Bmw
Content
Table of Contents
1
Introduction ............................................................................................................................. 2
2
BMW’s current product design process .................................................................................. 2
3
Recommendations for BMW’s current product design process .............................................. 4
4
Recommendations for competing against Japanese entrants into luxury car market .............. 5
5
Conclusion ............................................................................................................................... 6
6
References ............................................................................................................................... 6
1
Introduction
BMW is a German automobile, motorcycle and engine manufacturing company founded in
1916.BMW is headquartered in Munich, Bavaria. It also owns and produces Mini cars, and is the
parent company of Rolls-Royce Motor Cars. BMW produces motorcycles under BMW Motorrad.
In 2012, the BMW Group produced 2,000,000 automobiles and 120,000 motorcycles across all
of its brands. BMW is part of the "German Big 3" luxury automakers, along with Audi and
Mercedes-Benz, which are the three best-selling luxury automakers in the world.
BMW was one of the major players in the luxury car market having a market share of 10%.
Companies in this market segment competed on both tangible and intangible product
characteristics. BMW’s focus was on R&D, both in the engineering and styling of its cars, and
had built a reputation for high performance engineering. Its launch quality had always been on
par or better than that of its major competitors. However, since the late 1980s, the entry of
Japanese competition (Honda’s Acura and Toyota Lexus) had set higher standards of
conformance in this industry.
2
BMW’s current product design process
One of the primary reasons for BMW’s quality issues was its strategy of using different tools and
materials in the prototyping process when compared to the production runs.BMW supported
such a ‘dual’ development process to provide flexibility to its prototyping craftsmen to make
changes to the design quickly. For instance, the prototype shop was able to make new parts
within a week of being intimated of a design change. In contrast, the lead time for procuring preproduction tools from suppliers was 6 months. Providing such flexibility though had a flip side to
it - something which worked in the prototyping phase may not work in the production phase.
This meant that potential problems in the design could be identified very late in the development
process. People in pilot production spent a lot of their time identifying and solving the big
problems leaving them little or no time for minor problems and fine tuning. Thus there were
chances of minor issues creeping into actual production resulting in customer complaints after
sales.
Another reason which contributed towards BMW’s quality issues was its mixed-model ramp up
strategy. In order to utilize the high fixed costs involved BMW adopted a mixed model ramp up
strategy. While this permitted better utilization of fixed assets, it caused greater confusion among
the workers and made the logistics more complex. This problem was compounded due to the fact
that not all problems were discovered or solved in the pilot production phase. This in turn
affected the quality of the cars being produced. At the same time frequent changes to the
production schedule resulted in escalation of costs as well.
The above reasons might have played a significant role in BMW losing out to Japanese
competitors in the rankings on customer satisfaction and quality. Its market share in the US
remained constant but the share of Japanese manufacturers had increased by more than 10%. Its
warranty expenses were increasing and increase in design issues identified at the end of
development process would only increases the chances of a delay in the launch.
One of the ways in which BMW can improve its launch quality is to minimize the gap between
prototype and production process in terms of tools and materials used. The closer the prototype is
to the actual production output, the sooner in the development process can the design problems
be identified. This would require BMW to involve suppliers and use pre-production tools in the
prototype phase itself. The flip side to this strategy is that after every prototype cycle if there are
any design changes, a new set of pre-production tools needs to be ordered. We need to consider
the following in this context:
Cost of pre-production tools - Each set is estimated to cost DM 50 million (to
manufacture all parts of the car). In the worst case, every prototype cycle would lead to
design changes and hence a new set of tools would be needed at the start of each cycle.
Assuming 5 iterations, the additional cost would be DM 250 million. This would be
partially offset by savings of DM 100 million from reductions in excess direct and
indirect labour, reductions in tool replacement costs from pilot stage onwards and lower
warranty expenses.
