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ANALYSIS OF BMW'S GLOBAL SUPPLY CHAIN - ITS
PRODUCTION – DISTRIBUTION - SOURCING
STRATEGIES AND MECHANISMS
ABSTRACT
A stud...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
Table of Content...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
Executive Summar...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
Introduction
"Th...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
2. Designing the...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
automobile chain...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
3.1 BMW Corporat...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
Using mySAP vari...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
evaluate local s...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
third phase cons...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
Figure 5: Type ...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
Figure 5: Purch...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
As shown in fig...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
benefits from u...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
i.e. after a ce...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
in full filling...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
3.4.2 Value Add...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
concept helped ...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
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Figure 10: Dist...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
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3.6 Reverse Log...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
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handover the ca...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
tries to achiev...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
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index. In addit...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
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both in their m...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
7. References
A...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
AND MECHANISMS
Elkins,D.,A.,Hu...
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ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES
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QAD.2005. Reple...
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Analysis of BMWs Global Supply Chain Network - its production - distribution - sourcing strategies and mechanisms

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A study on BMW’s Global Supply Chain Network along with a SWOT analysis and recommendations

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Analysis of BMWs Global Supply Chain Network - its production - distribution - sourcing strategies and mechanisms

  1. 1. ANALYSIS OF BMW'S GLOBAL SUPPLY CHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS ABSTRACT A studyon BMW’s global supplychainnetworkalong witha SWOT analysis SACHIN MATHEWS SupplyChainPlanningand Design
  2. 2. 1 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS Table of Contents Sl No. Title Page No Executive Summary 2 1. Introduction 3 2. Designing the Automobile Supply Chain 4 3. BMW Case Study 5 3.1 BMW's Corporate Strategy 6 3.2 BMW's Supply Chain 6 3.3 Supplier Network and Management 7 3.4 Design and Production 13 3.4.1 Build-to-Order Mechanism 14 3.4.2 Value Added Production System 15 3.5 Distribution Network 17 3.6 Reverse Logistics Network 19 3.7 Environmental Sustainability 20 4. S.W.O.T Analysis of BMW's Supply Chain 21 5. Recommendations 22 6. Conclusion 23 7. References 24
  3. 3. 2 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS Executive Summary The objective of this paper is to study and analyse the BMW’s Global Supply Chain and identify the key factors that make them a globally recognized brand. The paper makes an explorative study of the BMW’s supply chain and highlights its core supply chain strategies that gives an overview of latest trends taking place in the supply chain planning and design practices of the firm's Global supply chain network. For the literature review firstly look at the key aspects of the automobile supply chain and how they differ from other chains in terms of the processes involved in planning and design. We then focus on the BMW supply chain and analyse the important parts of chain that includes the supplier selection and sourcing mechanisms, design and production, distribution and reverse logistics network. The paper also look into BMW’s practices to achieve environmental sustainability. Finally based on our research we carry out a S.W.O.T analysis highlighting the main strengths that is attributed to their success, the kind of weakness and threats accompanied with their chain and the opportunities of the company's supply chain to reach higher levels of performance. For the purpose of our research we mainly concentrated on the Group’s website where all their activities associated with supply chain are adequately described. However we also used articles from leading journals in supply chain management, production, economics and logistics to explain concepts used in BMW’s up-stream and down-stream chain. Concepts such as value added production system, build to order chains, just-in-time, just in sequence, direct delivery, cross docking and other aspects associated with BMW’s chain are all dealt with. Expert views from the industry are also consider in our study in order to get a more balanced opinion on their supply chain. Based on industry best practices and expert views we formulate our recommendations to the firm to overcome the threats and weaknesses of the supply chain network and reach greater performance levels.
