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Gianmarco Persiani - BMW global supply chain

Article · March 2017

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 Gianmarco Persiani
27506@novasbe.pt
ID 3033

Global Supply Chain

BMW

1
 Contents

1 Assumptions

2 End-to-End Supply Chain

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

 Assumptions

• Automotive industry ‘s growth in China in the recent years

was driven by rising household income and China’s policies to
increase urbanization
• China’s premium car market will grow at an annual rate of 12%
through 2020, compared with (% for the overall passenger car
market”
• Inevitably moves more and more production to China for the tax
levied on imported cars
• Insourcing production upstream and outsourcing downstream
• All the assumption will consider China’s premium car market
although some slide will take into account only Chinese plants
• BMW should plan for a sales and marketing partnership with
Chinese automakers
 Contents

1 Assumptions

2 End-to-End Supply Chain

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

 End-to-end Supply-chain
Production
The main manufacture is
concentrated in Shenyang,
Shanghai and Beijing.
3 steps of the manufacturing
process:
1) Body assembly (“body-in-
white”, metal has been
welded together, thus the
body “shell” but before
painting occurs)
2) Paint shop
3) Final Assembly
1 Purchasing process 2 Logistic
3 Inventory and 4
warehouses
BMW AG has a lot of
To deliver its products they Thanks to IT, production
suppliers in China, split in
use all kind of transports: system and outsourcing
tiers, but it has information
airplane, ship, train and inventory strategy, BMW
only about Tier 1 suppliers
truck. it is managed by AG has low inventory.
(the main are 40). Its supply
service providers Also its plants include
chain depends on the
warehouses
financial stability of Tier 2
and Tier 3 suppliers
 Cost-Time-Quality trade-off

BEFORE AFTER
•Long lead time •Short lead time
•Reactive forecasting Time •Higher forecasting accuracy
and proactive planning
•Cut Tier2 suppliers

BEFORE
•Long-term contracts BEFORE
•High procurement
•Focus on core
expenses
competencies
•High operations costs
•Respect of the
•High transport costs,
standard required
customs duties and Quality
consumer taxes Cost Leanness
Learness
of service

AFTER AFTER
•Short term contracts • Increase Resource &
•High fixed cost development
•Decrease in • Higher Quality through
transportation cost collaboration, joint
•Lean processes, low development, supplier
inventory development
 Outsourcing downstream Inventory
Management

Current situation Goal Recommendation

Current ratio = 0.94 • Higher level of service • Maximizing the usage of

BMW AG doesn’t have a solid
financial wealthy
Inventory/Total asset = 0.12
Inventory turnover ratio = 5.51
BMW AG is more efficient than
Daimler AG(0.53)
warehouses
leads to lower inventory
• Introduction of Logistics
cost
Postponement strategy
• BMW AG’s KPI should get with main decentralized
better by achieving the Distribution centers
industry benchmark
• Outsourcing downstream

Return of Asset = 0,54% • Increase partnerships

Daimler AG(0.73) is more efficient with Chinese Automakers
than BMW AG
to get more market share

LOGISTIC

BMW AG’s management SPECULATION POSTPONEMENT

might use its assets more

The full The logistic

SPECU
efficiently to create earning
MANUFACTURING

LATIO
speculation postponement
and it should improve strategy strategy

N
inventory management to NEMENT
The The full
POSTPO
manufacturing postponement
raise efficiency in the postponement strategy
operations strategy
 Contents

1 Assumptions

2 End-to-End Supply Chain

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

 Mapped Activity Analysis

Analysis Evaluation
• Third parties: provide raw materials to • The cost of the purchasing process is
produce cars. high due to the quality of the products
• Other BMW plants: provide required.
Suppliers components to other plant. • The quality of service is high because
products are sent in the right plant, in the
right quantity ant the right time to allow to
the “just in order process” to work.

•The manufacturing process is done in •The manufacturing process is complex

30 countries and it is organised in three and automatism and require continuous
phases: investments to remain efficient.
Manufacturing 1) “body-in-white”(metal sheets are • Parts have to arrive in sequence because
assembled) the production cycle last just 60 seconds.
2) Paint shop (primer phase)
3) Assembly, (final phase)
•The production follow “Just In
Sequence”.
• Level of inventory is not high and • BMW support less costs for the inventory
warehouses are incorporated in the management because “build-to-order”
Warehouses and plants. strategy reduces the level of inventory
inventory • Protection against the need to cut prices
in order to clear excess stock.