Lead time to procure pre-production tools - The lead time is 6 months which is
significantly higher than the 1 week time span to procure hand-made tools in the current
prototyping process. If we consider 5 iterations, then an additional 30 months would be
needed in the prototyping phase thus increasing its span from 30 months currently to 60
months. Though this increase in prototyping duration would be partially offset by fewer
delays in the pilot production since the design would be closer to production quality, it
would definitely increase the overall ‘concept to launch’ lead time.
3
Recommendations for BMW’s current product design process
The 7 series luxury sedan had 32 months until the scheduled start of production. Over the
coming months prototypes had to be built and tested so that one last round of design revisions
could be made. The 7 series project was important to BMW also because the redesigned 7 series
was a flagship product and its success or failure would greatly affect BMWs image and market
share in the competitive luxury car market.
Carl-Peter Forster had two options to evaluate concerning the 7-series prototypes:
1) Continue with the existing prototype process wherein prototypes were developed in an inhouse prototype shop and involved skilled craftsmen.
2) Use pre-production tools in the prototype process in order to automate the process. The
assembling of the components would be done on a pilot assembly line.
Under the current proposal Carl had the option to alter the process for prototyping for the next
and final batch of the 7 series prototype.
The use of pre-production tools would have significant benefits in terms of improved product
quality and should be incorporated into the prototyping phase for all future development projects
as discussed above. However, in case of the 7 series project other issues need to be addressed:
The Research and Engineering team were getting ready for the final cycle of prototyping.
The use of pre-production tools would require a design lead time of 6 months and an
order lead time of another 6 months. This could delay the prototype phase which in turn
could affect the ‘time to launch’ of the 7 series project.
Moreover, the 7 series cockpit design was not yet frozen and changes to the design would
require a whole new set of pre-production tools which would take another 6 months to
arrive. This would result in further delays and new investments in pre-production tools
(with earlier investments written off) and in the end considering the time constraint the
final generation of prototype cockpits would end up having to be made by hand.
Thus in case of the 7 series prototype, taking into consideration the time constraints, we would
recommend Carl Peter to continue with the existing prototype process. However for future
development projects pre-production tools should be used in the prototype phase.
4
Recommendations for competing against Japanese entrants into luxury car market
An important question to address here is how are the Japanese manufacturers delivering high
quality at low cost and is there something that BMW can learn from them. The Japanese car
makers have a launch strategy of rolling out small incremental changes in quick succession. For
example, Lexus and Infinity were expected to introduce five new models in 2 years. Since the
changes were only incremental, it is possible to reuse pre-production tools across models. For
instance, if some of the parts of the Lexus ES 250 were unchanged in the ES 300 (launched a
year later), then the production / pre-production tools used for the older model could be reused
for the next model. This strategy brings down the prototyping cost per new model launched but
still maintains high quality by using near production quality tools and materials early in the
development process.
At the higher end of the luxury car market, customers are price insensitive. Here brand image
and perceived value are key considerations for a customer. Hence, in this segment, BMW can
charge higher prices to compensate for the increase in cost from the use of pre-production tools
in prototyping. The 7-series models would fall into this category. However, in the $20,000 $40,000 segment, where it faces price competition from low cost Japanese car makers, BMW
cannot afford to increase prices and lose market share. Thus BMW needs to have a different
strategy for this segment. One strategy could be to offer low variety in this segment but make
incremental changes and roll out new models in quick succession just like Toyota or Honda. This
would ensure fewer changes to pre-production tools and hence savings from the reduction in tool
replacement costs. For the high end segment (7-series and above), BMW can afford to offer high
variety and completely replace pre-production tools for every prototype if needed.
If the above dual approach strategy is used, then the cost would increase for the high end
segment and variety will decrease for the low end segment. Quality, however, will increase
across the board as the development process for the prototypes will be closer to the actual
production process in terms of tools and materials used.
Having addressed the cost issue, we need to now consider the high prototyping lead time issue.