  4. 4. 3 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS Introduction "The Car is only as good as the Journey you make" Though the statement can be perceived in different ways, the journey, the BMW Group took over the years to reach where it is today is what is elucidated in this paper. We take this journey of manufacturing the BMW car from idea generation to concept formulation and design, from there to production and finally to the customer. We look into the key aspect of BMW supply chain, from raw materials source to final product as well as the reverse logistics network. The automobile industry is complex, highly competitive and is characterized by highly volatile demand environment with constantly changing customer taste and preferences. In order to sustain automobile manufacturers need to constantly change their strategies with the changing times. Continuous improvement and innovation have become increasingly critical in order to survive in such an environment. Every component in the automobile chain is equally important and must be carefully planned and implemented in order to achieve higher performance and gain competitive advantage. As Wolfgang Rudorfer, head of logistics and planning in BMW plainly put it “the whole system depends on the weakest element in the chain” and hence it is imperative to keep the whole chain in mind while planning and designing the supply chain network and core strategies. In this paper we analyse BMW’s global supply chain and how their strategies with respect to chain have made them a globally respected brand. We concentrate on supply chain up-stream and down-stream components such as sourcing strategies, purchasing and procurement, supplier network and management, production, distribution and reverse logistics. We don’t go into details in other areas like marketing or financial strategies which have also contributed to the firm’s success. We illustrate concepts by looking into some of the management practices of BMW and describe the main reason for the success of their global supply chain by carrying out an S.W.O.T analysis. Finally, we give our views and recommendations based on our research and other best practices followed by top firms that can enable the BMW group to achieve greater results and take their quality to the next level.
  5. 5. 4 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS 2. Designing the Automobile Supply Chain Figure 1. Automobile Supply Chain, Source - (Thomas 2013) The Automobile supply chain is characterized by complex franchise network of suppliers (tier1 to tier3), manufactures, dealers, distributors and logistics providers as shown in Figure1 (Ambe 2010). The car itself is a product of great complexity where myriad of components are brought together in a precise manner. (Thomas 2013) points out that a typical car would be made of about 20000 parts and 10000 key components. In addition to this every automobile manufacturer sells multiple models which require periodic up gradation. The automobile supply chain hence must have a robust and flexible production line, an effective supplier and distribution network along with responsive sales and customer care department. The quality and delivery of supplies is critical aspect of auto chains and there needs to be an effective and holistic approach in the selection and evaluation of suppliers. The sourcing mechanisms in place must be able to deliver to the firm's specific requirements. The production line that is usually built to last the complete product cycle (which is typically about 6 to 8 yrs.) must be capable to handle the changes in demand. For this an effective and flexible universal production line, one which can handle different models at the same time as well as one which can be upgraded has become a competitive necessity. And finally the distribution network both up- stream and down-stream has to be carefully planned which is critical to the success of an
  6. 6. 5 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS automobile chain. While framing the supply chain strategy the three important aspects described by (Taylor 2004), (Fawcett 2007) & (Hines 2006) are understanding the customer and degree of uncertainty, understanding the supply chain capabilities, evaluating alternatives and selecting the appropriate optimum design of the supply chain. In the next section we see how BMW goes about doing this. 3. BMW Case Study Figure 2: Brand Identity, Source - (Gallagher 2012) Founded in 1916, Bayerische Motoren Werke AG (BMW) is a German automobile, motorcycle and engine manufacturing company, headquartered in Munich, that is recognized world over for its reputation for quality and efficiency in the premium category which includes three main brands - BMW, MINI and Rolls-Royce shown figure 2. BMW vehicles are characterized by exceptional design, light weight construction, and eco-friendly technologies such as electric drive to name a few. This along with their innovation and continuous improvement throughout their supply chain has enabled them to capture the substantial market share in the premium segment not only in Europe and America but also in developing countries like India and China.
