directly links with the safety of
individuals purchasing their products. Moreover, it is very much imperative for the organisations
to ensure the quality of these materials even before they are bought and must be judged in terms
of safety, durability, relevance and overall condition as per the industrial guidelines.
In context of Mercedes-Benz, the company maintains a very effective balance between cost and
quality and hence, the organisation purchases those raw materials that are technologically
advanced, as well as are renewable. This enhances the competitive edge the firm has within the
market and over its other businesses. Moreover, there are certain benefits which the company has
been rooting for, in relation to enhancing sustainability for environment, as well as other
elements that contribute to quality of materials management. As an example, the company’s
GLA-Class is inclusive of more than 46 components where around 21 kilograms of the car’s
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total weight is formed by using several natural materials. Some of these in relation to the
company are the recycled paper, multi-patented material composition, as well as other recycled
elements within the structure of this vehicle (Under the microscope: Renewable raw materials -
High-tech parcel shelf, 2020). Hence, this allows Mercedes-Benz to be competitive in two
different manners. Firstly it enables enterprise into contributing towards environmental safety, by
using materials that reduce carbon emissions. Secondly, with such effective materials
management and quality control, the firm saves up huge costs in production that is later invested
in other crucial decisions of the company in a competitive and structured manner.
TASK 2
Critical Review of role of relationships in the organisation’s approach to materials management
and logistics
In order to carry out all the operational activities in systematic manner it is very important
for all the organization to make sure that they are managing material properly as it can contribute
in attainment of business goals (Guha and Kumar, 2018). If the companies are not able to
manage the inventory systematically then it may result in failure of all the planned activities.
Mercedes is one of the largest entities in care engineering industry therefore it is essential for it
to make sure that it is formulating effective strategies to manage the goods properly. As it is
operating business all around the world so it is essential for it to make sure that it is managing
logistics appropriately because it will facilitate it to deliver the orders in specific time period.
The entity s paying attention towards proper management of inventory and logistics related
activities as it will help it to meet all the long-term objectives such as higher profits, productivity
and highly satisfied customers. There is direct relationship between organization’s approach to
material management and logistics because if the goods will not be managed properly then it will
be very difficult to supply vehicles around the world to be the market leader (Fettermann and et.
al., 2018). Logistics is the organization and implementation of all the complex operations in
which business entities pay attention towards flow of finished goods from one place to another.
There are various types of it which includes supply, distribution, reverse and production. All of
them are focused by Mercedes so that it can execute all its operation systematically all around
the world. With the help of it, the enterprise tries to meet all the requirements of its clients at
global level that benefits it to generate higher profits. Inventory management is also very
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important for the organization so that it can manufacture different models of cars that are
designed and sold by it in the market. There are various types of systems which could eb used for
managing material which are LIFO, FIFO and AVCO.
Last in first out approach is mainly used by such entities which are using recently
received inventory for performing production activities. Main purpose of using this approach is
to carry out operations systematically and generate higher profits. First in fist out method is used
by such companies that are using earlier bought material for carrying out operations. This
approach is used for the purpose of utilizing the goods properly so that possibility of losses could
be reduced. Average cost method is used in organizations where management use inventory on
average basis so that all the goods could be utilized properly. In Mercedes the managers are
using First in first out method for managing inventory so that they can make proper utilization of
all the resources. With the help of it, they try to perform all the operations systematically and
meet the deadlines for logistics. If the material is not managed effectively then it is not possible
for any entity to fulfil requirements of customers.
Currently Mercedes is supplying its cars in different countries around the world therefore
it is very important for it to manage inventory and logistics properly. For this purpose, different
elements are focused by the organization. All of them are discussed below:
 Contractual arrangements: These are the set of agreements that are signed by an
organsiation to assure another party that all the ordered goods will be delivered on time.
These are also generated in Mercedes as it sign them with suppliers and customers. With
clients these are signed for assuring them that the cars that are ordered by them from any
corner of the world will be delivered to them on the due date. All such types of agreements
are signed with suppliers to get assurance that they will supply the material on time so that
engineering activities of the company could be performed properly. With the help of them,
productivity of whole entity is enhanced as it results in appropriate execution of all the
business activities which are planned in advance (Nisiyama and et. al., 2016).
