Friday, June 1, 2012

bmw 7-series

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Timeline and Background

Bavarian Aircraft Works was founded in 116. The company was created through a merger of an aircraft maker and a manufacturer of aircraft engine, which initially produced airplane motors. Bavarian Aircraft Works merged with Rapp Motor Works in 117, which then became Bavarian Motor Works (BMW). In 1, BMW started producing small engines for motorcycles. One year later, BMW launched its first motorcycle. In 18, BMW presented its first automobile. Not long after that, in the 10s, BMW established its reputation as a maker of high-quality motor vehicles. Although BMW was successful, it encountered many financial hurdles. BMW became profitable in 15, which was the same year that the Quandt family invested $1 million. In 166, BMW’s automobile market segment consisted of a combination of high-performance engineering and comfort of the European luxury sedan. In 175, BMW introduced the successful 7-Series. Over 15 years later, in 11, BMW began working on the engineering prototypes for the redesigned 7-Seris that was to be launched for the 14 model year.

The traditional strategy of following Mercedes’ lead in pricing and styling, was slightly changed to stress and become the leader in technology, while maintaining its classy, sporty style. BMW invested significantly in Research and Development. Not many other car manufacturers could compete with BMW’s high-level of performance, handling, and safety. BMW was known for the finest in performance and reliability.

BMW’s headquarters were in Munich, Germany. Over 70 percent of BMW’s suppliers were also located in Germany. Many operations, such as assembly plants, regional distribution centers, dealers, and other divisions, were located in different countries, including, but not limited to Africa, Austria, Japan, and the United States. Also, over 70 percent of BMW’s sales came from Europe. A large portion of BMW’s remaining sales came from the United States and Japan.

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BMW was one of the leaders in the luxury automobile market and it ranked number 16 of the largest automobile manufacturers; however, it held a mere 1.5% of the world market. Luxury automobile manufacturers’ competitive product characteristics included acceleration, handling, comfort, and perceived quality and image. Cost was not nearly as an important attribute as the previously mentioned more-prestigious characteristics.

In the late 180s, new competitors began to challenge the European luxury automobile manufacturers. In particular, it appeared that the Japanese were going to be strong competitors.



Issue

BMW is launching a new model of its 7-Series luxury sedan. It is exactly two years, eight months, and five days until the scheduled production date and management is faced with a critical decision regarding the building of full-scale working models during the developmental stages that will greatly influence the future of the company. Over the next several months, engineering prototypes have to be designed, built, and tested in order for final design revisions to be made in time for the launch. Traditionally, BMW hand-built and assembled its prototype automobiles it in own shop. Highly skilled craftsmen and specialized outside vendors fabricated the parts and used both less-expensive materials and less-complex pre-production tools to save costs. The issue with this, however, was that construction of prototypes hardly resembled the techniques used in the final high-volume production. And because of this, BMW found thousands upon thousands of minor problems in the final transitional stages from final prototype to high volume production. Discovering the problems and modifying both the vehicles and the tools to produce them took up much time. Furthermore, complications increased with the fact that potential production problems were not discovered and solved during the test pilot runs, resulting in the increase incidence of customer complaints of BMW’s new models.

Carl-Peter Forster, director of Prototype and Pilot Manufacturing at BMW is proposing a new process for building the cockpits of the 7-Series prototype vehicles. With the new strategy, the cockpit prototypes will be made by outside suppliers that used more automated methods, more specialized tooling, and less skilled workers. Also, one supplier will be selected to construct major subassemblies of the cockpit and ship them to the BMW assembly line where BMW’s pilot assembly plant workers will perform the necessary assembly operations rather than prototype specialists. The new approach brings higher tooling costs, longer lead times, and the potential for encountering additional risks, but management believes that it will drastically reduce the problems associated with bringing a new model into production and have a significant influence on product quality. Switching to this new process is a major change for BMW; the individually, hand-crafted process is how the company built itself and earned its highly acclaimed reputation. The design to change the process will significantly affect BMW’s image and competition.

Analysis

Causes and consequences of BMW’s quality problems with newly launched products

Current prototypes are geared more towards engineers than customers, as highly skilled workers made the prototypes at the design and engineer center. The current production process was a poor reflection of estimated production rate and product quality. Another consequence of utilizing highly skilled workers affected testing in a negative manner and was possibly a reason for the increased number of defects; thus, customer complaints were at level that was higher than desirable. Also, customers started expecting more due to competitors’ high quality luxury automobiles.