  7. 7. 6 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS 3.1 BMW Corporate Strategy The corporate philosophy that is followed in the organization was made by the employees themselves, known as "customer oriented action" or abbreviated as "KDH" in German. As (Negi 2011) describes it, this philosophy anchors the goals of achieving perfect results and optimum quality right from the beginning stage of the production cycle along with implementing continuous improvement practices throughout the chain. The firm’s vision to achieve sustainability and competitive advantage revolves around four core principles of growth, shaping the future, profitability and access to new technologies and customers as shown in figure 3. The main objective of its supply chain activities is to deliver these goals and achieve competitive advantage. Figure 3: BMW's Core Principles, Source - (BMW Group, 2014) 3.2 BMW's Supply Chain BMW's supply chain process starts with customer and ends with the customer (Ambe 2010). It uses a build to order system along with mass customization strategy to deliver cars as per customer requirements. Once a customer makes a request, it is captured in a central database.
  8. 8. 7 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS Using mySAP various details such as customer preferences, cost involved, lead times are communicated on a real time basis along the corresponding supply network that reduces order- to-delivery time, helps in tracking and tracing of materials, demand planning and improves the inventory accuracy across the plant (Ambe 2010). With the use of such integrated technologies amongst its suppliers, manufacturers and distributors the firm is able to deliver the customized car to its customer with lesser lead times. The key process, strategies and participants involved in the chain are briefly explained next sections. 3.3 Supplier Network and Management Figure 4: BMW Group Purchase Volumes, Source - (BMW Group, 2014) The firm has a huge supplier network comprising of more than 12000 suppliers in 70 countries (BMW Group, 2014). As shown in figure 4, the percentage of purchasing volumes mainly comes from Germany and rest of Western Europe. The firms purchasing division is responsible for selection, validation, evaluation, quality assurance of supplied goods and services while ensuring sustainability is achieved throughout the value chain. In order to achieve this they firstly train their employees extensively on the desired levels quality and sustainability and how to go about achieving them. The central purchasing headquarters is in Munich. However the firm operates a number of IPO’s (International Purchasing Offices) who locate, validate and
  9. 9. 8 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS evaluate local suppliers for both their local production needs and international production network. As mentioned in (BMW Group, 2014), there are two areas in particular that firm concentrates on, one is managing and minimising risks across the chain and secondly utilising opportunities and leveraging potential through continuous improvement practices together with their suppliers (discussed in section 3.3.3). 3.3.1 Sourcing Mechanisms BMW were being affected by exchange rates despite having good sales revenue. As per reports the negative effects of exchange rates totalled to be about 2.4 billion from 2005 to 2009 (Xu Bin 2012). To tackle this challenge the firm used the "natural hedging strategy" where money is spent in the same currency where sales happens. It established factories in countries where they were selling their products. Also it's sourcing is done by moving towards these respective sales market also known as "local sourcing". Both these helped in the value creation process. The firm has benefited from penetrating to newer, developing markets such as India where it’s aiming at sourcing more than half of its components locally (Deccan Herald 2015). This has helped it its pricing strategy, making it more competitive. As suggested by (James 2013) the significant price difference achieved by BMW have enabled them to have more variety in the production line and bring more agility in their supply chain network. He also enlightens other benefits of their local sourcing such as quicker response times due availability of the resource locally, especially when there is a "sudden surge in demand" or surprise deadline. There are various other advantages of local sourcing such as better waste management. The wasteful products from their business can be valuable commodity to other business locally (discussed later in environmental sustainability section). The firm uses advanced e-sourcing technologies such as ASTRAS eRFX software (Allocation Network, 2014). It has a central interface called the M portal that controls all process in the BMW group. The e-sourcing constitutes of four phases. First phase deals with request preparation where various inputs are revived form the departments like R&D, logistics, cost engineering etc. after which documents and specifications are created considering existing contracts and bidder information. In phase 2 once all specifications are received, suppliers are invited to submit their bids which are evaluated and classified into group specific request along with cost analysis structures. This is then fed into ASTRAS where comparison are made. The