 Logistic service contract: It is mainly related to logistics activities so that an entity can
supply and distribute all the finished goods properly. It covers different types of clauses
which includes responsibility and obligation of the party which is liable for logistic services.
It also covers characteristics or product, obligations of client, rates, claims, confidentiality,
exclusiveness etc. This contract is made by Mercedes so that it can keep the information
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related to logistics confidential. It is one of the main contracts which is required to e signed
by all the companies that are involved in supplying, distribution and production related
activities of a range of products. It also helps the entity to keep the material insured in case
of any uncertainty that may take place.
 3 PL contract (3rd party logistics): It is the contract which is signed by 3rd party which is
involved in the supply and distribution of all the goods that are in logistics (Utne, Sørensen
and Schjølberg, 2017). When an organisation asks a third party to deliver its products to the
desired destination then this contract is made. Main purpose of it is to manage the logistic
properly. It is also used in Mercedes so that it can deliver all the manufactured cars properly
to the countries where it is operating business. It helps the company to meet deadlines that
are agreed with the clients who have ordered cars from different locations around the world.
All the above described elements are focused by Mercedes for the purpose of managing
material and logistics which plays a major role in execution of all the operations properly. With
the help of all the contracts, approaches, agreements and arrangement the organisation can
perform all the planned activities. It will be beneficial for establishing good market image and
accomplishing all the future goals and objectives. Some of them are higher profits, revenues,
satisfied clients etc. Ignorance of these elements may affect the supply and distribution of goods.
TASK 3
Critical Review of role of emerging technologies in the subject organisation’s approach to supply
chain
Overall automotive sector, as well as other industries globally is experiencing a major shift
in their functions and operations, due to changes and advancements in technologies that are now
accessible in the marketplace. There is a huge demand amongst the masses to provide products
that are highly advanced, as well as they expect the players within this sector to use latest
technologies to manage different operations within their respective organisations. A similar
outbreak is being experienced by the automotive companies and their business functions, such as
materials management and logistics and the overall supply chain. This makes it imperative to
evaluate these practices within several of its biggest businesses (Zai and et. al., 2014).
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One such organisation is Mercedes-Benz, which has been known to use technological
solutions and alternatives for better management of supply chain. Thus, below is a critical review
of role of emerging technologies in the company’s approach within managing this chain: Information Technology:
One of the latest technologies that have dominance within the marketplace is the Information
Technology, which covers all the operations and functions within the supply chain of the
organisation. This technology has been a prominent cause for major changes in the whole sector.
The reason for this is that its application within the industry is very vast and it covers almost
each and every function of the organisation (Bazargan, 2016). Moreover, this technology within
the industry is used to cover certain objectives. The very first objective in this regard is quality
provided to the supply chain. This is achieved through implementing technologies in regards to
performance testing of the raw materials. Furthermore, another goal of implementing this aspect
is related to ensure better durability and convenience to customers. It is achieved well through
ensuring high sustainable offerings and timely deliveries.
In regards to this, Mercedes-Benz showcases a brilliant application of Blockchain
technology to maintain the sustainable supply chains of its manufacturing plants worldwide. The
reason on why this technology is used is to maintain a fully fledged record of authenticated and
certified suppliers which act upon sustainability. Hence, this prototype being developed by the
organisation is related to effective and constant documentation of several contracts that has been
made by a range of suppliers globally. These contracts have quality control standards,
necessities, as well as assurance towards adherence to Corporate Social Responsibility and
Business Ethics. The best thing about adopting this form of information technology within the
supply chain is that the prototype automatically showcases the breaches in contract even after a
slightest of deviation. The contribution of this technology towards the company’s competitive
edge is associated with consistency in quality of raw materials, adherence of industrial standards,
as well as better and quality delivery to customers (Toyasaki and et. al., 2017).
 Materials Planning:
As mentioned above, materials planning are very crucial to maintain flow within the supply
chain, along with acquire relevant, authenticate and required materials as per the demand in the
marketplace. Furthermore, there are several technological advancements in this regards as well,
that are helping companies in better planning and anticipation of requirements of resources.
