Wilko Stark - CASE means OEMs need to develop new supply chain systems and strategies

Wilko Stark - CASE means OEMs need to develop new supply chain systems and strategies

Mercedes-Benz Cars says it is taking the next step in the implementation of the CASE strategy and is making its supplier network 'even more international'. It is also using Blockchain technology for greater supply chain transparency and to reinforce sustainability aims.

Daimler plans a total of 130 electrified variants at Mercedes-Benz Cars by 2022. In addition, it will have electric vans, buses and trucks. These will range from the 48-volt mild-hybrid electrical system to EQ Boost and plug-in hybrids and more than ten all-electric vehicles powered by batteries or fuel cells. By 2025, Daimler forecasts that sales of battery-electric vehicles are set to increase to 15-25% of total unit sales – depending on individual customer preferences and the development of the public charging infrastructure.

The company is investing ten billion euros in the expansion of the Mercedes-Benz Cars electric fleet and another billion euros in the global battery production network within its worldwide production network. It purchases battery cells on the world market. This, it says, ensures the best possible technology and focuses on the core competence of battery assembly. The global battery production network of Mercedes-Benz Cars will in the future consist of eight factories on three continents. There are two factories at Kamenz. Two more factories will be built in Stuttgart-Untertürkheim, one at the company's Sindelfingen site, and one each at the sites in Beijing (China), Bangkok (Thailand) and Tuscaloosa (USA). The local production of batteries is an important success factor in Mercedes-Benz Cars' electric offensive and, it says, is decisive for meeting the global demand for electric vehicles flexibly and efficiently.

Wilko Stark, Member of the Divisional Board of Management of Mercedes-Benz Cars for Purchasing and Supplier Quality since October 2018, is implementing the strategy and stresses the early involvement of supplier partners: "Procurement makes a significant contribution to the implementation of the CASE strategy at Mercedes-Benz Cars by working together with suppliers at a very early stage in the development of innovations. After placing an order for battery cells for EUR20bn (US$22.6bn) to safeguard our electric offensive, we are taking further steps at Procurement and Supplier Quality pushing forward with the transformation of Mercedes-Benz Cars."

Together with the supplier network, Mercedes-Benz Cars says it is driving CASE innovations forward, further expanding the international supplier network and creating greater planning security in the supply chain through increased flexibility.

Purchasing drives CASE innovations forward with the supplier network

The Procurement and Supplier Quality division at Mercedes-Benz Cars works with suppliers in the CASE fields to drive tomorrow's innovations. Through permanent innovation scouting in the existing supplier network and with new players and start-ups, innovative ideas are generated over the entire lifecycle for hardware, software and services. The aim is to bring innovations into Mercedes-Benz vehicles more rapidly. With extensive orders for battery cells until the year 2030, another important milestone has been set for the electrification of the future electric vehicles of the EQ product and technology brand. Together with supply partners, this will ensure that the global battery production network is supplied with the latest technologies, the company says.

Expansion of the international supplier network

Mercedes-Benz Cars is continuing to expand its international network of suppliers and is systematically pursuing its strategy of purchasing wherever its vehicles are produced. By intensifying its localisation strategy, Mercedes-Benz Cars is making itself more independent of political developments such as trade conflicts. Stark highlights the importance of localisation. "At Mercedes-Benz Cars, we generally aim to increase the degree of localisation wherever we produce," he says.

"A central building block is the local proximity of suppliers to the production plants."

"A central building block for this is the local proximity of suppliers to the production plants, so that parts can be produced and called up almost synchronously with production. We are already working with many global partners to achieve this. We give local and new partners the opportunity to position themselves with us internationally," says Stark.

In China to date, approximately 300 local suppliers have been successfully developed. The proportion of local sourcing for production at the US plant in Tuscaloosa is higher than the current requirements in the country and is scheduled to be significantly increased over the next five years.

Flexible purchasing at Mercedes-Benz Cars

Growing flexibility in the supplier network is required not only by the transformation to electric mobility, but also by volatile markets, by Mercedes-Benz Cars' wide product range with more than 40 models, and by the high variance of ever new functions. "We work in close partnership with our suppliers so that we can meet individual customer requirements flexibly, also with short-term change requests. Together with our partners, we have made our supplier network more flexible in order to compensate for fluctuating volumes. We are not cutting back on Mercedes-Benz top quality," maintains Stark.

A prerequisite for supplying the flexible Mercedes-Benz Cars production strategy, which can switch between conventional and electric vehicles, is an equally flexible supplier network to supply the Mercedes-Benz plants. By bundling orders for components for conventional and electric vehicles with the same supplier, for example for seats or head units, it is possible to react flexibly to customer demand and switch between the drive technologies. This provides greater planning security for suppliers and for Mercedes-Benz Cars. Procurement and Supplier Quality helps the supplier network to align itself flexibly and efficiently with the future requirements.