In order to achieve a trade-off between time to launch and launch quality, BMW can intersperse
automated prototyping cycles with the existing manual prototyping cycles or use hand crafted
tools for the initial cycles and pre-production tools and materials for the last few cycles. But the
fundamental question is why it takes 6 months to procure the tools from a supplier when the
same can be made in house within a week. This can be avoided if suppliers are kept in the loop
right from the design / styling stage. They could start manufacturing the tools and parts when the
design is nearly complete and not waiting for it to be frozen. Further they can be closely involved
in the prototyping iterations so that any changes required in the tools and materials can be
worked upon incrementally than having to wait till the prototype is completely evaluated. Such
steps can help in bringing down the lead time to procure the prototype parts.
5
Conclusion
BMW is a well known and highly valued brand. Hence it is a great advantage for the company.
The diversity in the product portfolio of BMW is vast. In the different segments, many versions
of the cars are offered. In addition, BMW will launch new models not only in existing series but
also in new segments in a near future. BMW possesses high internal competence and the
company develops a large part of the car by themselves. BMW is not dependent on any other
company that could force them to utilize components or stop the development of expensive
solutions that will distinguish a BMW from another brand. Many car manufactures collaborate in
terms of research and development. However BMW has declared their independency and want to
keep their business developments to themselves. BMW operates successfully in the premium
segment. In fact, the brand seems in many ways be empowered by the high quality and the rather
expensive cars.
6
References
1. Bisen, V. and Srivastava, S. (2009). Production & operation management. 1st ed.
Lucknow, India: Word-Press.
2. Crouse, W. (1973). Automotive service business: operation and management. 1st ed.
New York: McGraw-Hill.
3. Robson, G. (2001). BMW 7 Series. 1st ed. Marlborough: Crowood.
4. Trippner, D., Rude, S. and Schreiber, A. (2013). Challenges for Digital Product and
Process Design Systems at BMW. Springer, pp.31--35.
5. Zeller, A., Wagner, A. and Spreng, M. (2001). iDrive-Zentrale Bedienung im neuen 7er
von BMW/iDrive-centralised operation in the new 7series of BMW. VDI-Berichte,
(1646).
1
Introduction ............................................................................................................................. 2
2
BMW’s current product design process .................................................................................. 2
3
Recommendations for BMW’s current product design process .............................................. 4
4
Recommendations for competing against Japanese entrants into luxury car market .............. 5
5
Conclusion ............................................................................................................................... 6
6
References ............................................................................................................................... 6
1
Introduction
BMW is a German automobile, motorcycle and engine manufacturing company founded in
1916.BMW is headquartered in Munich, Bavaria. It also owns and produces Mini cars, and is the
parent company of Rolls-Royce Motor Cars. BMW produces motorcycles under BMW Motorrad.
In 2012, the BMW Group produced 2,000,000 automobiles and 120,000 motorcycles across all
of its brands. BMW is part of the "German Big 3" luxury automakers, along with Audi and
Mercedes-Benz, which are the three best-selling luxury automakers in the world.
BMW was one of the major players in the luxury car market having a market share of 10%.
Companies in this market segment competed on both tangible and intangible product
characteristics. BMW’s focus was on R&D, both in the engineering and styling of its cars, and
had built a reputation for high performance engineering. Its launch quality had always been on
par or better than that of its major competitors. However, since the late 1980s, the entry of
Japanese competition (Honda’s Acura and Toyota Lexus) had set higher standards of
conformance in this industry.
2
BMW’s current product design process
One of the primary reasons for BMW’s quality issues was its strategy of using different tools and
materials in the prototyping process when compared to the production runs.BMW supported
such a ‘dual’ development process to provide flexibility to its prototyping craftsmen to make
changes to the design quickly. For instance, the prototype shop was able to make new parts
within a week of being intimated of a design change. In contrast, the lead time for procuring preproduction tools from suppliers was 6 months. Providing such flexibility though had a flip side to
it - something which worked in the prototyping phase may not work in the production phase.
