Mercedes 2006 Annual Report Download - page 70

Procurement
Further optimization of procurement activities. In 2006, global
procurement and supply activities were impacted by increases
in raw-material prices. Additional challenges arose from the diffi-
cult financial situation of some suppliers and the tough com-
petition in the automotive industry, especially in North America.
However, by leveraging the advantages of our global procurement
and supply organization, we succeeded in achieving further
material-cost savings despite the challenging environment.
Substantial increases in raw-material prices. Until mid-year
2003, raw-material prices remained relatively stable. However,
since then, raw-material prices for our major commodities have
risen significantly, especially for steel, oil, rubber and certain
precious metals. DaimlerChrysler reacted to this development by
maintaining long-term agreements, allowing us to secure our
steady supply of materials while minimizing the impact of future
price fluctuations. We also intensified the work of our expert
teams for raw-material management. These expert teams work
throughout the DaimlerChrysler Group preparing forecasts for
the development of raw-material prices and defining strategies to
limit their impact. In addition, together with the engineering
departments, the procurement organization searches for ways to
save material as well as to use alternative and innovative materials
in order to reduce weight.
Difficult financial situation for many suppliers. Many auto-
motive suppliers experienced a deteriorating financial situation
during 2006, especially in the North American market. The
number of financially distressed suppliers increased significantly.
Within the framework of our supplier risk management, we are
closely following the development of these companies’ financial
situations and have implemented appropriate risk-management
processes. We make decisions on any required support actions
either individually or jointly with other automobile manufactu-
rers. We anticipate a continuation of this critical situation for
automotive suppliers in 2007.
Extended Enterprise®.The management of relationships with
our suppliers is something DaimlerChrysler has been committed
to for many years. With our Extended Enterprise philosophy
we have a very good framework in place to foster our supplier
relationships. It is based on four objective criteria: quality,
technology, cost, and supply, as well as three subjective ones:
communication, commitment and integrity. These criteria are
the foundation for performance-based cooperation between
DaimlerChrysler and its suppliers. Using all criteria, we can
transparently define business processes and objectively compare
performance based on facts and data. We openly discuss the
results with our suppliers. To the best suppliers that demonstra-
ted outstanding performance we annually award a trophy, the
DaimlerChrysler Global Supplier Award, in various categories such
as Raw Materials, Powertrain, Exterior, Chassis, Interior, Electrical/
Electronics, Procurement Services (IPS) and Logistics.
Continuation of global integration. The procurement and supply
organization will continue to foster global integration including
the further implementation of standardized systems and processes.
The integration of worldwide procurement locations and the
procurement offices in Southeast Asia and Northeast Asia will
continuously support our efforts for competitive cost performance.
Our integration efforts have received external recognition, for
example, in May 2006, International Procurement Services (IPS),
the non-production material purchasing unit, was honored with
the prestigious R. Gene Richter Award. This award recognizes the
strategic development of a consolidated global procurement
organization and the related increase in operational and cost effi-
ciency. As one example of the recognition our organization is
receiving, this award will serve as motivation and stimulation to
further enhance our organization on a globally integrated scale.
By enhancing our strategic development, we achieve excellence
throughout all purchasing activities and strive towards our goal
of continuing to be a leading procurement organization now and
in the future.
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Development of raw-material price index 2002–2006
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Extended Enterprise®
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