More efficiency through 'partnership-based target-cost achievement'

Another lever for greater efficiency is technical innovations that are developed jointly with suppliers. "Our global supplier network makes an important contribution to value creation, quality and innovation. By means of early integration with continuous improvements along the value chain, it makes a decisive contribution to the overall business success of Mercedes-Benz Cars. In the future, we intend to make even greater use of our suppliers' modular systems for parts that do not differentiate our brands. Our suppliers therefore have a significant influence on the development of our component costs," says Stark.

Mercedes maintains that the cooperative partnership between Mercedes-Benz Cars and its suppliers is characterised by a common understanding of product and production quality, security of supply, competitive prices and innovative strength, as well as by the consistent implementation of the sustainability claim.

Sustainable raw-materials supply

Sustainability is one of the basic principles of Daimler AG's corporate strategy and at the same time a benchmark for corporate success. This also includes the responsible procurement of raw materials. Daimler has therefore developed a systematic approach to respecting human rights, its 'Human Rights Respect System'. With a risk-oriented and systematic approach, the system makes the issue of human rights manageable also along complex supply chains.

Daimler attaches particular importance to a sustainable raw-material supply chain for the expected growth in electric vehicles. To this end, Daimler has been defining sustainability requirements for suppliers in its Supplier Sustainability Standards for several years. All new Mercedes-Benz suppliers are subjected to potential analyses before they are commissioned. Approximately 700 quality engineers carry out these audits, if necessary together with human rights experts in the field. A prerequisite for a supply contract with Mercedes-Benz Cars is consent to disclosure of the entire supply chain, right back to the mines. Mercedes says essential elements of its requirements for suppliers relate to working conditions and compliance with human rights.

However, vehicle production naturally requires a high volume of materials. That is also why one of the development focuses is on keeping demand for natural resources as low as possible. The company tries, together with its suppliers, to limit the use of raw materials with limited availability at an early stage of development. Daimler says it has been investing in resource-efficient technologies and manufacturing processes for batteries for many years. At the same time, it is working with its suppliers to further reduce the cobalt content. The current mixture of nickel, manganese and cobalt could soon be a thing of the past, as cobalt is to be largely replaced by nickel in the short-term. From 2025 onwards, so-called post-lithium-ion technologies, which do without nickel and cobalt altogether, are expected to have been technically tested to the point where they can be used in vehicles.

In addition to the economical use of resources, the processing of components and the recycling of raw materials play an important role. Daimler AG is actively involved in the research and development of new recycling technologies in order to implement the recycling process chain and secure the raw materials required for electric mobility in the future. Knowledge about the recycling of lithium-ion batteries has already been gained in many research projects and in cooperation with suppliers and material-disposal partners. Innovative recycling concepts have been developed to enable the high-quality recovery of valuable components and materials.

Purchasing and Supplier Quality at Mercedes-Benz Cars is responsible for an annual purchasing volume in the double-digit billion euro range and is responsible for purchasing production materials and parts for Mercedes-Benz and smart passenger cars as well as for Mercedes-Benz brand vans. Approximately 1,800 employees worldwide – at the central location in the Stuttgart region, at the regional hubs in China, the US, South Africa and Argentina, as well as in other purchasing offices at a total of ten locations – support around 2,000 suppliers worldwide with regard to all commercial and quality aspects.

Mercedes-Benz Cars develops Blockchain-prototype for sustainable supply chains

Mercedes-Benz Cars has also said it will employ blockchain technology for more transparencyin complex supply chains. In effect, it means the transmission of contracts to each member of the supply chain is the prerequisite of cooperation with our suppliers, especially in terms of sustainability and ethical conduct. The Blockchain prototype opens up completely new ways to make purchasing processes simpler and safer, Mercedes claims.

"Blockchain technology has the potential to fundamentally revolutionise our procurement processes, and could affect nearly the entire value chain."

A partnership has been set up between Mercedes-Benz Cars and Icertis for the joint development and implementation of Blockchain technology in the supply chain. Stark says it its potentially revolutionary: "Blockchain technology has the potential to fundamentally revolutionise our procurement processes, and could affect nearly the entire value chain.

"Global supply chains are becoming increasingly complex.With our Blockchain-prototype, we are in the first step testing one of diverse possible applications with the aim of increasing transparency beyond our direct suppliers."

Daimler requires its direct suppliers to pass on and control standards and contractual obligations with regard to working conditions, human rights, environmental protection, safety, business ethics and compliance within the supply chain. The Blockchain prototype allows a transparent mapping and understanding of this transmission across the entire supply chain. Should one of the sub-suppliers deviate from the contractual obligations, this becomes visible in the Blockchain, similar to a secure accounting system. Mercedes-Benz Cars and a number of Icertis experts have successfully developed and programmed a prototype. Acceptance by suppliers and partners is now being tested in a pilot project, and feedback is being obtained.

Another application is the traceability of components and raw materials. Complex supply chains can be disclosed, the origin of which can be traced across the partners involved. The effectiveness of a Blockchain depends on the quality of the data and the level of digitisation. For this purpose Mercedes-Benz Cars says it will cooperate in partnership with its suppliers.

Daimler says it has been using Blockchain technology in other domains. Since 2017 Daimler has been a member of Hyperledger, a project of the Linux Foundation for the development of technologies and applications based on Blockchain.

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