This meant that potential problems in the design could be identified very late in the development
process. People in pilot production spent a lot of their time identifying and solving the big
problems leaving them little or no time for minor problems and fine tuning. Thus there were
chances of minor issues creeping into actual production resulting in customer complaints after
sales.
Another reason which contributed towards BMW’s quality issues was its mixed-model ramp up
strategy. In order to utilize the high fixed costs involved BMW adopted a mixed model ramp up
strategy. While this permitted better utilization of fixed assets, it caused greater confusion among
the workers and made the logistics more complex. This problem was compounded due to the fact
that not all problems were discovered or solved in the pilot production phase. This in turn
affected the quality of the cars being produced. At the same time frequent changes to the
production schedule resulted in escalation of costs as well.
The above reasons might have played a significant role in BMW losing out to Japanese
competitors in the rankings on customer satisfaction and quality. Its market share in the US
remained constant but the share of Japanese manufacturers had increased by more than 10%. Its
warranty expenses were increasing and increase in design issues identified at the end of
development process would only increases the chances of a delay in the launch.
One of the ways in which BMW can improve its launch quality is to minimize the gap between
prototype and production process in terms of tools and materials used. The closer the prototype is
to the actual production output, the sooner in the development process can the design problems
be identified. This would require BMW to involve suppliers and use pre-production tools in the
prototype phase itself. The flip side to this strategy is that after every prototype cycle if there are
any design changes, a new set of pre-production tools needs to be ordered. We need to consider
the following in this context:
Cost of pre-production tools - Each set is estimated to cost DM 50 million (to
manufacture all parts of the car). In the worst case, every prototype cycle would lead to
design changes and hence a new set of tools would be needed at the start of each cycle.
Assuming 5 iterations, the additional cost would be DM 250 million. This would be
partially offset by savings of DM 100 million from reductions in excess direct and
indirect labour, reductions in tool replacement costs from pilot stage onwards and lower
warranty expenses.
Lead time to procure pre-production tools - The lead time is 6 months which is
significantly higher than the 1 week time span to procure hand-made tools in the current
prototyping process. If we consider 5 iterations, then an additional 30 months would be
needed in the prototyping phase thus increasing its span from 30 months currently to 60
months. Though this increase in prototyping duration would be partially offset by fewer
delays in the pilot production since the design would be closer to production quality, it
would definitely increase the overall ‘concept to launch’ lead time.
3
Recommendations for BMW’s current product design process
The 7 series luxury sedan had 32 months until the scheduled start of production. Over the
coming months prototypes had to be built and tested so that one last round of design revisions
could be made. The 7 series project was important to BMW also because the redesigned 7 series
was a flagship product and its success or failure would greatly affect BMWs image and market
share in the competitive luxury car market.
Carl-Peter Forster had two options to evaluate concerning the 7-series prototypes:
1) Continue with the existing prototype process wherein prototypes were developed in an inhouse prototype shop and involved skilled craftsmen.
2) Use pre-production tools in the prototype process in order to automate the process. The
assembling of the components would be done on a pilot assembly line.
Under the current proposal Carl had the option to alter the process for prototyping for the next
and final batch of the 7 series prototype.
The use of pre-production tools would have significant benefits in terms of improved product
quality and should be incorporated into the prototyping phase for all future development projects
as discussed above. However, in case of the 7 series project other issues need to be addressed:
The Research and Engineering team were getting ready for the final cycle of prototyping.
The use of pre-production tools would require a design lead time of 6 months and an
order lead time of another 6 months. This could delay the prototype phase which in turn
could affect the ‘time to launch’ of the 7 series project.
Moreover, the 7 series cockpit design was not yet frozen and changes to the design would
require a whole new set of pre-production tools which would take another 6 months to
arrive. This would result in further delays and new investments in pre-production tools
(with earlier investments written off) and in the end considering the time constraint the
final generation of prototype cockpits would end up having to be made by hand.
Thus in case of the 7 series prototype, taking into consideration the time constraints, we would
recommend Carl Peter to continue with the existing prototype process. However for future
development projects pre-production tools should be used in the prototype phase.
