Introduction
Bayerische Motoren Werke AG, also known as BMW, is a German based automobile manufacturing company founded in 1916 by Franz Joseph Popp, Karl Rapp and Camilo Castiglioni. Today, it is considered one of the best companies of the car industry and it is owned by the parent company BMW Group, which is also known for owning other luxury brands such as Mini and Rolls-Royce. It operates 30 production and assembly facilities in 14 countries and is present in more than 140 countries. BMW started off as an aircraft manufacturing company but due to the consequences of the First World War, they switched into motorcycle production and later on, entered a new sector which was the automobile manufacturing. Today, BMW is known for becoming one of the world’s most popular automobile brands.
BMW has always been trying to create value that best suits customer’s needs. It is known for being a brand that does not strive to serve all segments of the automotive industry. Therefore, it rather concentrates on targeting the premium segment at a global scale. This premium segment is comprised of individuals and households who eagerly look for automobiles that transmit high quality, luxury and performance standards. They are known to be professionals or executives who belong to the middle-upper class and whose income is high.
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They are determined and ambitious and loyal to the brand. Moreover, BMW is also known for creating value through its high investments in R+D. They want to provide its customers to choose from a diversity of models which include world’s latest innovations and high-quality standards. For example, BMW was the first one in its segment to manufacture electric cars thus reducing the consumption of CO2 emissions.
In addition, BMW is well recognized for having the best security systems in all its models. As BMW’s goal is to offer maximum safety, the company has applied intelligent security systems in order to protect passengers from serious injuries in case of accident. BMW tries to differ itself from conventional security systems by applying a system which has the capacity to react at the speed of lights due to their decentralized structure of the system.
The reason why we have chosen BMW is based on the fact that we are very familiar with the brand and its very well known worldwide. We decided to focus on BMW’s procurement division since it’s key in a company’s supply chain. By doing some research, we identified that most companies underestimate its importance and therefore, we thought BMW was a potential company to analyze.
Corporate Strategy
Companies define corporate strategies in order to fulfil its company’s objectives while achieving a competitive advantage. BMW’s objective is to become number one in the automotive industry. They seek to inspire people while developing tomorrow’s individual premium mobility.
With respect to BMW’s competitive advantage, it is built upon five different aspects. First, the company ensures to offer the best customer experience. Due to the strong relationship and understanding BMW has with its core customers, all products and services are based on their needs and desires.
BMW strives to create and design products where customers can feel emotionally attached to them and highly satisfied. Second, BMW is an aspirational brand. To increase its brand value, the company constantly performs a thorough analysis of its design and its perception of the brand in the market. Due to the creation of new technologies, BMW foresees future opportunities. Therefore, it strives to innovate and implement new technologies in its future products and services. In addition, BMW’s aim is to inspire all those people who work for and with them.
As a result, respect and integrity are 2 fundamental values that are considered when directing BMW’s associates. Finally, BMW has an active role in the different communities in which they operate. They are responsible for each of the actions they perform and always achieve positive and excellent results.
As mentioned before, BMW’s priority is to offer the best customer experience. To do so, its strategic approach is based on the idea of taking BMW to the next level. Due to the constant changes’ companies face today in this modern world, BMW strives to adapt to change by taking advantage of today’s new innovative technologies, digitalization, and sustainability. They are willing to exploit every single opportunity that comes on their way in terms of transformation and become the most innovative company in its industry.
Their aim is to keep growing and offering its customers world’s latest innovations. For future years, BMW will focus its core business on aligning sustainable mobility with technological changes in its product portfolio. This means that BMW will invest on improving customer relationship and getting customers familiarized with these new upcoming technologies, which in turn will create new market standards. BMW’s strategic approach involves the following aspects: brand & design, technologies, customer experience & services, digitalization, profitability.
How is BMW´s supply chain strategy aligned with the company strategy?
As mentioned in the previous section, BMW follows a strategy where the customers are seen as the most important stakeholders. Following their Customer Oriented Action philosophy, customers are taken into consideration from the beginning to the end of the value chain. As stated by BMW, growth, shaping the future, profitability and access to new technologies and customers are the four core goals of their corporate strategy, which are replicated in their supply chain strategy.
