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Case Study 2: Daimler-Chrysler

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Introduction

OPIM201: Business Processes G2 Case Study 2: Daimler-Chrysler Prepared for: Asst. Professor Byung Joon Park Prepared by: Cheok Shuling, Cerissa S 8112817 J Fong Wei Lin S 8327725 D Kee Zhong Ting S 8114368 D Lye Yun Xin, Sheena S 8220219 F 1. Introduction In the increasingly competitive automobile industry where China's fledgling auto industry is pressuring a downward spiral in prices, automobile giants like Daimler-Chrysler now have to look to outsourcing to optimize the use of their resources and reduce labor costs incurred by the company. Productivity is improved by implementing process improvements within their own operations. The main priority of Daimler-Chrysler is to convert as much fixed costs to variable costs as possible by restructuring current operations through outsourcing its engine production and assembly operations. 2. The Outsourcing Plan With many brands under the Daimler-Chrysler umbrella, this outsourcing plan is focused on the Mercedes-Benz A-Class Saloon. With its sandwich construction and compact interior, the car was to be a radical move for Mercedes-Benz. The company has been looking into reintroducing the A-Class into the consumer market after the failure of a much publicized collision-avoidance test. As such, Daimler-Chrysler has been investing in its Research and Development (R&D) to overcome this failure. Certain factions of its production of the A-Class may be in-sourced and outsourced. ...read more.

Middle

Though the company would still require assembly facilities, a significant amount of space and number of machineries required would be reduced. In addition, the company would not incur overheads and labor costs that are associated with the manufacturing of the components. When the onus of production facilities and relevant costs fall on suppliers, they too are keen on driving costs down in order to increase profit-taking. In essence, fixed costs incurred by the company if they were to undertake this function themselves will then be considered as variable costs through outsourcing. B. Engine assembly The high operational costs in the European auto industry would lead to unnecessary possible financial burden for Daimler-Chrysler if assembly of the Mercedes A-Class were to be done in Europe due to the high cost of unionized labor. One recognized strategy is to outsource the manufacturing operations to cost-competitive countries like India and China. With the global outsourcing phenomenon proliferating due to relative lower labor costs and increased efficiency, Daimler-Chrysler would also find it profitable to outsource their assembly operations. Assembly of components of the A-Class's main engine could be outsourced to India as India is one of the loci of this outstanding outsourcing phenomenon. The efforts made by manufacturing companies in India over the last five years to restructure, trim labor force, induct modern technologies and to enter international markets have made them competitive in the world market. ...read more.

Conclusion

Also, the per-hour labor cost in India is lower and the quality is similar or better than the lowest cost U.S. IT trained personnel. All of the above will mean that outsourcing the IT function to India will reduce costs. However, outsourcing IT will incur lower costs at the expense of a loss in privacy of data. On a bigger picture, this will pose a threat to security as data on company finances, customers, and proprietary data are processed by a third party. This issue can be address by proactively adopting a 'best practices' work ethic. Daimler-Chrysler should select their IT infrastructure provider based on reputation and excellent track record in terms of best practices. 3. Conclusion Essentially, the A-class is looking into a lot of major chassis re-engineering, including adaptive damping and a new rear suspension. Engine power has to be increased from the base 95 hp 1.5-liter four-cylinder engine to a range topping 2.0-liter turbo four that makes 193 hp. In order to produce a more cost-efficient hybrid car, Daimler-Chrysler has to look into outsourcing various functions to create a honed version of the existing vehicle. It will improve cost efficiency, quality of product and improve labor productivity, all of which are beneficial to Daimler-Chrysler. Outsourcing, if done right has the ability to give Daimler-Chrysler an edge over its competitors in terms of margins as the automotive industry is one where margins are slim and tough to manage. ...read more.

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