Mercedes-Benz is rethinking the way it buys components.The Germany luxury-car leader is considering fewer technical features and “binding commitments for cost reduction” among suppliers.

“We’re thinking intensely about which parts we can carry over for successor models,” says Harald Bölstler, head of Mercedes-Benz passenger car purchasing in Stuttgart.

Bölstler, 54, has been head of Mercedes-Benz purchasing since 2002.

In 2001, he was made purchasing chief of Mitsubishi Motors in Tokyo. From 1996 to 2000 he was head of production and plant manager for DaimlerChrysler’s Smart subsidiary in Hambach, France.

Bölstler talked to Arne Behlmer and Claus-Peter Köth at the German-language Automobil Industrie.The magazine’s website is Reproduced with permission.

Suppliers say that your supplier performance agreements demand 6% price reductions per year. Is that true?

There are no flat rate price reductions for all suppliers. The supplier performance agreements are reached individually with every supplier.

Mostly it’s about optimising the cost, together with suppliers. We check various processes and determine where we can improve something.

That can be at Mercedes or at the supplier or at the process in between.

It doesn’t make any sense to name a general percentage, because it’s a matter of individual measures appropriate to the individual supplier and the commodity.

Are you sending special teams in to the suppliers to do that?

That is certainly a possibility if the supplier explicitly wants that, but it would be inappropriate if we wanted to say to our suppliers how to organise their production.

Should we tell a company like Bosch how they should organise their production? We prefer to sit down with our suppliers together and talk about concrete specifications and look at processes and the interfaces in order to improve the process.

If we involve the supplier earlier and more closely in the vehicle development process, that is a factor in success.

Are you also talking about a reduction in features?

That is an important topic. There are certainly features where we have jointly decided that we have overshot.

You said you couldn’t say to a company like Bosch how they should organise their production. Are you getting involved in smaller suppliers?

There are of course individual cases in which support makes sense for us and for the supplier.

If, for example, the smaller supplier has a good idea that he can’t implement himself, then we can support him either in the development or we can make a partner available to him.

Many suppliers say that they have never seen pricing pressure as high as it is today…?

Let me emphasise — it’s about trying to reduce costs. The results of that are of course lower prices.

The process is unavoidable, if we want to ensure the competitiveness of our company and not least also Germany as a production location.

We have today a considerable price pressure in the international markets, which OEMs and suppliers can only react to together.

The cost targets that are produced by this price pressure can only be met with concrete binding commitments for cost reduction on the supplier side.

We are not going to get far with non-binding roundtable discussions. We’ve seen that in the past.

We need a different quality in the co-operation, and we have changed our processes, given suppliers clearer duties and a more active role in the cost process.

Can you be more concrete about that?

It roughly runs as follows: We confront our suppliers with benchmarks from our perspective, in other words with the price differences to the best competitor in particular commodities.

Then we think about how together we will get there, with the supplier as the driver of this process. And not just over one year, but right up to and including 2005.

It is our aim to get really decisive improvements and to get a clear cost orientation in all the processes above and beyond the usual continual improvement process.

With the implementation of the measures of course, we support the supplier when necessary with our own know-how and our own capacities.

Is there much concern about the fact that you required retrospective price reductions?

There are no retrospective price reductions. And the early excitement that was not entirely undesired from our side has subsided.

I know of some Germany-based suppliers, which did not believe what could be achieved with cost optimisation programmes in their own company.

Now they are not annoyed as much about how we confronted them with this process, but only that it was done so late.

Are the first tier suppliers linked into your long term product planning enough or will you have to talk to them more about innovation?

The innovative suppliers have researched very closely with us together, partly on themes for which there isn’t even a production vehicle in sight, but that we want to master.

There are high investments that the supplier doesn’t do just for fun without talking to the OEMs.

Do you have the feeling with current cars that expensive high technology is for its own sake, not because the buyer really wants it?

That is a critical point. There are functions in our vehicles that some customers don’t know about at all.

For example, the programmable key function: many customers probably don’t know that you can programme the driver and passenger seats.

For successive generations we’re asking ourselves very concretely, particularly in the equipment area, what the customer expects, even if it’s not always technically possible.

In the future will you have more common parts between model series to reduce costs?

We’re thinking intensely about which parts we can carry over for successor models, and which common parts we can use. Also, parts that are used in more than one brand are no longer taboo at DaimlerChrysler.

We’re going a step further there, and are also not against using industry standards for particular parts and components, especially for parts that don’t differentiate brands.

If the quality is all right and we reach higher volumes through common standards, both supplier and OEM benefit from it.

However, an important pre-condition is that the OEMs harmonise their testing procedures. Because of growing cost pressures, we are not going to get round this job. We have to, if you like, replace costs through intelligence.

Don’t you also have to change the role of purchasing? For example, shouldn’t it be linked in earlier in the development?

The role of purchasing has already changed. With us purchasing is already there at the beginning of a project. It is more technically oriented than even a couple of years ago. It is much more international.

The developers on the other hand are today much more cost oriented. Cost controls and the harmonisation of different target systems in a vehicle development are now taken for granted with us.

The purchaser is an accepted and equally powerful member in the vehicle project team.

We don’t have any discussions about the importance or lack of importance of individual functions, because you can change more costs through early sensible system construction and application of technology than much later in series production.