•Distribution is organised on the logic •Inbound and outbound logistic are

“order-to-deliver” and is made by logistic fundamental in order to respect lead time
Transport providers. and guarantee quality of service.
 Mapped Activity Analysis – Annex 1

Strengths Weaknesses Comparisons

•Quality of raw material •The major part of •Daimler AG shows an
•Quality of suppliers Daimler AG’ component advantage:
BMW AG has a wide •Daimler AG ASAP is produced in Europe • in purchasing process
strategy and and delivered to the • Managing of suppliers
Procurement network of raw material
technological auto other plants. •Lower lead time
suppliers and sub facilities •BMW AG has a lot of •High quality of service.
sub-suppliers out of his
suppliers. control.

•The production process • Planning for hybrid •BMW AG’s suppliers •BMW AG manufacturing
model , self-driving car delays affect its process is more efficient
in based on “just-in- and electric car production especially for than Daimler AG one
•Daimler AG is lack of knowledge of tier because allow to recue
Manufacturing process” model
developing an intelligent 2 and 3 suppliers lead time and increase
•4 big plants China networking plants using quality service.
IT based on signal based
including the most tool.
sustainable in Taxi

•BMW AG have the most •Daimler AG production’s •BMW AG has less

sustainability plant in base was in Germany inventory than Daimler
Asia •BMW AG have high cost AG, less costs and lower
•Daimler AG components of employees days stock.
Warehouses Products are stocked in
from suppliers are
and inventory the plants repacked and ship
abroad to China.

•BMWAG have intelligent •Daimler AG logistics •Both BMW AG and

plant and innovative costs can exceed Daimler AG are trying to
Logistic BMW AG uses third part vision manufacturing costs in innovate delivery process
•Daimler AG uses some of the division’s working on “internal and
logistic providers
automated transport lower-wage plants. external "transport
systems
 Mapped Activity Analysis – Annex 2

Cost Time Quality service

Introducing • Introducing • Control on the • High quality
controlling controlling lead time of the service
systems on order • Respect of the
systems on
suppliers standard required
suppliers and performance it is
Supplier try to reduce the possible to reduce
number of the costs for lack of
tier 1 suppliers production

• Low level of costs • Keep a low level • BMW has

due to low level of of stock could warehouses
cost. replace the lead- incorporated in
• Outsourcing time of the plants that
Maintain low downstream will production after could directly
Warehouse level of stocks make less receiving an order satisfy their needs
expensive the by car dealer in short times.
distribution

• High costs for • The use of robot • New

investments in the plants transportation
• R&D leads to a reduce the lead methods increase
Transport Investments for
reduction of the time quality for car
improving costs of the entire • Material will be dealer
“internal and process available in order • Use of the best
eternal” delivery to reduce the shipping methods
process based on
customers need
 Contents

1 Assumptions

2 End-to-End Supply Chain

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

 BMW AG’s value-chain and competitor analysis

Assumptions
Primary activities Support activities

Infrastructure 43,11% 32,69%

Human Resource Management 14,9% 14,23%

3,79 • Procurement ≈ Raw materials
and supplies + work in
Resource & Development 7,13% 6,97% progress
• Inbound logistics’ value

Margin
Procurement 5,73% 4,78% consider that the most of raw
materials come from
Germany and the rest of
2,59% 11, 36% 7,57% 5,11% Europe
• Daimler AG and BMW AG
Inbound Outbound MKT, Sales values are being taken for
Operations Chinese market
logistics logistics & Services 3,70
6,17% 18,19% 9,65% 6,32%

Conclusion

Net sales €7,238.40 Net sales €10,162.00 • BMW AG margin and

Daimler AG margin are
Cost of sales €5,776.40 Cost of sales € 9,180.80 pretty equal
• BMW AG spends only 26.63%
(€1,730,593.00) of its
Gross profit €1,462.00 Gross profit € 981.20 revenues in primary
activities, while Daimler AG
Net income €274.10 Net income € 375.81 spends 40.33% (€425,790.00)