  10. 10. 9 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS third phase constitutes of rating and rounds of negotiation under the guidance of the purchasing team. Finally the fourth phase deals with final evaluation and award rating of the supplier after which these supplier selection process is closed in the M portal. The framework of the supplier system is discussed in the next section. 3.3.2 Supplier Selection and Purchasing Some of the key aspects (Milne 2009) mentions while framing the supplier system are building a constant communication channel, having the right supplier rating system, using dual or multiple sourcing strategies and knowing your supplier's supplier. If you analyse BMW's supplier selection and purchasing processes these aspects are more than effectively carried out. Firstly the purchase and procurement of production materials from suppliers are based on ISO 9000 and ISO/TS 16949 that ensures quality standards are met throughout the supply chain. In addition as part of their global strategy BMW joined the "Global Compact Practice" group in 2003 and have extended those practices to their suppliers along with their sub-suppliers. As mentioned earlier achieving sustainability, is carried out on every part of every part of the supply chain including, its procurement process. The (BMW Group, 2008) report describes the quality assurance procedure for the supplied parts and the circumstances under which these procedure have to be implemented. The key parameters used in supplier selection that are described in the report include, product innovation, product quality and robustness in production, delivery capability and on-time delivery, value creation and sub-contractor management. They are selected and evaluated in different phases based on the scope of service or type of supplier (concept suppliers, series development suppliers & market suppliers) as shown in figure 5. The concept supplier develop the technical concept and nominated approximately 38 months before series production. The series development suppliers are nominated before 30 months and the market suppliers who supply standard parts for the series are nominated 15 months before. Each new potential supplier as well those planning to change their product or processes in any way must adhere to the BMW group sustainability requirement.
  11. 11. 10 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS Figure 5: Type of Suppliers, Responsibility and Schedules, Source - (BMW Group, 2008) More than 50 percent of the components including door panels, front and rear axles and exhaust systems are brought in by the suppliers in a "just in time", “just in sequence”(JIT/S) process to the right point in the assembly line. This not only helps the firm to save space and minimize stocks (both in transit stocks and facilities stock) but also helps reducing the total cost of production. Typically there is only about one and half hours of stock on the assembly line at any given point of time. (Ogle 2013) reports that approximately 75 percent of the sourcing volume is sourced by JIT/JIS and further divided as 90 percent from JIS and 10 percent from JIT. This is achieved through the supply mechanisms explained in figure 6. There are no intermediate stocking points and supplies are delivered directly to the assembly stock. As discussed earlier once the data is captured using mySAP, the “custom-configured manufacturing order” which includes all relevant data on the parts necessary to build the car, are sent from BMW’s planning system to the appropriate suppliers (Ambe 2010). There are two schedules involved in the purchasing mechanism, one is the “long-horizon” forecasts and the “short-horizon” JIT/JIS delivery schedules.
  12. 12. 11 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS Figure 5: Purchasing Mechanisms, Source - (Bartow 2007) Figure 6: Supply Mechanisms to BMW Plants, Source - (Bartow 2007)
  13. 13. 12 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS As shown in figure 5, the long-term requirement is typically done in 4 month widow which typically constitutes of standard vehicle components or those part of a special vehicle program. The short term requirements are purchased within 3 week window. Once a FAB (precise request) is received, the supplies arrive based on the evenly distributed customer order. The actual assembly date may differ from the SWET dates (received target goods receipt date). The main control sends a TACHO message (every 15 minutes) which gives the current status of the production (ERP Champs 2012). The arrived parts are then allocated based on the SPAB (sequential request) into corresponding points in the assembly line (Bartow 2007). These purchasing and supply mechanisms provides robustness and cost saving for the firm. 3.3.3 Cooperation and Collaboration with its Suppliers Maintaining good relationships with the supplier is vital for any car manufacturer more so for a firm like BMW, whose supply chain is a lot dependent on responsiveness and quality of the supplies. As the firm uses the "Just-in time" and "Just-in-sequence" mechanisms, collaborating and communicating on a real time basis becomes an absolute necessity. Accurate and timely information is a key aspect of a managing and controlling a supply chain. As pointed out by (Chopra 2013) this information gets distorted as you move