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Hence, this facilitates a certain level of change within the organisations, in regards to which, it is
necessary to evaluate the performance of Mercedes-Benz. In regards to this organisation, it uses
certain technological systems in order to take and manage their orders in terms of materials, one
such system us Materials Resource Planning. Mercedes-Benz uses this technology to ensure that
the internal requirements of raw materials are managed. The company implements this system in
batches as per its different product groups. Hence, this allows the company to ensure that all the
necessary requirements are marked as per the orders and each supplier is separately informed
towards acquiring the raw materials effectively.
Furthermore, Mercedes-Benz uses this system to regulate the flow of supply chain within the
organisation. This is done through setting up the frequencies of delivery, setting up critical
parameters for supply, as well as better and more effective configuration of the warehouses
owned by the firm (Heizer, 2016).
 Systems Development:
This is perhaps one of the most crucial elements in regards to providing the firm with a
scope of enhancing its competitive edge in relation to supply chains. This is because it takes into
account each and every function of the supply chain, right from placing the order to logistics
which must be regulated by the companies so that they save unnecessary wastage of resources, as
well as ensure high capacity in terms of quality management.
The technologies that are currently being in practice are Artificial Intelligence and
Automation. The latter uses concepts of artificial thinking and real time decisions taken by
software and machines, while the latter is related to automate the functions that are being
adopted by the supply chain. Within Automation, robotics too has a clear and crucial role when it
comes to logistics and stocking the raw materials for usage. In terms of competitive advantage of
the company, it allows in expanding the production capacity, reduces waste, increases quality
and so forth.
In relation to Mercedes-Benz, its approach to supply chain management is gradually seeing
an active role of these technologies. For instance, the organisation has been using machine
learning as an appropriate alternative towards maintaining records and inventory status for its
raw materials. On the other hand, it uses AI technology for performance testing of a range of raw
materials, which allows the company in maintenance within the quality of production.
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However, with robotics being a prominent way through which the operations are being held
towards inventory management, Mercedes-Benz could further enhance the operations and
functions of the supply chain management by adopting these methods that would give in better
advantage to the company by reducing human intervention (Kato and et. al., 2015). In addition to
this, since the company adopts shipments as a way to procure its overseas supplies, then it is
necessary for the company to adopt Artificial Intelligence for excelling tracking. With
application of this technology, the company will be able to check real time status of its raw
materials which would contribute towards maintaining its safety and quality.
Therefore, all the above technologies require the firm to indulge in active change
management within the organisation, which is being effectively supported by the current
infrastructure of Mercedes-Benz. It is training its staff and is consistent in development of a
culture that is supportive towards change and welcomes new alternatives to work. However,
better adoption of these technologies is still very much required within the organisation to
improvise its approach to it supply chain management (Asef‐Vaziri, 2015).
CONCLUSION
Thus, it is concluded from the report above that systems and operations management are
very important for an organisation to gain a firm and everlasting competitive advantage within
the market. Moreover, it is also imperative for them to follow several principles and norms
related to the systems and operations management which allows these functions to support the
goals and objectives of the company.
It is extremely important to critically analyse the organisational approach to materials
management which allows in gaining an insight of how best the firm is maintaining its supply
chain and whether the same has been helpful in getting the company an appropriate advantage in
the marketplace. On the other hand, critical review of role of relationships in logistics and
materials management also allows in getting an insight related of the company’s approach
towards its suppliers and the extent to which it is managing its formal and informal agreements.
Lastly, there are several emerging technologies within the manufacturing industry and supply
chain management, such as information technology, materials planning and several systems
development technologies, which must be critically reviewed to determine the effectiveness of
the organisation towards using and implementing the same effectively.
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Online
Mercedes-Benz: Taking an end-to-end approach. 2020. [Online] Available Through:
<https://www.automotivelogistics.media/electric-and-autonomous-vehicles/mercedes-
benz-taking-an-end-to-end-approach/20602.article>
Under the microscope: Renewable raw materials - High-tech parcel shelf. 2020.
[https://media.daimler.com/marsMediaSite/en/instance/ko/Under-the-microscope-
Renewable-raw-materials---High-tech-parcel-shelf.xhtml?oid=9904345]
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