Margin 3.79% Margin 3.70%

BMW AG’s advantage and disadvantage of
value-chain

• A lot of partnership and low number of suppliers means

lower procurement expenses
• High demand for premium cars
• BMW AG can benefit from the advantages of China such as
investment incentives and cheap labor
•The vehicle ownership rate in China is much lower as
compared to other countries

• High transport costs, customs duties and consumer taxes

• China’s economy slowdown
• BMW AG doesn’t have any experience in the premium car
market
• Warehouse procedures are yet to be created
• Unlike BMW AG sales of Mercedes-Benz have surged in China.
 Effect of supply chain optimization
Current
SHAREHOLDERS
• BMW AG participates in the risk
of group
•BMW AG gain 3,79 dollars for
each dollar invested
I. Strategic modular Sourcing /
INTERNAL ORGANIZATION
• It isn't able to get a longer
predictor of delays or quality
issues for suppliers below tier
• Complexity
MARKETS
• The market for premium cars
in China has increased at an
impressive rate of 36 percent a
year in the last decade
• Customers have demanding
and extravagant tastes
•Chinese buyers are strongly
influenced by Internet search
results
SC optimization
purchasing
II. Improving Downstream
inventory management
III. Supply Chain Integration
IV. Lead time reduction
V. Flexible Manufacturing
Future
SHAREHOLDERS
•BMW AG might plan for a sales
and marketing partnership with
Chinese Automakers (1,2,3,4)
•Margin and return might
increase by reducing cost and
increasing efficiency (1,2,3,4,5)
INTERNAL ORGANIZATION
• Sustainable and progressive
production facilities (1,2,3,4,5)
• Investments in supply network
visibility and digital
manufacturing(3,4,5)
MARKETS
•China will become the world’s
largest premium car market (3)
•Strong growth will be driven by
an extraordinary boom in
wealthy(3)
 Contents

1 Assumptions

2 End-to-End Supply Chain

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

 Business Canvas Model for BMW AG

Key Partners: Key Activities Value Propositions: Customer Customer

Relationships: Segments:
Current: • Development, • Highest standards
• Suppliers: manufacture & sale (aesthetics, • Strong customer • Private people,
Brembo, of engines dynamics, bonding with after middle and upper
Thyssenkrupp, technology and sales customer income classes
BorgWarner, • Equipping vehicles quality) relationship
Elringklinger, with engines • Company with car
Bridgestone and • Premium services • Customer focused pools and company
Mahle • Luxury Automotive owned cars
• Long term
• Distributors Key Resources: responsible actions Channels: • Rental car

• Dealers operating • Advanced IT and • Ecological and • Own web site • Car sharing
robots social sustainability • Dealers
• Knowledge and along the value • Direct sales
In future: know how chain
• more Tier 1 • Workforce
suppliers instead of
Tier 2-3 suppliers In future: In future:
• Plant with In future:
• Drive Now
computerised and • Increasing BMW
atomized systems i-model value added
• Consumer
awareness

Cost structure: Revenue Model:

Actually: Actually:
• Infrastructure (45%), Human Resource Management • Customers are willing to pay high prices for premium car
(14%) and Operations (10%) at a good quality
Future: • Customers are more attractive by car accessories due to
• Increase R&D and decrease Infrastructure strange tastes
Future:
• internet will help company to approach more the consumer
 BMW AG and Daimler AG value propositions

Present Present
• For BMW AG, “the Ultimate • “…the Mercedes-Benz brand has
Driving Machine” is much more
delivered unquestionable value
than a slogan, it informs the
company’s manufacturing and and unsurpassed style”
design choices. • Passion, respect, integrity,
• Aesthetics, dynamics, technology discipline and excellence
and quality
• Focus on luxury car
• Ecological and social
sustainability along the value
chain

Future Future
• “ BMW business strategy focuses • Reducing of energy consumption
on individual mobility in the and CO2
premium segment – combined • Self-driving to ensure more
with attractive mobility services.” safety on the road
 Contents

1 Assumptions

2 End-to-End Supply Chain

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

 Supply Chain Strategies

POSSIBLE FUTURE
STRATEGIES
Logistics Production: Logistic will tend to postponement due to a more
postponement/ Speculation mature market, with higher volume, and a wider
speculation Market demand and product range Postponement
manufacturing and
logistic:
Postponement
BMW AG ,thanks to a decentralized process, will
Effectiveness and Die slowly boost its success although it should improve its
efficiency commercial effectiveness Thrive

