Supply Chain Management of BMW Cars (2024)

Executive Summary

BMWis an automobile manufacturer whose headquarters are located in Germany. It hasbeen in operation since 1917. In 2010, the company produced 1,481,253 vehicles.There was an increase compared to the previous year where the production levelstood at 1.3 million. The organization’s business model is more of consumer orientation.This means that the organization usually manufactures cars that are beingdemanded in the market. Through its supply chain management, BMW tends tochoose suppliers that have already built a name for themselves. These are thosecompanies with great recognition and reputation. It becomes easier to buildtrust with end consumers by using such suppliers. The production process on itspart involves several chronological processes that must be followed in all themanufacturing plants. There are shops developed to cater for this process. Asimilar approach is used in all the plants for standardization purposes. Thecompany has instituted a diverse distribution channel. Through its channels thecompany can sell directly to consumers. It can also sell to consumers throughretailers or wholesalers. Having diverse distribution channels has enabled toreduce the bargaining power of distributors.BMW views end consumers as vitalelements to the company. They are the ultimate reason for the organizationbeing in business. For this reason the company tries to bring efficiency totheir side by producing what they demand. Efficiency is also enhanced throughthe distribution channels that the company utilizes. The company has beenmaking decisions that are favoring the success of the organization. However,some of the decisions need to be revised for future prosperity. Aspects ofe-commerce are also vivid in the organization’s activities.

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Introduction

BMW is an automobile, enginemanufacturer and motorcycle company whose headquarters are situated in Germany.The company was founded in 1917, and through the years it has made severalacquisitions. In 1994, the company acquired the Rover Group. The acquisition ofRolls-Royce then followed in 2003. This has helped in strengthening theorganization’s market base. The market share seems to be increasing with recentventures. The product that the paper aims at putting a stint focus on is thecompany’s cars. In 2010, the company produced 1,481,253 vehicles. There was anincrease compared to the previous year where the production level stood at 1.3million. In 2009, the Company had more than 23 assembly and production plants (Buckley, 2010).The plants are located in more than 13 countries.

BMW’s car production is favored bythe market condition that exists in the industry. There is the aspect ofproduct orientation and consumer orientation. BMW is more concerned withconsumer orientation since they tend to produce what their consumers want. Thisincludes the features and quality levels to be included in each motor vehicle. Thecompany tends to concentrate on high income earners based on the quality andpricing of its vehicles. It strengths emanates from brand reputation, corporatesocial responsibility, skilled workforce and quality products among others. Opportunitiesfor BMW cars are presenting themselves based on the fact that people are nowdeveloping positive attitudes on “green” vehicles. Changing consumer needs andan expanding brand portfolio also provide great opportunities to theorganization(Domansky, 2012). The company’s supply chain managementhas contributed significantly to the success of the company’s vehicles. Thishas been supplemented by various decisions made in the organization.

Supply Chain Management

BMW’s cars supply chain compromisesof suppliers, production process, middle men (retailers and wholesalers) andconsumers. The management of the supply chain has been effective hencecontributing to the success of the organization. There are strict guidelinesused when choosing the suppliers. It has been the tendency of the organizationto work with highly recognized entities in various operations. These companiesmust have built a reputation for themselves during their years of operation (Cranswick, 2010).Using such an approach was arrived at based on the fact that successfulcompanies usually provide more quality products to their consumers. The reputationof the suppliers can also be used to convince end users of the quality aspectsof cars being manufactured. A good example of how BMW uses highly reputablesuppliers is its involvement with Vodafone. The company has chosen Vodafone asits M2M supplier. BMW vehicles are fitted with special Vodafone SIM chips thatlink the company to its vehicles. This is aimed at providing consumers with innovativein-car services such as online services, 24/7 personal concierge service fordrivers and emergency call function (Vuskane, 2011). BMW has alsochosen Dana to supply the company with drive units. Dana supports the companywith design and production of rear and front differentials.