Car manufacturing is one of the most complicated industries to build a proper functioning and efficient supply chain. The demand for customization, complexity of the product, assembly line with thousands of different pieces and different regulations are only some of the reasons behind the intricacy of the supply chain.
In addition, BMW is well know as one of the world’s most premium brands with some brands such as Mini & Rolls Royce under their holdings. They can only keep such brand reputation by maintaining their quality through continuous innovation and improvement. The brand is known for their wide variety of customization options, this strategy mainly focuses on customers, they want to offer their clients a car on demand. In order to do so efficiently, they use MySAP communication. MySAP is a supply chain wide communication platform which connects suppliers, manufacturer & distributors. By doing so the company is able to satisfy customer preferences, shortening lead time while reducing stock costs. This is only possible communication is effective among all parts of the supply chain. Following these two practices, BMW attracts potential customers by customization and quality assurance.
BMW’s supply chain has two main pillars and areas of continuous work. The first of them is the assurance of quality and minimization of risk along the supply chain. This does not only improve the quality of their production but reduces huge potential losses. The second is to continuously improve supplier relations and work closely with them in order to improve their service and ensure all specifications are met.
Examples of their strategy to take on the newest technologies can be extracted from the platforms they use. In addition to their communications tool MySAP, BMW uses the latest technologies in sourcing. The e-sourcing platform ASTRAS eRFX, allows BMW to source, track & evaluate their potential suppliers for every new purchase. With a 4 step process the company is able to offer new contracts, receive bids, retrieve data about the different bidders from their databases and finally make a choice among them making sure all the requirements and specifications will be met.
Finally, BMW is taking a more sustainable approach to their production, taking into consideration the direction of the world and the latest concerns. Not only they apply to themselves but require their suppliers to follow some quality standards along with strict sustainability requirements. In most cases the company will investigate even further and take into consideration the suppliers of their own suppliers. This will be further explained in another section of the paper.
Build-to-order
The automobile industry background, nowadays, is quite distinctive and fast-driven with a constant change in customer´s needs. Disruptive technology has allowed the car manufacturers to boost their product line in order to cover a greater customer portfolio.
BMW has adopt a “[footnoteRef:1]designing to defer product differentiation strategy” aligned with a build-to-order production. The reasons behind these implementations are: [1: Mathews, S. (2015, July 28). Analysis of BMWs Global Supply Chain Network - its production - distr... Retrieved April 4, 2019, from https://www.slideshare.net/SachinMathews1/analysis-of-bmws-global-supply-chain-network-its-production-distribution-sourcing-strategies-and-mechanisms]
- Pull service to enable customers to build their car with their personal preferences increase marketing efficacy
- The demand is dedicated to an adaptable supply chain boosts production efficiency
- To create a steadfast, consistent and personalized service environment moves away from a mass-production logistics
- BMW´s customer relationship is shared across the entire company, therefore it is not located uniquely in the dealers´ area more devoted service.
- Dealing with uncertainty is strategically placed in the safeguard and information management area avoid waiting, till the finished good inventory, to solve any issues.
- Little condensed in dealer´s stock quantities avoid having excessive stock control in the finished goods inventory.
- Cooperative and receptive, in order to mitigate long lead times in the supplier area.
Value-added production system
BMW has implemented this system in order to make the most of the chain from product demo, through progress, manufacturing/procurement and distribution. The main purpose is to diminish any waste, in order to reduce expenses. BMW covers it through [footnoteRef:2]lean and a fast production process while guaranteeing their brand´s quality. Lean management in BMW is characterized to detect precisely any issue and deliver quicker solutions. [2: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/consumer-business/us-cb-future-of-the-automotive-supplier-industry-outlook.pdf]
BMW supply chain strategy is delivered in an adaptable and responsive way not only thanks to lean management, but also to the connection between [footnoteRef:3] “value-stream mapping” and the 5s (sort, simplify, sweep, standardized and sustain). This services are being fulfilled by their constant update in disruptive technology. This permits the company to react to changes in customer´s needs (e.g. hybrid cars due to Kyoto´s protocol). Resultantly, this system enables to boost the improvement in their expense´s structure, quality and productivity per product. [3: Mathews, S. (2015, July 28). Analysis of BMWs Global Supply Chain Network - its production - distr... Retrieved April 4, 2019, from https://www.slideshare.net/SachinMathews1/analysis-of-bmws-global-supply-chain-network-its-production-distribution-sourcing-strategies-and-mechanisms]
Reverse Logistic Network
This logistic area is key for BMW in order to boost their competitive advantage in the market. They implement this strategy in two areas of their supply chain:
- “Closed-loop” is a production mechanism in which all the feasible resources are employed on the same process.