across the chain, upstream from customer or retailer to the source of raw materials which causes the bullwhip effect. This can be either due to conflicting views on the objective, or due to delays because of the sheer complexity of the network. BMW negates this by integrating advanced technologies and IT systems such as EDI (for larger suppliers) and mySAP while ensuring that it is developed alongside with its suppliers ( in some case tier 2 suppliers ) and distributors (Ambe 2010). In addition (Sabel 1989) points out that the BMW’s emphasis on collaboration has turned the in- house manufacturing into a strategic learning process to explore boundaries beyond its direct expertise. The firm as well as its suppliers has benefited from the mutual knowledge transfer, for example participation with Cecigram in France for new production technologies and Leowe opta for electronics way back in 90’s. The supplier network in North America is tied together by its Process development centre that works together with suppliers. The group plays crucial role in the development of its suppliers. Even in newer markets such as India and China the firm enjoys a personal connection with its local suppliers which is a tremendous asset. The firm
  14. 14. 13 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS benefits from understanding the local requirement more comprehensively and make appropriate strategic changes in the decision making process. 3.4 Designand Production Figure 7: Change in Production Strategies, Source - (Henry 2009) The automobile industry has seen a lot of changes since its inception. The emphasis has shifted from a mass production system in the early part of the 20th century to a lean production system in the 1990’s (seen in the TPS-Toyota Production System) and now to a more demand driven process over the last decade (Zhan 2006). Earlier the norm was "built-to-stock" where the stock is produced to a fixed schedule based on expected demand and where enough units are built keeping the car manufacturer's warehouse capacity in mind. This typically was the case for most automobile manufacturing firms in order to achieve "economies of scale" for the continuous production of the same product as producing in large numbers would help in reducing "per unit cost" of the vehicle. However times have changed and the ability to deliver customized cars while maintaining shorter delivery times are increasingly gaining importance, especially in the premium segment. In addition there also runs a risk of "diseconomies of scale"
  15. 15. 14 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS i.e. after a certain point where the optimum capacity is reached (also known as the "break-even- point"), results in cost escalation with increase in production. Manufacturers need to strike the right balance and must be able to be flexible with changes in demand which is a key requirement in the volatile environment seen in the automobile industry. The production planning in BMW revolves more around the "pull" mechanism where customer demand rather than forecasting drives the production cycle (QAD 2005). It achieved through Build-to-order, just in time and just in sequence process which is discussed next. 3.4.1 Build -To-Order Supply Chain (BOSC) Figure 8 - BMW's Build-To-Order Strategy, Source - (Bartow 2007) The market environment in today's world is quite diverse and fast paced with ever changing needs of the customer. Globalization and rapid changes in technology have enabled automobile manufacturers to have larger product range in order to capture all kinds of market. This sheer complexity in the product range as well as customizing products to cater to the specific needs of the customer pose challenges to production managers. To tackle this, auto firms like BMW are increasingly adopting the "designing to defer product differentiation" strategy where the final configuration of a product is postponed as much as possible. In BMW, the production "follows the market" which uses a "build-to-order" mechanism for their production. It addition (Treville 2004) explains how BMW uses the partial demand information arrived from the BTO
  16. 16. 15 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS in full filling its forecast mechanisms for advanced production in case of production shutdowns. Table1 shows the keys aspects that differentiates BOSC with traditional supply chains. It leverages the advantages of technologies and outsourcing to cater to the specific needs of the customer with quick response times. The "Customer-Oriented Sales and Production Process" COSP or KOVP abbreviated in German where the customer and not the car planned by the firm defines the production process (BMW Group, 2013). It gives the customer a whole new range of services like simple online processes that is effectively used by participants in the supply chain in achieving clarity, flexibility and on time delivery. The BOSC in BMW is so effective that it enables customers to make changes six days prior to delivery of the vehicle which includes even a change in colour (Gunasekarana 2005). Through this BMW is able to achieve higher level of responsiveness and customer satisfaction. The author also elucidates other aspects captured within this mechanism such as holding zero inventory on finished goods as well as work-in-process inventories. Table1 - Key aspects of Traditional and Build-to-order supply chains, Source - (Deloitte Consulting, 2004)