BMWmanages its suppliers on various aspects. Among the common techniques issubjecting its suppliers to contracts of ensuring quality supplies. There is anagreement stipulated to each supplier based on the quality levels that theorganization expects from them. Failure of meeting the set standards results totermination of the contract between the two companies. BMW cannot afford toentertain any form of laxity from the suppliers due to the competitive natureof the industry. Any shortcoming might result to a gain on the side of thecompetitors.

Most of the cars are produced whenthe demand for them arises. The production process commences with suppliersdelivering the relevant materials required for manufacturing. Some of thecomponents are in-built. Production process is initiated in the press shop. Here,all the metals that are going to be used in the manufacturing process arepressed to desired shapes and sizes. Thedesign is usually dependent on the vehicle that the metals are going to befixed. Machines are used in this so as to come up with standard units. Afterthe raw materials have been converted to desired sizes and designs, they arethen moved to the body shop. At this shop, the parts are coined together toform the outer shell of the vehicle. The car’s design is dependent on thematerial derived from the press shop (Lewin, 2009). The onlyfunction of this shop is to assemble the materials from the press shop. Afterthe body has been affixed, the body shell is then moved to the paint shop. Itis passed through computerized conveyors. At some points, the body shell stopsand revolve on turntables for checkups. From the paint shop, the car then goesto the assembly point. At this point, all the relevant equipments are integratedin the car. The systems are placed according to the stipulation. The marriageprocess then follows where the car’s engine system is put in place and itseffectiveness is tested. From this point, the car is ready for use.

Completion of the production processis followed by the distribution prospect. The company has instituted a diverse distributionchannel. Through its channels the company can sell directly to consumers. Itcan also sell to consumers through retailers or wholesalers. Having diversedistribution channels has enabled to reduce the bargaining power ofdistributors. If a single distributor is involved the bargaining power would behigh hence making it difficult for the company to maximize on its profits (Maguire, 2006).Intermediaries such as retailers and wholesalers also help the company invarious ways during the distribution process. They help in stimulating the marketingflow of the vehicles. The retailers have already invested in storage facilities.This helps the organization in the financing aspect as it does not have toincur this cost. Some retailers also offer some financial plans purchaseagreements to the consumers. These plans enable them to buy the company’sproducts even when they do not have sufficient funds through some arrangements.Such an attribute helps BMW in increasing its vehicle sales levels and expandthe market share. In the long-run user convenience is enhanced.

The end customer is very importantto BMW. This is because they are the ultimate reason for the productions takingplace in the organization. They determine many aspects of the supply chainbeing used by the organization. BMW is more of consumer oriented. It goes withwhat consumers are demanding for in the market. This comes along with qualityof the cars and equipments that they desire to be installed. On recent years,consumers that are conscious of the environment are being taken care of by theorganization. The company is now producing hybrid cars that enhanceenvironmental sustainability. This is going well with those consumers that termthemselves as “green”. Failure to manufacture such vehicles would have resultedto loosing this group of consumers to the competitors. Using a consumeroriented approach is being viewed as a corporate social responsibility. Themore concerned the company is towards its end users, the more its profits arelikely to increase (Maguire, 2012).

Decision Making

The decision making in BMW’s supplychain is made efficient due to working in partnership of the relevantstakeholders. Among the decisions that the company has had to make regardingthe supply chain is the production process. The warehouses are becoming smallbased on the quantity of cars that the organization is required to manufacture.Increasing the number of warehouses will not be a good idea for theorganization. This is because the company will incur more holding costs hencereducing the profits prospects. Based on this effect, the management has made adecision of using some aspects of Just In Time production. Here, the productioninitiates once order have been placed by the relevant stakeholders. The peopleplacing the orders might be the end users, or the company’ distributors. Thisis a very effective approach since it reduces the cost of holding inventory.

