Strategic Analysis of Mercedes-Benz AAV: Value Chain and Performance

This case study examines the Mercedes-Benz All Activity Vehicle (AAV) project, focusing on its strategic implications and operational challenges. The analysis begins by assessing the competitive environment MB faced when launching the AAV, highlighting the impact of pricing and market entry. It then explores MB's response to the evolving luxury automobile market, emphasizing product diversification. The case further investigates the AAV project's alignment with MB's market coverage strategy, the company's approach to cost reduction through target costing, and the critical role of suppliers in achieving these cost targets. The importance of the accounting department in ensuring the accuracy and realism of target costs is also discussed. The document provides a comprehensive overview of the value chain management and performance considerations in the context of the Mercedes-Benz AAV project.

Running head: VALUE CHAIN MANAGEMENT AND PERFORMANCE 1
Value Chain Management and Performance
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VALUE CHAIN MANAGEMENT AND PERFORMANCE 2
a. What is the competitive environment faced by MB as it considers launching the
AAV?
The competitive level of the environment as MB considers launching AAV is high and this is
because of two different reasons. The first reason is associated with the price of the products of
MB. The cars that Mercedes Benz manufactures have always had a slightly or very high price,
and that is a competitive advantage to the competitors, and this is because they have a chance to
capitalize on it (Irdla, Padari, Kurvits, & Muiste, 2017). The second fact is associated with the
fact that this is the first type of car that the company wants to release. When an organization
ventures in a new market, the competition is high especially if there are other organizations that
are already manufacturing the same type of products.
b. How has MB reacted to the changing world of luxury automobiles?
The changing world of luxurious automobiles has affected Mercedes Benz negatively, and
that has led to the company coming up with strategies that help it to stand out. Concentrating on
different new products is the strategy that the company has employed. The concentration of new
other products means that the company has presented itself as an organization that gives the
customers a wide variety of choices (Mohrdieck & Dehn, 2019). Considering the fact that
Mercedes Benz has been in the luxurious cars manufacturing industry when it engages in the
business of manufacturing other diverse products, it is evident that the company has reacted
positively and this is because it also increases the targeted customers and that has an effect on the
company.
c. How does the AAV Project link with MB’s strategy in terms of market coverage?

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AAV Project is the one that convinced the company that it should be present in other nations
to get closer to the customers and to also cover a bigger market area (Tournois & Chanaron,
2018). Therefore, it is evident that the project was connected to the strategy of the company
covering a bigger market and this is because this was one of the projects that motivated the
company to stop only focusing on one manufacturing station.
d. How does MB approach cost reduction to achieve target costs?
The company compares the estimated existing cost with the target costs, and this helps the
company to know the exact areas that it should reduce the costs. The strategy of the company
that is associated with the manufacturing processes involved functions groups that were funded
to play an essential role in the process of value addition. By looking at the existing estimated
costs, an organization is presented with an opportunity to know the exact areas to work on with
the main aim of achieving the targeted costs (Li, Li, Liu, Lages, & Stoet, 2019). In cost
reduction, it is evident that the targeted cost must be lower because the difference between the
existing estimated cost and the target cost must depict a negative that favors the targeted costs.
Logically, it means that the targeted cost must be low and that is where the comparison comes in
place to help the company to identify the cost that is higher than the other.
e. How do suppliers factor into the target costing process? Why are they so critically
important to the success of the MB AAV?
The suppliers have effects on the manufacturing process, and this is because the materials
that they provide to the company are used in the manufacturing process. Therefore, it means that
if the suppliers sell the raw materials at a higher price, the targeted cost will be increased because
the company cannot buy raw materials at a higher price and sell finished products are a lower

VALUE CHAIN MANAGEMENT AND PERFORMANCE 4
price (Follmann, 2019). The suppliers are critically important to the success of MB because they
can affect the products the company manufactures from the perspectives of costs and quality.
When the suppliers present the raw materials at a fair price, the prices of the products of MB
increase and when the quality of the raw materials is high, the company gets an opportunity to
manufacture high-quality products that boost its success levels.
f. What role does the accounting department play in the target costing process? [20%]
The accounting department plays an essential role in making sure that the target costing
process reflects the actual costs. A gap between the targeted costs and the actual costs can have
an effect on the production process, and this is because the production process does not come
without costs (Bösch, Becker, Becker, & Axhausen, 2018). The target costs must also be realistic
given the scenario or the nature of the products that the company is likely to engage in. It is at
this point where the accounting department comes to maintain balance as well as advice on the
best way to make sure that targeted costs are a depiction of reality.

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