Demand for Demand will remain the same since agility is the
variety of Agility final step to a customized product characterized
products & from a variety in demand due to Chinese tastes
production

It seems to remain a decentralized structure in

(De)centralized Decentralized the future of Chinese plant.
approach

The demand will remain unpredictable especially

Demand analysis Hybrid in Chinese market but thanks to technologies
lead time will decrease Agile
 Postponement and speculation logistic –
Product Profile
Logistic speculation Logistic postponement
Generic P/S strategies
Some important Postponement & Speculation
decision determinants Logistics speculation Logistic postponement
Introduction/Growt
Stage Maturity/Decline
h
Life cycle
Volume Low/Medium Medium/High
Production

Cost/service strategy Service Cost

Product Product type Standard Customized

characteristics Product Range Narrow Wide
Value Profile Initial stages Final stages
Value
Monetary density Low High
Relative delivery time Short Long
Delivery frequency High Medium/Low
Market demand
Uncertainty of
Low High
demand
Economies of scale Small Large
Manufacturing & Logistics
Special capabilities No Yes

Only the Chinese market is taken into account in the analysis. In the light of graph available it’s clear
that BMW AG chooses to follow a speculation logistic strategy for “Production” and a postponement
logistic strategy for “Market demand” and “Manufacturing & Logistics”. This results, actually, is
influenced by the characteristics of the Chinese market, which is in expansion.
 Contents

1 Assumptions

2 End-to-End Supply Chain

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

 Efficiency obtained by the GSC of BMW AG and
anticipated problem

Current situation Efficiency Anticipated problem

Forecast demand: Inventory turnover 5.51 •Costs can vary in the future,
• Inefficient Receivables turnover 3,21 depending on market
Procurement: conditions, purchasing
Total asset turnover 0,54
• High procurement volumes and company
expenses Revenue/Employee 770.65K restrictions
• Higher number of Tier 2 •Risk associated with the
Net income /Employee 56.96K
supplier financial collapse of
*Trailing Twelve Months (TTM)
Manufacturing: suppliers
• High lead time •Quality problem by
• Lower inventory cost reducing lead time
• Focus on assembly line •Cultural issue
Sales
• Multi-channel distribution

Fields that need to be improved to reach efficiency

• Increase number of warehouse

• Decrease lead time
• Vertical integration of supplier
• Increase information sharing with suppliers
 Effectiveness obtained by the GSC of BMW AG
and anticipated problem

Current situation Effectiveness Anticipated problem

KEY FACTORS Return on asset 5.51 • Difficulties can occur
when identifying the right
• Planning: limited presence Return on equity 3,21
on the market strategic partner
Return on investment 0,54
• Quality: multi- • Outsourcing downstream
level quality management *Trailing Twelve Months (TTM) will lead to internal
system ensures quality in
problems with staff
all work
processes(components motivation
and materials • Cultural issue
and products)
• Sourcing: Ineffective
because it doesn’t ensure
permanent products’
availability
Fields that need to be improved to reach effectiveness
COMPETENCIES
• Choice of right strategic partners
• Core • Non-Core
• Control of critical aspects: quality,
Quality R&D
Design Sales reliability, dependence on smaller
Brand number of sources
 Flexibility obtained throughout the GSC of
BMW AG

Goal AUTOMOTIVE FLEXIBILITY LEVERS Anticipated problems

• BMW AG must consider
qualified personnel and
high technology in
warehouse
• Incentives among the
partners within the
supply chain for better
overall performance
(increasing alignment)
• Short-term contracts with
suppliers allow for fast
adaptability to new
market trends
Flexibility levers Normal
• Partnership with new
Decision making 0.17 suppliers (decrease agility)
flexibility
• higher procurement costs
Planning/scheduling 0.16
flexibility due to lower negotiation of
Material flexibility 0.11 large orders
• higher operations costs
Financial resource 0.1
flexibility since production is not
Design/development 0.09 standard but customizable
flexibility
• High fixed cost due to
Others 0.37
insourcing production
upstream
• More difficult to adapt to
new market trends and
explore niches when variety
of offer is limited implies
lower flexibility