Another critical decision that hasbeen made by the organization is targeting high income earners in the supply chain.The approach might be favorable but the organization is losing a lot in termsof market share based on this strategy. There are low income earners thatcannot afford this cars butting are willing to be associated with the company. Thecompany should put such consumers under consideration since they might help inboosting the profit aspects of the company (Kiley, 2004).

There has also been the decision of usinga three-step process for risk management in the supply chain. The first processincludes the sustainability risk filter. At this process all the risk aspectsof the supply are eliminated. This is then followed by a self-assessmentquestionnaire. The questionnaire is used in assessing how effective theorganization has been in its aspects of managing risk in the supply chain. Itbecomes possible to assess the shortcomings at this stage. Sustainability auditis then conducted as the third process. The audit is conducted by anindependent body hence providing room for a critical review.

E-Commerce

BMW has not concentrated more onE-commerce based on the production of cars. This is because their supply chainhas been more reliant on dealership with the distributors. B2C form of e-commercehas been affected more on this aspect compared to the B2B. When dealing withits suppliers more e-commerce activities have been experienced compared to whenthe organization is dealing with end consumers. However, this aspect seems tobe ending since the organization aims at taking advantage of all the avenuesthat are available. The competitors are highly embracing this ideology henceprompting the company to be more rigorous than it was there before. Currently,BMW is using Intershop Software for its platform. This approach is believed toenhance consumer experience, management of multiple brands through a singleplatform and integration of available IT infrastructure (Heneric, Licht &Sofka, 2011). Most of the cars being involved with e-commerce arethe hybrid cars. For efficiency, BMW has had to sign contracts with e-commercespecialists like iForce. The outsourcing aspect tends to increase the supplychain stakeholders.

BMW also claims to be the firstautomobile company in UK to sell through eBAY. Through this platform, the companysells accessories and parts. This includes car care products, brake discs amongothers. Previously these componentswould only have been acquired from the organization’s dealership (Shah, 2012).

Recommendations

BMW has several things that it woulddo to help improve its supply chain management. The aspect of the supply chainis to ensure that the organization has been able to derive the maximum profitsthat it can. One way that the company can improve is by changing its strategyon the end consumer. The company’s supply chain only targets the high incomeearners based on the nature of its cars. BMW should try and practice someaspect of market segmentation. Here, it will be able to offer its products toboth the high end and low end consumers. The company will continue with itscurrent operations, but develop another market segmentation of consumers thatare not able to keep up with their current prices. They will develop cheaperproducts to these consumers. Marketing on this segmentation will not be aproblem since the brand name is already recognized (Olson, 2012).Many low end consumers would like to have an opportunity of associatingthemselves with the company’s products but have never had the opportunity. Thiswill help in improving the market share hence boosting sales.

Another aspect that might improveBMW’s supply chain is introduction of limited edition cars in the productionmix. These are those cars which are produced and sold at one period of time andare never presented on the market again. Using such an attribute would attract consumersthat like the aspect of being unique (Plunkett, 2009).They would be willing to pay huge amounts of money so as to quench theirdesires. This would be an opportunity for the organization to increase itssales. It also helps in building consumers loyalty along the supply chain. Thisis because the distributors will also have the share of the loyalty hencepromoting favorable business for the company.

Conclusion

BMW seems to be among the top three manufacturersof luxury cars in Europe. The success has emanated from the decisions that havebeen made all through. Supply chain management has contributed immensely tothis realization. Favorable operations and decisions have been on how thesuppliers are selected and the aspects of managing them. They are keycontributors to the organization’s success hence they should be analyzed in thebest way possible. The process of production from the company is quite clearand is standardized in all the manufacturing plants. Lack of complexities hascontributed to the high quality of cars being manufactured. Having adiversified distribution channel has also helped in eliminating distributor’sbargaining power. This increases the profitability prospects of theorganization. However, the company needs not to focus solely on the high endconsumers. The low income consumers would also help in improving the supplychain if effective market segmentation is implemented. There will be anincrease in make share hence increase the ability of immersing more profits.

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