June 17, 2015 / 4:09 PM / in 2 years

Networked factories key to Daimler's productivity drive

SINDELFINGEN, Germany (Reuters) - Having standardized the layout of its factories and connected them to a shared computer network, Daimler DAIGn.DE is now crunching data from them to identify the most efficient way of making a car, its head of production told Reuters.

Workers assemble Mercedes-Benz S-class models at their plant in Sindelfingen near Stuttgart January 28, 2015. Daimler AG with its Mercedes-Benz car group, will hold their annual new conference on February 5, 2015. Picture taken January 28, 2015. REUTERS/Michael Dalder (GERMANY - Tags: BUSINESS TRANSPORT SPORT MOTORSPORT) - RTR4O0CH

Markus Schaefer said in an interview the analysis was at the heart of the luxury carmaker’s drive to improve productivity, and in turn boost profit margins in its battle with German rivals BMW BMWG.DE and Audi VOWG_p.DE.

By using data from factories as far apart as Beijing in China and Tuscaloosa in the United States, and comparing it with German plants including Sindelfingen, Rastatt and Bremen, Daimler is introducing common standards and procedures in a bid to become more efficient.

“If a certain production step takes 40 seconds, and data analysis finds a way to shave four seconds from the process, output can be increased by up to 10 percent,” said Schaefer, head of production at Daimler’s Mercedes-Benz cars division.

“And it doesn’t cost us anything.”

After several years of underperformance, Daimler has already come a long way in closing its profitability gap to rivals. In the first quarter of 2015, it made a return on sales (including its smart, AMG and Maybach sub-brands) of 9.2 percent, only just below the 9.5 and 9.7 percent at BMW and Audi, respectively.

It is aiming to lift the operating margin to 10 percent.

Schaefer took office in January 2014, and spent the next months standardizing the way the company’s 26 production plants operated. Large factories are all being adjusted to have an average output of 300,000 cars with the same production methods.

“This makes it easy to move a product from location A to location B. This can be done within six months,” he said, meaning Daimler can respond quickly to changing markets.

Record demand for Mercedes limousines, sport-utility vehicles and sports cars has also allowed Daimler to renegotiate contracts with German labor unions and move away from awarding individual factories with long-term guarantees to make a particular model.

Schaefer said Mercedes now makes an average of four different cars per production line, but could accommodate more types of vehicle per line.

The factory in East London, South Africa, for example, has started making the C-Class limousine for export to the United States, because production capacity in Tuscaloosa is being stretched due to demand for locally made offroaders.

“This kind of flexibility is a decisive competitive advantage,” Schaefer said.

Thanks to the improvements already made, Mercedes has maintained an average 30 hours production time per vehicle despite an increase in models.

It has already invested 3 billion euros ($3.4 billion) to modernize its German plants. Next, it will seek to overhaul some international locations. It is building a production line in Aguascalientes, Mexico and in Iracemapolis, Brazil.

Reporting by Ilona Wissenbach and Edward Taylor; Editing by Mark Potter

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