  17. 17. 16 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS 3.4.2 Value Added Production System In 2006, BMW implemented the "value added production system" throughout the group, that tries to get the most out of the process involved from supplier to dealer, right from product inception, through development, production and distribution (BMW Group, 2015). The focus is to minimize waste, reduce total costs through its "leagile" concept (Naylor 1999) or "lean and agile" production system while ensuring optimum quality is never compromised. Being lean does not necessarily have to conflict with keeping the supply chain running. In BMW the lean processes is more aimed at discovering problems earlier and accurately, take measures and to provide quicker responses (Ogle 2013). However (Swiecki 2008) points out that due to the volatility in the business environment, being lean is not just good enough. The two aspects of the lean strategy - value-stream-mapping where each link in the chain drives value to the next along with the 5's ( Sort, Simplify, Sweep, Standardize & Sustain ) is coupled with agile strategy that gives greater flexibility and responsiveness to BMW supply chain. The firm achieves this by staying abreast with the latest technologies that are tailored to deliver quality cars to its customers. It allows them to provide quick responses to changes in customer demand, supports rapid product launches even in cases of unplanned products (Elkins 2004). As a result of the VPS activity the firm was able to achieve reduction of rework and per scrap while it improved the efficiency per unit, product quality and operating cost structure. In terms of design, which revolves around “knowing you customer well” is one of the main differentiators of the BMW brand. It’s elaborate customer centric process helps in identifying the core requirements which drives the innovation processes and newer technologies. The latest design technologies are developed keeping the end user in mind, technologies such as dynamic stability control (DSC) and 50:50 weight distribution between front and rear axles giving perfect balance of performance, precision and driving pleasure. The cars itself boasts of cutting- edge technologies such as precise navigation systems, car memory and key memory, climate control and other telematics, information displays and sensors making it a complete driving machine. The firm has made lot of improvements both in terms of its production design as well as the car itself. The recent ground-breaking innovation was the use of light weight carbon fibre also known as CFRP (carbon-fibre-reinforced plastic). This along with the “Life Drive”
  18. 18. 17 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS concept helped in reducing production times by half compared to those built on conventional lines especially considering the scale at which it is used. 3.5 Distribution System Figure 9: BMW’s Global Outbound Logistics Network, Source - (WWL, 2012) The distribution strategies revolve around the demand which are periodically evaluated. The main idea is to unload in ports where most of their customers reside, which helps in the reduction of lead times (Ogle 2013). Although this can be an expensive affair the firm is always looking for ways to optimize its distribution network through their “build for distribution” projects. The materials steering department handles all the inbound transport which constantly in touch with BMW facilities, suppliers and purchasing departments. The outbound distribution have multiple configurations based on the location and demand and uses storage facilities both on-site and off-site. The delivery mechanisms can either be direct delivery to the customer, or through dealers (showrooms), or including the distributors in the chain as shown in the figure 10.
  19. 19. 18 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS Figure 10: Distribution Mechanisms In some regions like North America it more centralized and use central stocking points which has its own advantages (Kurylko 2012). Here the cars allocated to the dealers goes into a central pool instead of shipping all the cars and BMW pays for the storage costs until the dealer gets a buyer. This helps stores to save on floor planning and cost associated with transporting swapped vehicles. Significant saving are made on the transportation cost and also allows the dealers to choose from bigger pool which is one the most important benefit, keeping the end customer in mind. The firm also uses cross-docking facilities, for example in Bavarian Wörth an der Isar, Germany that helps to reduce traffic within plants and optimize transportation costs (Ogle 2013). In its Rosslyn plant in Pretoria, South Africa, the assembled car is taken to the warehouse (distribution centre) first and then transported to the dealers from where the customers collects it (Kaps 2006). In the year 2013, close 260,000 vehicles have been delivered to the customers which was a 7.1 percent increase from the previous year (Ogle 2013). The growth mainly came from Britain, Ireland and Russia where sales climbed in 26 to 28 percent range. (Ogle 2013) points out that this was mainly due BMW’s efficient supply chain network, particularly the distribution network.
