Procurement's Key Role for Mercedes After 57% Profits Dip

The procurement function at Mercedes-Benz Group is undergoing a period of radical cost engineering following a year where full-year reported operating profit fell by 57% to US$6.9bn.

The group’s financial results were weighed down by US$1.2bn in tariff costs and significant pricing pressure in the Chinese market. The company is now focusing on the delivery of "Next Level Performance," which seeks to mitigate cost pressures through aggressive material cost savings and strategic sourcing shifts.

By 2027, the firm aims to achieve an 8% reduction in material costs, rising to 10% in the years beyond. This strategy involves a deep level of vertical integration and closer cooperation between research and development, purchasing and supplier teams.

Material cost savings support EBIT contribution

Despite the drop in overall profit, procurement-led efficiency measures played a vital role in supporting the group's bottom line. Cost efficiencies related to Next Level Performance, including material savings and production efficiencies, resulted in a positive EBIT contribution of more than US$4.1bn in 2025.

Ola Källenius, Chairman of the Board of Management, emphasised the strategic importance of this discipline, saying: “As the world's leading top-end manufacturer, this is our home turf... this is where our greatest earnings potential lies.”

To maintain this potential, procurement teams are focused on radical cost engineering, which involves re-evaluating every component within the vehicle to ensure it delivers maximum value at the lowest possible cost, without compromising the luxury standards of the brand.

Sourcing from best-cost countries doubles

A key lever in the procurement strategy is the diversification of the global supplier base, specifically increasing the volume of parts sourced from best-cost countries.

Targets and highlights include:

• Savings Target: 8% material cost reduction by 2027

• Geographic Pivot: Best-cost country sourcing to rise from 15% to 30%

• Sourcing Philosophy: Strengthening the "local-for-local" approach to reduce logistics costs

• Vertical Integration: Bringing powertrain planning, development, and purchasing under one roof.

This shift is intended to protect the company from the currency challenges and trade disputes that impacted the 2025 results. By increasing the procurement share from these regions, the firm can lower the average cost per part while building a more resilient and flexible supply network.

Integrating sustainability into supplier requirements

Procurement at Mercedes-Benz is  linked to the company’s "Ambition 2039" sustainability roadmap. From 2025, the firm is integrating CO2-free "green steel" into its manufacturing processes, requiring suppliers to meet rigorous environmental standards.

Over 85% of the company’s supplier base has committed to providing carbon-neutral materials.

This commitment to green procurement ensures that the firm remains ahead of tightening environmental regulations while also appealing to the growing market of environmentally-conscious luxury consumers.

The procurement of battery cells and raw materials like lithium and cobalt remains a particular focus for long-term supply security.

Strategic vertical integration in powertrain production

To improve efficiency and lower the overall cost of the entire system, the company is deepening its level of vertical integration.

This involves insourcing electric drive technology and bringing the development and production of in-house electric motors under direct control.

Itp includes the acquisition of axial flux motor technology, which allows procurement and R&D teams to collaborate more closely on next-generation performance motors

By managing the supply chain for these critical components internally, Mercedes aims to reduce its reliance on external vendors and gain better control over quality and cost.