Mercedes Benz United States International Inc.’s Auditing

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Mercedes Benz United States International (MBUSI) had the vision to build a passenger manufacturing vehicle facility in the United States by the end of 1993. In September 1993, Tuscaloosa County in Alabama was the selected site and a plant of $300 million was installed. The purpose of MBUSI was to manufacture M-Class Sport Utility Vehicle (SUV) for the global market. The installation was accomplished in July 1996, manufacturing of the vehicles commenced in January 1997, and in September 1997, the first vehicle went on sale (MBUSI’s website par 1). The paper gives an insightful analysis of MBUSI through discussion on some sub-topics as follows:

Roles of supplier contracts in helping MBUSI achieve the process objectives: MBUSI has two basic business objectives; one is to amass Mercedes quality vehicles and the other is to gratify its clientele about performance, safety, and above all price according to Ballou, Tabor, and Uzumeri (3). Therefore, the role(s) of supplier contracts have an upper hand to facilitate these two basic objectives. An article in ‘Method 123’ (par. 2) gives the following roles; first, the supplier contract helps to specify what ought to be delivered by a specific supplier and if the deliveries have met the set criteria by MBUSI. For example, Ogihara Corporation supplies body stampings to MBUSI as Dunlop Tire Corporation supplies tires among others (Ballou et. al. 7). Another role played by the supplier contract is to state the responsibilities of each party. For example, Ogihara is obliged to deliver body stampings prescribed to MBUSI on time while MBUSI is meant to pay Ogihara for the services delivered. This role enables MBUSI to produce quality vehicles at the right time. Another role is that of pricing plan and invoicing procedures. For example, if the price of the supplier is high, the cost of the vehicles produced will also be high; hence MBUSI will not have met its process objective.

Ways MBUSI can monitor if suppliers meet contractual obligations

There are several ways in which MBUSI can determine if the suppliers contracted are meeting their contractual responsibility. They include (CIPS 2):

Product quality – MBUSI should look at the quality of the product if it is at par with their expectations. If the quality is not standard then the supplier has not met his contractual responsibility. For example, if during shipment, the body stampings imported by Ogihara get corroded then the quality would be compromised and Ogihara will be below par in terms of contract specification.
The level of received rejects – In this case, MBUSI should evaluate the number of rejects brought in by the supplier and according to that number, the management will be able to determine if the supplier is meeting contractual obligation or not.

According to Ballou and colleagues (7), MBUSI has set up a ‘just-in-time and in-sequence mode of working and therefore, if a supplier does not go according to this rule then the supplier company is shunning away from its contractual responsibility.

The above are some of the ways MBUSI should use to ensure that suppliers are working according to the contract so as it achieves its objective.

Risks encountered by MBUSI and suppliers if the contract is not adhered to by the suppliers

Some of the risks include:

Tempering with the quality of the products supplied. MBUSI can risk receiving products that are tempered if the supplier does not adhere to the contract.
If the supplier is not going per the set time of delivery, then MBUSI can experience a delay in its production due to the delay caused by the supplier.
The supplier’s decision to act out of the contract might make MBUSI take a risky resolution and switch to other suppliers which might be ineffective and costly.
Supplier’s failure to act according to the contract might make MBUSI not deliver to the customers on time hence a loss of sales.
The suppliers can risk contract termination if they work outside the setup contract.
Lastly, suppliers can also risk being underpaid if they do not perform under the specification of the contract.

Apart from the risks encountered by both parties, there are some concerns about MBUSI’s relationship with suppliers according to the writer. Ballou and colleagues state that more than two-thirds of the inputs of the vehicles are from suppliers in the United States and some from Germany (7). The distance varies and therefore if effective and efficient communication is not prompted then delays will be caused. Proper advanced planning strategies should be put in place to avoid production inconveniences. The main aim of bringing suppliers closer (by MBUSI) is to facilitate efficiency and fast deliveries, but the suppliers may take that for granted and cause delays.

Risks MBUSI encounters by encouraging suppliers to house tooling that is owned by MBUSI

Tooling according to Ballou and colleagues is the fixed asset employed to generate constituents. MBUSI might own them but they are situated at the supplier’s premise (12). The risk involved in housing them at the supplier’s premises might be damages and production of sub-standard products due to incompetent use. The assets might be used by the supplier to produce for companies other than MBUSI, as there is no direct supervision. It may also cause delays as MBUSI might have not deployed any of its personnel to hasten the process.

The contrast between evidence gained by auditors by performing strategic and process analysis and evidence as a result of detailed tests of transactions.

On one hand, evidence from strategic and process analysis is defined as the investigative procedure used by auditors to examine the reasonability of balances and it includes; ratio and trend analysis and logic and reasonability tests. On the other hand, evidence from detailed tests of the transaction is defined as the audit verification from a detailed supporting evidence and it may include; contracts, invoices among others (Audit Planning ACW 250 34).

Other contrasts may include (Audit Planning ACW 250 35-41):

Evidence from the strategic analysis is not propped up by original documents, while evidence from tests of the transaction is supported by original evidence, for instance, invoices.
Strategic and process analysis evidence involves calculations and tests of reasonability by the auditor while the latter only reviews supporting balances.
Assumptions are incorporated in the strategic analysis and the auditor examines the correlation of all the variables while tests of transactions do not involve assumptions, rather a verification of all the source documents is done
The strategic analysis does not give accurate results while tests of transactions provide an accurate answer.

Financial analysis

In the year 1997, MBUSI was not profitable as the market for Sports Utility Vehicle was very competitive due to lower prices offered by other companies. The production level was also below par as they produced 65,000 vehicles, a figure below their target of 80,000 vehicles. MBUSI planned to increase its capital investments to $40 million by November 1998 and increase its labor force by 100 employees. This was geared to increase production by 35,000 vehicles (Ballou et. al. 15-16).

Works Cited

Audit planning ACW 250. n.d. 2009. Web.

Ballou, Brian. Tabor, Richard and Uzumeri, Mustafa. Cases in strategic-Systems Auditing: Mercedes-Benz U.S International. United States: University of Illinois. 1999.

CIPS. n.d. Performance Monitoring of suppliers. 2009. Web.

MBUSI website. n.d. MBUSI history. 2009. Web.

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Mercedes Benz United States International Inc.’s Auditing

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