4
Recommendations for competing against Japanese entrants into luxury car market
An important question to address here is how are the Japanese manufacturers delivering high
quality at low cost and is there something that BMW can learn from them. The Japanese car
makers have a launch strategy of rolling out small incremental changes in quick succession. For
example, Lexus and Infinity were expected to introduce five new models in 2 years. Since the
changes were only incremental, it is possible to reuse pre-production tools across models. For
instance, if some of the parts of the Lexus ES 250 were unchanged in the ES 300 (launched a
year later), then the production / pre-production tools used for the older model could be reused
for the next model. This strategy brings down the prototyping cost per new model launched but
still maintains high quality by using near production quality tools and materials early in the
development process.
At the higher end of the luxury car market, customers are price insensitive. Here brand image
and perceived value are key considerations for a customer. Hence, in this segment, BMW can
charge higher prices to compensate for the increase in cost from the use of pre-production tools
in prototyping. The 7-series models would fall into this category. However, in the $20,000 $40,000 segment, where it faces price competition from low cost Japanese car makers, BMW
cannot afford to increase prices and lose market share. Thus BMW needs to have a different
strategy for this segment. One strategy could be to offer low variety in this segment but make
incremental changes and roll out new models in quick succession just like Toyota or Honda. This
would ensure fewer changes to pre-production tools and hence savings from the reduction in tool
replacement costs. For the high end segment (7-series and above), BMW can afford to offer high
variety and completely replace pre-production tools for every prototype if needed.
If the above dual approach strategy is used, then the cost would increase for the high end
segment and variety will decrease for the low end segment. Quality, however, will increase
across the board as the development process for the prototypes will be closer to the actual
production process in terms of tools and materials used.
Having addressed the cost issue, we need to now consider the high prototyping lead time issue.
In order to achieve a trade-off between time to launch and launch quality, BMW can intersperse
automated prototyping cycles with the existing manual prototyping cycles or use hand crafted
tools for the initial cycles and pre-production tools and materials for the last few cycles. But the
fundamental question is why it takes 6 months to procure the tools from a supplier when the
same can be made in house within a week. This can be avoided if suppliers are kept in the loop
right from the design / styling stage. They could start manufacturing the tools and parts when the
design is nearly complete and not waiting for it to be frozen. Further they can be closely involved
in the prototyping iterations so that any changes required in the tools and materials can be
worked upon incrementally than having to wait till the prototype is completely evaluated. Such
steps can help in bringing down the lead time to procure the prototype parts.
5
Conclusion
BMW is a well known and highly valued brand. Hence it is a great advantage for the company.
The diversity in the product portfolio of BMW is vast. In the different segments, many versions
of the cars are offered. In addition, BMW will launch new models not only in existing series but
also in new segments in a near future. BMW possesses high internal competence and the
company develops a large part of the car by themselves. BMW is not dependent on any other
company that could force them to utilize components or stop the development of expensive
solutions that will distinguish a BMW from another brand. Many car manufactures collaborate in
terms of research and development. However BMW has declared their independency and want to
keep their business developments to themselves. BMW operates successfully in the premium
segment. In fact, the brand seems in many ways be empowered by the high quality and the rather
expensive cars.
6
References
1. Bisen, V. and Srivastava, S. (2009). Production & operation management. 1st ed.
Lucknow, India: Word-Press.
2. Crouse, W. (1973). Automotive service business: operation and management. 1st ed.
New York: McGraw-Hill.
3. Robson, G. (2001). BMW 7 Series. 1st ed. Marlborough: Crowood.
4. Trippner, D., Rude, S. and Schreiber, A. (2013). Challenges for Digital Product and
Process Design Systems at BMW. Springer, pp.31--35.
5. Zeller, A., Wagner, A. and Spreng, M. (2001). iDrive-Zentrale Bedienung im neuen 7er
von BMW/iDrive-centralised operation in the new 7series of BMW. VDI-Berichte,
(1646).
