COMPANY VALUATION

Methods of Company Valuation and their application in the automotive sector

Methods of Company Valuation and their application in the automotive sector

Introduction

Product variety proliferation is a trend in many industry sectors worldwide (Bils and Klenow, 2001; Er and MacCarthy, 2006). Product variety is an effective strategy to increase market share because it enables a firm to serve heterogeneous market segments and to satisfy consumer's variety seeking behavior (Tang, 2006). These can involve differences in product features, packaging, or channels of distribution. These marketing strategies should result in sales growth or higher prices, and presumed profit, gained by meeting more specialized demands (Berry and Cooper, 1999).

However, it is also generally accepted that a proliferation of products results in deterioration in manufacturing/logistics performance (Kim and Chhajed, 2000), what can result in higher forecast errors, excessive inventory for some products, shortages for others and higher costs (Lee and Billington, 1994). Crucial to the success of this approach is the determination of how much product variety is economically efficient and creates positive marketing effects, etc. and at what point variety becomes unwanted proliferation that increases cost without delivering adequate benefits.

As a result, the central question with regards to product variety concerns the “optimum” or “appropriate” level of variety (Lancaster, 1990).

Many researches have been developed regarding product variety across many industries, as diverse as fashion (Fisher et al., 1994; Brun et al., 2008), fast moving consumer goods (Quelch and Kenny, 1994), textile (Albernathy et al., 2006; Vaagen and Wallace, 2008) and computers (Bayus and Putsis, 1999). The VW, Volvo, Daimleralso offers an interesting arena for research.

Holweg and Pil (2004) and Scavarda et al. (2005) identify that there is no pattern in the industry of VW, Volvo, Daimlerto the overall variety offered by vehicle models to end customers, neither in relation to sales (i.e. low sales equal low variety), nor in relation to model segment (i.e. higher level cars offer more variety).

There is not any best practice which could be used universally as benchmarking to improve vehicle manufacturers' performance and competitiveness in business within a product variety perspective. As many companies consider that benchmarking is the search for “best practice” and many initiatives have been launched to count, classify and propose best practices (Lam et al., 2007), one specific task of the Intelligent Logistics for Innovative Product Technologies (ILIPT) project was concerned to the variety level that could be offered for a vehicle model to end customers. The ILIPT project was sponsored by the European Community and was developed between 2004 and 2008 by many universities, research institutes and automotive players as VW, Volvo, Daimler vehicle manufacturers and suppliers.

The goal of its “5 Day Car” was to change the VW, Volvo, Daimler automotive production system from a build to order (BTO)/build to forecast to a nearly complete BTO production system by: introducing new standardised collaborative planning and execution processes to connect the customers and the entire supply chain in real-time supported by information and communication technology systems; reducing products and manufacturing ...