Input from a set of subsidiaries based on a number of different countries. Using current academic and practitioner literature outline the potential operational concerns and how they might be managed.
Mercedes was established in 1926 by its founder Karl Benz and owner Daimler AG. Mercedes went through a series of logo changes, ending up with the design and logo you see today, which is highly respected and holds strong brand image. Mercedes is a multinational car manufacture with a large customer base in the UK and overseas. In recent years, the mergers of brawn GP and Chrysler have allowed Mercedes to be competitive in the markets in USA and the UK. This is evident in Mercedes financial statement 2012 where it records 6.5 billion net profit, which is Mercedes highest in history. Profit after tax was 1.94 billion. However Chrysler profit marjins are low and are viewed as a separate entity.
Mercedes implementation of a new budgetary system was the incremental budget, along with Activity-Based budgeting. This was because an incremental budget starts with the estimated amounts for the current financial year, which is based on the provisional accounts of the actual expenditure in the previous financial year. The reason why Mercedes chose this is because it provides them with relevant and actual market trends, data and key information for their industry, allowing them to always move forward positively rather then negatively. This allows Mercedes
to improve on their weaknesses in the last year in the new year. The incremental budget allows them to see where they are performing well and where they are not, which allows Mercedes to retarget the areas in which they are underachieving. More importantly the incremental budget is useful and pivotal for Mercedes because the budget in money terms can be added or subtracted to accommodate budget increases or cuts for the coming financial year. However it doesn’t take it to account changes circumstances but nevertheless Mercedes make full use of the benefits of the incremental budget rather then the negatives which was evident in the presentation.
ABC was used to develop Mercedes new innovation cars as well as keep tight control on the merger of Chrysler, as this was seen as a mistake. Therefore, the use of Activity-Based Costing (ABC) was implemented in order to combat the issues with Chrysler and to keep Mercedes dominate and competitive in their markets. However Mercedes using ABC is also cost effective because the information they gather about Chrysler, for instant on models and body styles will help them determine the cost of each activity and activity area of production.
Information gathered determines the demand, production and new product development of each activity for either Mercedes or Chrysler. ABC simply important because it calculates the cost of performing each activity which is key for Mercedes with Chrysler as management feel the merge was a mistake. ABC focuses attention on what causes overheads and detailed costs to an extent that a company can view in detail spending structure, allowing close analysis on what they are spending money on. In Chrysler case how they can save money. ABC simply allows Mercedes to understand the true cost and profitability of all inflows and outflows of both businesses. This encourages funds to be distributed around the company accurately and efficiently as it will be highlighted where funds are needed and where overspending occurred. A prime example is Mercedes formula one image with big budgets, is large amounts really needed? That’s a constant discussion for Mercedes.
Mercedes potential operational concerns and how they might be managed in relation to the question should be broken down into 4 factors listed below which was presented in the presentation.
1. Importance and use of budgets within an organization.
2. The budget process and the impact of human behavior.
3. The various components of the chosen budget system.
4. Budget periods and budget adjustments.
However In practice Mercedes main operational concerns would be that they are not the only one making and selling luxury cars. The market share is deeply affected by tough competitors like BMW, AUDI and LEXUS. During the time of the merger with Chrysler, Mercedes took a hit on their market share and quality perception came into play. However in the current day Mercedes have won back their high standards reputation and their new s class is evident of this, as it has been categorized as the benchmark of luxury cars. Although in this period, Mercedes Benz strong brand image helped capitalize gains back. Shockingly this helped them to achieve their largest net profit in history as a full redrawing of operations, market and customers was conducted.
Overall Mercedes manage their operational concerns effectively despite the challenges they have faced in recent years. This is managed through budgets because they are a necessity for every company, no matter how big or how small.
Secondly different budgets allow companies to prepare for different things, so Mercedes have to decide which Budgets to use in order to maximize profit stay competitive and more importantly keep customers. Mercedes have chosen to use an incremental budgeting because it simply based on the provisional accounts of the actual expenditure in the previous financial year, which is key information on trends, markets and demand which for a car manufacture is essential success data.
ABC and Kaizen budgeting link to the idea of continuous improvement, and so to the idea of always looking forward is Mercedes. Kaizen would be suitable with the master budget get an overview of the company. However ABC and the incremental budget was all we needed to know in Mercedes case. Budgetary system entails consolidating which is needed for any large multinational. Potential operational concerns and how they might be managed are strictly to do with management, in Mercedes case it’s evidently done through tight control and efficient budgets from management.
* Bhimani, A., Horngren, C.T., Foster, G. and Rajan M. V. (2012) Management and Cost Accounting. 5th Edition. Harlow: Pearson.