- “Post-industry-loop” is a production mechanism in which the company recycles materials, such as containers, for their manufacture.
Distribution Network
The company uses a selective distribution strategy, which new cars can only be sold through BMW dealerships. The central purpose of this distribution channel is to expand accessibility to the customers and add value through dealers that are in charge of providing additional expenditure of promotional purposes on top of ad campaigns that BMW carries out. Handling delicate showrooms in order to deliver unforgettable buying experience and provide after-sales services are some of the values dealers add on BMW cars.
Following their Customer Oriented Action philosophy, they are investing in technology to deliver agility to customers and reduce the lead time of their orders. The focus is on applications such as logistics robots, autonomous transport systems at plants and digitalisation projects for an end-to-end supply chain that are already being implemented worldwide in logistics at BMW Group plants. They rely on a global supply network and close cooperation with numerous logistics service providers. The Connected Supply Chain (CSC) program significantly increases supply chain transparency. It updates the plants material controllers and logistics specialists on the goods location and delivery time every 15 minutes. This transparency enables them to respond immediately if delays appear likely and take appropriate steps early to avoid costly extra runs.
Moreover, BMW Group is also seeking for achieving sustainability by their logistics. They aim at reducing truck CO₂ emissions by 40% by 2030 and to be completely emission-free by 2050. Due to that, the company is devoting effort to acquire CO₂ - efficient modes of transport. More than 60% of all new vehicles already leave production plants by rail. Although, it is still necessary to use trucks on certain in-and-outbound logistics routes, BMW Group is already using natural gas and electric trucks in cooperation with logistics service providers to reduce emissions from these truck journeys.
Supplier network and Management
With more than 300 different companies in North America, Canada and Mexico, the manufacturing of BMW relies on a wide and efficient supply network characterized by its working skills, experience and talent. They not only supply their products but are also keen on looking for alternatives to improve and achieve the highest quality products & processes that will improve the overall company and drive it to the top.
Regarding BMW’s overall supplier network, they work with around 12000 suppliers in 70 countries, being Germany and Western Europe the main providers. The wide variety of suppliers that they work with, have led them to create the BMW Group Supplier Sustainability Standard so all of them equally comply with all the social and environmental standards that BMW has implemented.
BMW is considerate when talking about their sustainability and therefore they focus on two main areas in order to be efficient, well focused and chase improvement.
First of all, BMW seeks to reduce risk and therefore they are very cautious with the projects that may create risky environments. They are very careful with the pieces supplied and the processes that they encounter when supplying them. As sustainability is a crucial part of their process, they audit every single supplier that they think might breach the norms in order to prevent any negative circumstances. To better prove the importance of sustainability for the BMW Group, we can state that they recognize it as one of the main pillars that identify the company.
Secondly, BMW takes advantage of every opportunity given and therefore work with their suppliers in order to achieve the best and most efficient returns. Also, they take care of their stakeholders as BMW likes to be involved in several initiatives which gives value to stakeholders.
Next, we will explain some activities that BMW uses regarding its supply in order to reduce costs and achieve better results.
BMW has also started initiatives in order to penetrate new developing markets where they will source their products locally. This will enable them to focus on their products faster and an overall increase in value. Also, the fact that products are sourced locally, costs can be reduced. This comes with trade-offs, as lower costs can come with the disadvantage of reduced materials. As products are sourced locally, the materials enabled for the processes can be reduced and therefore BMW would have to comply with what that country has available.
Not only does BMW outsource products but they also use “Just in Time” systems. These products will arrive to the exact point they are needed in the assembly line. This way they will reduce costs from inventory and production which will benefit overall company productivity. The trade-offs regarding this system could be the fact that they might be short on products as they don’t have storage.
To conclude, we can state that BMW’s supply network is extensive and that they give great importance to their suppliers and costs saved/incurred.
Conclusion
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