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

ANALYSIS OF BMW'S GLOBAL SUPPLY CHAIN - ITS PRODUCTION –

DISTRIBUTION - SOURCING STRATEGIES AND MECHANISMS

ABSTRACT

SACHIN MATHEWS

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

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ANALYSIS OF BMW'S GLOBAL SUPPLY CHAIN - 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.

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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.

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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

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of an 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.

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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.

Using mySAP various details such as customer preferences, cost involved, lead times are

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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 evaluate local suppliers for both their local production needs and

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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 third phase constitutes of rating and rounds of negotiation

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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.

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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.

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Figure 5: Purchasing Mechanisms, Source - (Bartow 2007)

Figure 6: Supply Mechanisms to BMW Plants, Source - (Bartow 2007)

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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

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local suppliers which is a tremendous asset. The firm benefits from understanding the local

requirement more comprehensively and make appropriate strategic changes in the decision

making process.

3.4 Design and 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 20 th 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

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increasingly gaining importance, especially in the premium segment. In addition there also

runs a risk of "diseconomies of scale" 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

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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 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.

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Table1 - Key aspects of Traditional and Build-to-order supply chains, Source - (Deloitte Consulting, 2004)

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

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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” 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.

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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.

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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 handover the car to the manufacturer or an authorised dismantling plant. BMW

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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

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Initiative (ASI) which 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

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sustainability 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 both in their manufacturing as well as transportation and distribution

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

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