Supply Chain in the Motor Vehicle Industry

June 2010 Anne Guesdon 1

Supply Chain in the Motor Vehicle Industry.

How does Supply Chain Management Contribute

to the Competitive Advantage of Mini?


Introduction


• The motor vehicle industry is very competitive.

• A competitive advantage is necessary to remain in activity.


• There are two main strategies to get a competitive advantage:


• BMW has a differentiation strategy.


• How can supply chain management help attain a sustainable competitive advantage?

• The Mini assembly plant is located in Oxford.


Outline

Part I: An Overview of the BMW GroupA) BMW AGB) BMW in the United KingdomC) Mini

Part II: The Contribution of Supply Chain Management to the Competitive Advantage of the Motor Vehicle Industry

A) What is a supply chain?B) EvolutionsC) Current issues

Part III: Mini, the Production TriangleA) A philosophy of productionB) Production

Part IV: Mini, the Extended Production Network

A) LogisticsB) Purchasing policiesC) The role of suppliers


Part I:An Overview of the BMW Group


A) BMW AG

• Three brands of cars.

1, 286,310 cars delivered in 2009

50,681 million euros of revenue in 2009

96,230 employees

Net revenue decreased by 36.4%

14th largest car manufacturer in terms of production


• The main markets are Germany, the United States, the United Kingdom and Asia.


• 24 production and assembly plants in 13 countries…


• …with most of production located in Europe.


• BMW group’s strategy: increase sales by more than 2 million cars a year, through materials cost reductions and better utilisation of the capital employed.

• Two pillars:- Focus on premium segment.- Networking and flexibility in

production.


B) BMW in the United Kingdom

3rd largest market of the group2nd biggest production country

Only country where the three brands are manufactured

3rd largest car manufacturer in the UK

£1.7 billion worth of exports in 2004, representing almost 1% of British exports.

8,000 employees


• Four production plants in the UK:Goodwood:1,000 employees1,212 cars in 2008

Hams Hall:1,000 employeesFour-cylinder petrol engines372,000 engines in 2008

Swindon:1,000 employeesPressings and sub-assemblies for the Mini

Oxford:3,700 employeesProduction and assembly of the Mini216,000 cars sold in 2009


C) Mini

1913 First car produced in Oxford, the Bullnose Morris.

1930s Morris factory is established in its current location, in Cowley.

1954 The Pressed Steel Company ( later Pressed Steel Fisher) needs extra capacity outside its Oxford factory and establishes a car panel production facility in Swindon.

1959 Creation of Mini as a concept for British Motor Corporation: Morris Mini Minor and Austin Seven.

1965 Pressed Steel Fisher bought by Rover.

1968 Merger between BMC and Leyland, to create British Leyland.

1969 Separation between Austin and Morris models is lifted: all Mini cars are branded MINI.

1986 British Leyland renamed Rover Group.


1994 The BMW Group acquires the Rover Group.

2000 BMW sells Rover to the Phoenix Consortium, Land Rover to Ford and keeps the Mini brand.

2001 Opening of the Hams Hall PlantLaunch of the Mini One and Mini Cooper.

2004 Launch of the Mini Convertible.

2006 Second generation of Mini.

2007 Launch of the Mini Clubman.

2008 The Mini E is unveiled.

2009 Launch of the new Convertible.

2010 Launch of the Mini Countryman.


• Three body styles.


• Six engine variants: 4 petrol variants:- One: basic- Cooper: intermediary- Cooper S: turbocharged- John Cooper Works: the most

powerful 2 diesel variants:- One D: basic- Cooper D: intermediary


Part II:The contribution of Supply Chain

Management to the Competitiveness of the Motor

Vehicle Industry


A) What is a supply chain?

First tier supplier

Second tier supplier

First tier customer

Second tier customer

End customer

Demand sideSupply side

Purchasing and supply management

Physical distribution management

Logistics

Materials management

Supply chain management

Information flow

Physical flow


B) Evolution of supply chain management in the motor vehicle

industry.

• The environment has dramatically changed from the 1970s.

• SCM has been an area of growing interest since that time.

• Competitiveness = internal efficiency + good management of external relationships.


• The main changes which occured:

The traditional way The new way

• Low prices privileged• Large supply base• Adversarial relationships with suppliers• Limited communications• Large stocks

• Involvement of suppliers from development• Smaller supply base• Longer contracts awarded• Interdependency• Smaller and more frequent deliveries.

• Strong integration of organisations• Influence of Just-In-Time and Agility


C) Current issues.

• Crucial decisions:


• Capacity utilisation: effect on revenues, speed of response, dependability, quality, flexibility.

• Planning, forecasts: mismatches between demand and production are expensive.

• Lead time: improvements in time and consistency will benefit the supply chain at different levels, giving more flexibility.

• Logistics and inventory management: creates the synchronisation of material and information flows between the organisations.


Part III:Mini, the Production Triangle


A) A philosophy of production

• KOVP: Customer-Oriented Sales and Production Process:

- Simple and rapid ordering process at the dealers’.- Immediate receipt of binding confirmation order.- Flexibility when altering customer’s order (up to 7

days before production).- Information on the order status.- Quick and punctual delivery .• Aim: offer a customised car at a desired date.


• Provides additional revenues and builds the brand image.

• Attained through a flexible production system and a performant IT environment which enables visibility and coordination along the supply chain.


• How can BMW gain more flexibility in the production processes ?

- Postponement:


- Build-To-Order:Low finished goods inventory,

customisable product, quick delivery. "Pull" triggers.


B) Production

Engines:Delivered just-in-sequence.Traced through production.BMW knowledge.

Body pressings and and sub-assemblies:Delivered just-in-sequence.Increased capacity and productivity.80% of parts of the body shell.

Body shell and assembly:370 different interior trims and 320 exterior variantsFlexibility of the facility Modules


Part IV:Mini, the Extended Production

Network


A) Logistics

• Logistics has a direct impact on the speed and efficiency of operations.

• Increased structural complexity of production and sales network, together with increased product complexity and changing customer requirements: challenge to design and manage.

• Optimisation: standardisation and integration.


• Different levels of logistics networks:


• Transport of components and parts.• Material handling.• Logistics facilities.

• Enterprise Resources Planning:- Control of material flows- Use of internet communications,

electronic data interchange, barcodes, radio-frequency identification…


B) Purchasing policies

• Suppliers have to be carefully selected.• Cost reductions


• Globalisation.


C) The role of suppliers

• Numerous and important parts of the Mini are sourced locally: speed and flexibility.

• Suppliers choose to relocate near the plants: significant integration.

• Suppliers are requested to deliver high quality products and services. Examples of Kautex-Unipart and HBPO.

• Suppliers’ development can help attain cooperation and performance.


Conclusion


• Mini and BMW’s competitive advantage lies in their brand image.

• The brand image is built on premium, customised products.

• The KOVP is supported by supply chain operations.

• Supply chain management provides quality, efficiency and flexibility.


• Operations are managed to fulfil these aims within the group, but also all along the supply chain.

• Cooperation with suppliers is vital.• Focus on core competencies.• Drawbacks: change in the structure

of the supply market. • Good supply chain management

practices are an opportunity to reduce costs and increase profits.


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Supply Chain in the Motor Vehicle Industry

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