  20. 20. 19 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS 3.6 Reverse Logistics Network Figure 11: Generic Forward and Reverse Logistics Framework, Source - (Tonanont 2008) In recent years reverse logistics has become an important aspect of the supply chain and firms are leveraging it to gain competitive advantage. Reverse logistics encompasses all operations that relate to the reuse of finished goods as well those surplus materials used in the forward chain. As shown in the figure 11, there are various points in the chain other than the used product from the consumer from which materials can be reused. In order to design the reverse logistics framework, firstly the drivers needs to be identified. Most common drivers include savings on raw material and energy, customer satisfaction, emission reduction. However as pointed out by (Joesph 2014) reverse logistics can be an effective cost control mechanism. BMW has competent reverse logistics framework unlike many other automobile manufacturers where reusable, re-manufacturable and recyclable automobile components are effectively utilized. As per (BMW Group, 2014) report, in the production cycle itself, the firm uses a “closed-loop” mechanism where any viable residual materials are used on the same machine. The firm also has the “post-industry-loop” mechanism where used materials such as sheet metal scraps, old plastic containers etc. are recycled back into production. As reported by (Somasekhar 2002) in Germany once a car complete 12-15 years it is must that the owner
  21. 21. 20 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS handover the car to the manufacturer or an authorised dismantling plant. BMW make this process easy through its Lohhof plant near Munich. It uses high tech gadgetry and methods to rapidly dismantle cars. It is reported that on average 2000 BMW cars are dismantled by this unit creating about 1700 tonnes of body shells, 200 tonnes of operating fuel, 20 tonnes of plastic and about 30 tonnes of no ferrous metals resulting in 1.5 million earned by recycled parts. It has also become the preferred choice for other car manufacturers such Mercedes and Porsche. Product “re-call” or “Call-backs” which are also part of the reverse logistics process. Manufacturer often have to re-call vehicles either because it not giving the guaranteed performance, for safety reasons or violation of certain government regulation. These causes a huge financial burden on companies. BMW too faced these scenarios but used this as an opportunity to increase brand image and customer satisfaction. As shown in figure 11, the called back products are inspected and evaluated before they can be sent to the refurbishing, re-manufacturing processes or for waste disposal. For example, in 2014 BMW had a massive re-call for over 1.6 million 3 series cars manufactured from 2000 to 2006 due to a faulty air- bag system which was a safety issue. There also cases when parts have to be replaced. These replaced parts are repaired either sent to dealer as new spare parts or used back in the production. 3.7 Environmental Sustainability The Munich-based company were one of the first in the industry to achieve the ISO14001 and is recognized world over for its commitment to environmental responsibility. It was ranked No.1 in the Dow Jones sustainability index for automobile industry every year since 2005 (DMSB, 2014). “Resource Efficiency” and “life cycle management” are the main pillars of the group’s sustainability program. The intelligent use of raw materials and valuable resources begins much before the disposal stage. As discussed in the previous section the recycling process start from the outset. During production itself surplus or reusable waste are put back into the forward chain. In addition the firm uses various Green supply chain practices to achieve environmental sustainability. The firm also assess its suppliers in energy efficiency through regular audits and together develop action plans for improvement. In case the suppliers are not meeting the group’s sustainability cause their contracts are terminated. The group is also involved in cross industry initiatives such as the Aluminium Stewardship Initiative (ASI) which
  22. 22. 21 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS tries to achieve sustainable extraction, production and use of aluminium throughout the value chain. 4. SWOT Analysis BMW Supply Chain Figure 12: S.W.O.T Analysis of BWS’s Global Supply Chain In our research we found the following strengths, weakness, threats and opportunities as shown in figure 12. The most important being the brand reputation. It is known world over for it luxury and refined quality. With their continuous improvement practices and innovation throughout the chain they have been able to stay ahead of competition. The brand image also attracts the best suppliers and dealers which further adds to the quality and responsiveness of their services and products. Their value added production system that is characterized by flexible and “leagile” processes such as BTO, JIT/JIS have brought about greater flexibility and agility of their supply chain. Amongst the auto maker they have one most comprehensive and unique reverse logistics process that enable them to achieve a greater environmental sustainability