DMF has 16% importance because is the key factor for quick response to uncertainties and satisfies
P/SF has 15% importance is essential to measure satisfying customer and producer expectation
MatF has a crucial role since it measure material quality and input/output raio
 Customer service obtained throughout the
GSC of BMW AG

Current situation Room of Co-Creation Anticipated problem

Close relationship with Through internet BMW AG • BMW AG would not

customers and the well
integrated customer
service system allowed
BMW AG to collect and
develop a detailed
understanding of
customers’ needs and
wants.
has a chance to customize
cars to approach more
Chinese extravagant tastes.
Once the customer has
decided the product the
order will be sent directly
to the manufactories
center.
consider developing
system automatically
control, unlike Daimler
AG, that diminished the
driving experience.
• The core offering is
itself a service.

LUXURY PERFORMANCE
CAR CAR
•More existing customers consider BMW AG as a
EXISTING 29% 39% performance car brand
CUSTOMER •More potential customers consider the brand BMW
AG as a luxury brand.
POTENTIAL 22% 20% •Daimler AG has a stronger level of awareness in
CUSTOMER form of recall from potential customers than BMW
AG
 Number of Suppliers and Relations obtained
throughout the GSC of BMW AG
Current situation Goal Anticipated problem
• BMW AG has direct relation with
• Increase partnerships with
their tier 1 suppliers, while other • Since Tier 2 and tier 3
Chinese Automakers to get
tier are unknown to the suppliers are unknown
more market share
manufacturer.
• Vertical integration of to BMW AG production
• Higher procurement expenses due
suppliers quality and the ability
to 10 big suppliers
• Improve quality and to deliver on time
• Progressive shifting of production
reduce costs and lead time
(Series 3, Series 5 and driverless • Risk associated with
by using synergies in R&D
car) in China
• Prevent lack of car the financial collapse
• Suppliers as developers Systems of suppliers
component
and innovation partner
• Need to have an early • Political risks
• BMW AG developed new warning indicator to switch
technology which allowed BMW AG to alternative suppliers
to keep manufacturing cost on a
reasonable level and to strive for
premium quality and differentiated
technology
 Improving management supplier in Chinese
plant

“The Tiexi vehicle plant is one of the BMW Group’s most sustainable and progressive
production facilities. One of our plant’s landmark features is the central building, where more
than a thousand employees go about their work in the wall-free, open-plan office area.
Employees can actually see the car bodies passing silently through the central building on their
way from paint shop to assembly hall.”

SUPPLIER MANUFACTURING SUPPLIER MANUFACTURING

Tier 2 Tier 1
suppliers suppliers
Tier 2 Tier 1
R&D Chinese plant suppliers suppliers
R&D Chinese plant

Reduce number of tier 2 suppliers and increase tier 1 suppliers in order to have knowledge of
production quality and understand the ability to deliver on time
 Inventory Management Levels and Transports
options

Current situation Anticipated problem Goal

• Reduction of inventory • Suppliers have a significant • Guaranteeing the availability
turnover implies lower impact on BMW AG of raw materials improving
maintenance cost sustainability performance the prediction of the
• Reduction of cost on and the sustainable catastrophes
rent, utilities, insurance, development of society • Managing risk by identifying
theft and other costs potential sustainability risks
• Reduction of holding throughout the supply chain
cost implies an increases • A complex supply chain
of net income and implies on time deliveries
profitability • Approach focuses on depth
ASSETS 2015 2014 analysis of specific raw
Intangible 353,00 405,00 materials or supplies
Property, plant and equipment 11.016,00 10.304,00
Investments 3.250,00 3.236,00 throughout the value chain
Tangible, intangible and investment assets 14.619,00 13.945,00
Inventories 4.267,00 3.859,00 Inventory turnover: 1.34
Trade receivables 628,00 697,00
Inventory to revenue: 0.60
Receivables from subsidiaries 6.229,00 5.200,00
Other receivables and other assets 1.820,00 2.502,00
Marketable securities 3.911,00 3.572,00 Inventory turnover: 1.12
Cash and cash equivalents 2.478,00 3.073,00
Total current assets 33.952,00 32.848,00
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