Potential ways to improve launch quality

BMW should conduct marketing studies to determine what customers expect and want. BMW should then incorporate such expectations and requests in its design phase.

The new process, utilizing the concept of concurrent engineering, will be more efficient and more competitive because BMW will be able to launch new products more quickly. The new process will also enable BMW to detect the problems in both the design and production processes and resolve the issues faster. If BMW involves their suppliers from the beginning, they will create strong relationships with them, which will also assist in ensuring that all divisions work together smoothly. In addition, all of these improvements will improve BMW’s delivery time.

Recommendations concerning the 7-Series prototypes

BMW should use materials and tools more similar to the materials used in the prior production models. Also, BMW should consult with the suppliers that are involved in the design and prototype processes. This not only helps BMW make the prototype to be more like the final production, it also assists suppliers because they are able to learn more about what is being requested before they are required to produce the product in volume. In addition, the prototypes should be built by BMW’s assembly line, rather than the prototype specialists.

Recommendations regarding future development projects

In order for BMW’s future projects to run more smoothly, it should focus on its core competencies of concept design and assembly; then, outsourcing its parts to suppliers. Therefore, suppliers can be involved at an earlier stage of development of a new project. Significant testing should be a major part of the design phase, as this will reduce many problems encountered in the production phase. For BMW to introduce more models more frequently, it should decrease the lead-time from the concept phase of the car to the release of the final product in the market. One way for BMW to increase product variety will be for it to offer set packages as well as individual custom options. This will increase customer satisfaction because they will be able to customize their car the way they want it.

Recommended changes in developing new models

When developing the prototype for a new model, BMW should use the actual parts instead of substitute parts; for example, instead of using fiberglass BMW should use sheet metal. This will help prevent defects earlier and further complications later in the process. Although, the initial investment will be costly, significant cost savings will be achieved and the investment will pay off in the long run.

Concerning the ramp up process, BMW should use the sudden changeover approach to eliminate confusion and achieve full volume production capacity in less time. However, by following this approach BMW will lose on opportunity costs by not fully utilizing its fixed capital for the first 4.5 months. To remain competitive, this will help BMW release new models more quickly.

In addition to designing new models, BMW should simplify the production process by combining multiple separate parts into fewer parts. This would help reduce the time it takes to assemble the automobile.

Regarding early tooling, it is expected BMW’s suppliers will use early specialized tooling to manufacture BMW’s parts. BMW should reduce the amount of prototype batches produced from five to three. BMW will also greatly reduce prototyping costs and lead-time. In the first prototype batch, BMW should use its current process of hand designing. In the second prototype batch BMW should use the pre-production process and in the third prototype batch it should use the specialized tools. This will still allow BMW’s skilled craftsmen to use their creativity and keep some flexibility in the design. If successful, BMW should use the early tooling concept for the parts of the entire automobile.

Expected improvements

As a result of the above recommendations, it is expected that construction of prototypes will resemble techniques used in final production, which will dramatically reduce problems associated with bringing new models into production. BMW will maintain its high quality image and possibly increase its market share. BMW’s relationship with suppliers will be better due to working in conjunction with them in designing its cars. Customer complaints will decrease since customer suggestions will be considered. The process will be more customer-friendly rather than engineer based.

Attributes subject to the potential risk of deterioration

Due to increased automation, employee skill base may deteriorate. This may constrain flexibility and limit the amount of last minute changes needed and wanted by BMW and its customers. Another risk BMW may encounter is that it will become too dependent on its suppliers.

Proposed Plan of Action

Recommendations to BMW’s strategy to compete against Japanese luxury automobile manufacturers

After careful thought and strategic planning, BMW should take the opportunity to make the new production process easier and more efficient, while maintaining its effectiveness. Chairman von Kuenheim should implement the new prototyping approach to compete against new Japanese entrants into the luxury car market. Although the initial investment in changing to a more automated process will cost BMW DM 50 million now, it will potentially save them DM 100 million per product launch in the future. Changing the production process will enable BMW to adapt with the company’s needs, including early detection of problems with the design process, improvement of the evaluation of both production rate and product quality, and the ability to streamline operations. This change will also better accommodate the customer’s demands of a stylish automobile and high expectations of reliability and performance.



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