  23. 23. 22 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS index. In addition their acquisition of Rover group (MINI) and Rolls-Royce have further added to existing brand image. The firm also benefited from technologies and practices used in their supply chain along with increased knowledge of the market they were serving. Their constant innovation and continuous improvement are ones that hard to match. The latest mobility services “drive now” and the new i3 model are examples of this. Having a global supply chain poses it own challenges which leads to some of the weaknesses. For the study carried out we found that BMW’s manufacturing cost are relatively higher than many other firms. This mainly due higher purchasing cost as best of suppliers are used as well the skilled workforce that is required. Though these are also their strengths. Also many of the key components such as engines are imported which contribute to higher import costs. However the firm are exploring options of setting up R&D facilities and local manufacturing of engines in countries like India drawing the line with China. BMW;s cost of repair compared to other car makers in the premium segment is known to be high. Though the firm have brought about extended warranty periods for their cars, there is still scope for improvement in this area. Their customization of cars also do contribute to higher costs in manufacturing than those achieved through mass economies of scale or mass production. But this gives opportunities to the firm for improving the mass customization processes. One of the main threats is the increasing competition in their market segment. Volkswagen in the executive segment, Daimer-Chrysler’s Mercedes and Toyota’s Lexus in the luxury segment along with their competitive pricing take pie of BMW’s market share. The other threats are the risks involved in local sourcing which includes duplication of intellectual assets and grey marketing. BMW’s mainly faces these challenges in countries like Russia, Poland, Turkey and some African nations. The fluctuating currency and recession in the European Union were the other main threats to BMW’s supply chain. 5. Recommendations In this section we discuss the opportunities for BMW group and give our views on how the firm can improve their supply chain activities considering the threats and weaknesses discussed in the previous section. As discussed earlier the firm faces increasing completion form Japanese brands in the premium segment. The firm would need to develop mechanisms to reduce costs
  24. 24. 23 ANALYSISOF BMW'SGLOBAL SUPPLYCHAIN - ITS PRODUCTION – DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS both in their manufacturing as well as transportation and distribution processes in order to compete with Japanese firms pricing strategy. Japanese firms takes lesser time to launch a new product compared to BMW. This another area where further improvements can be made in terms of their design and prototyping which usually 5-6 years for a new product launch. BMW makes big changes less frequently. Though these have their own advantages like incorporating breakthroughs late in the production cycle, lead times can be reduced by evolving a strategy where small incremental changes can be made more frequently as followed by Japanese firms. As we have seen the concept development and nomination of these suppliers takes close 3 years which can be further reduced. We also see that there are number of external supply chain contacts which can be brought under one roof under a single partner or subsidiary company. As we have seen BMW have effectively penetrated to newer developing markets where there are lot of cash-strapped potential customers in the mid-income category. We recommend to BMW to have R&D centres in these countries that can develop cars that cater to the requirements of these markets. Such as more fuel efficient and lower priced version of electric and hybrid cars. Some of their core suppliers could also set up base in these location saving on inventory, transportation and distribution costs. But by doing so they can also reduce the threats of grey marketing and duplication of intellectual assets. They can work with local governments in framing policies and framework to keep this in check. 6. Conclusion As seen in this study the automobile industry is faced with huge challenges due to the fluctuating market environment, changing demands of the well informed customer and cut throat competition. All these factors have made it imperative for automobile chains to be more responsive and flexible. BMW have well understood these challenges associated with today’s environment and have incorporated various technologies, strategies and mechanism in their supply chain. In spite of the odds the firm has shown great character and have demonstrated to be a competitive enterprise and a long term player. Its triple bottom-line approach of economic, social and environmental sustainability has enabled the firm to be one of the top auto makers in the world.
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