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International Supply Case Study

International Supply Case Study. BMW. Outline. BMW- The company Build-to-Order & BMW BMW Spartanburg Plant Products Sourcing Capacity Managing Supply. BMW History. Founded in 1917 Built engines for military aircraft

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International Supply Case Study

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  1. International Supply Case Study BMW

  2. Outline • BMW- The company • Build-to-Order & BMW • BMW Spartanburg Plant • Products • Sourcing • Capacity • Managing Supply

  3. BMW History • Founded in 1917 • Built engines for military aircraft • 1940’s WW2: repairs, manufactured spare parts, agricultural equipment and bicycles • 1950’s build motorcycles • Then the cars… • 1970’s: South Africa Plant • 1992: US Plant • 1994: Purchased Rover group (Rover, Land Rover, Mini, MG) • 1998: Rolls Royce (2003) • 2000: Sold Rover except Mini

  4. BMW Business Interests • Automobiles • BMW • Mini • Rolls Royce • Motorcycles • Financial services

  5. BMW • “The BMW Group is the only manufacturer of automobiles and motorcycles worldwide that concentrates entirely on premium standards and outstanding quality for all its brands and across all relevant segments.” • Premium sector of the international automobile market

  6. X5 6 Series X3 Z4 Motorcycles BMW Group.Brands and Models. 1 Series 3 Series 5 Series 7 Series Source: Goudiano CSCMP 2005

  7. BMW Group Development and Production Network

  8. Oxford Spartanburg Goodwood Berlin Leipzig Regensburg Munich Z8 Graz (external production) Dingolfing Shenyang Rosslyn Source: Goudiano CSCMP 2005

  9. Production Volume Total: 1119.1

  10. Production Volume Ford’s Worldwide vehicle unit sales of cars and trucks in 2004 (in thousands): The Americas 3,915 Ford Europe and PAG 2,476 Ford Asia Pacific and Africa 407 Total 6,798

  11. Challenges • Excess capacity => Price pressures • Customer expectations • Personalization • Innovation • Service • Cost effective factories with flexible manufacturing abilities • New technologies and material • Regulations • ….

  12. Build to Order • Convert orders to products • No finished goods inventory • “Build-to-Order is the capability to quickly build standard or mass-customized products upon receipt of spontaneous orders without forecasts, inventory, or purchasing delays.” (D.M. Anderson) • Demand pulls production • WHY BTO?

  13. Why BTO? • LEAN!!! • 'Lean production is aimed at the elimination of waste in every area of production including customer relations, product design, supplier networks and factory management. Its goal is to incorporate less human effort, less inventory, less time to develop products, and less space to become highly responsive to customer demand while producing top quality products in the most efficient and economical manner possible.'

  14. Why BTO? • Other Alternatives • Build to Stock/Forecast • Assign to dealers • Sell from available stock

  15. Production Storage Customer Built-to-Order vs. Built-to-Forecast Built-to-Forecast Built-to-Order Customized vehicle Sale from stock Customer Customer Production • higher level of customer satisfaction due to personalization • better inventory management • less sales incentives

  16. Increasing Product Complexity • Product variety & Part complexity • 1032 possible combinations of products at BMW • 1017 possible combinations of BMW 7 series • ~70 million configurations of the Ford Escape • >240 configurations of Toyota Scion

  17. Ford Escape • 5 models (XLS manual, XLS automatic, XLT automatic, XLT sport, Limited automatic) • 2 drive options (Front-wheel drive or four-wheel drive) • 2 engine sizes (2.3L or 3.0L) • 9 exterior color options (Dark Shadow Grey, Titanium Green, Redfire, Blazing Copper, Sonic Blue, Dark Stone, Black, Silver, Oxford White) • 3 interior colors (Black, Flint, Pebble) • 2 transmission options (4-speed, 5-speed) • 4 wheel options (15” aluminum, 15” styled, 16” aluminum, 16” Bright Machined aluminum • 2 choices of tires (BSW or OWL) • 4 options of electronics (AM/FM Single CD with clock, AM/FM 6-CD, AM/FM Single-CD Cassette, Audiophile 6-CD) • 4 options of seats (Cloth, Premium cloth, leather trimmed, premium leather) • 5 special package options (Cargo convenience, convenience, leather comfort, safety, towing) representing 32 different possibilities • 4 different upgrades (Spare tire, moon roof, roof rack and side step) representing 16 further options. These options lead to 70 million ~ 5x2x2x9x3x2x4x2x4x4x32x16

  18. BMW 7 Series 350 Model Versions 175 Interior Equipment Options 90 Standard Exterior Colors 500 Extra Equipment Options ... leading to e.g. 1017 theoretical combinations only for the BMW 7 Series Source: Goudiano CSCMP 2005

  19. Product Complexity • A finite set of part numbers • “Infinitely” many end products

  20. BTO & Product Complexity • BTO makes it possible to • Address tremendous product variety • Face the challenges of managing the variability in component demand.

  21. Savings through BTO • In the U.S. • Potential savings through BTO~ $1500/car* • Average incentives per car sold ~$1900 in 2002* *Miemczyk and Holweg J. Bus. Logistics, 2004

  22. Obstacles/ Requirements • Inability to supply customized vehicles within “acceptable” timeframes • Avg. Leadtime for customized vehicles: 6-10 weeks!!! • Short OTD • Process/Product/Volume flexibility • Flexibility from suppliers • Flexibility from logistics operators

  23. Current BTO Levels 1999: % BTO Avg. New Vehicle stock in days • U.S.: ~ 5% 60-90 days • U.K.: ~33% 64 days • Europe: ~48% 55 days • Japan (Toyota): ~60% 20 days Source: Miemczyk and Holweg (2004)

  24. BTO & BMW • BMW • BMW’s operations in SC Plant • BMW’s challenges in BTO • Available levers for control

  25. BMW USA www.bmwusafactory.com

  26. BMW USA • Z4 • X5

  27. BMW • “Every customer receives his/her personalized vehicle at a compulsory date – at best at his/her preferred date” • 100% delivery punctuality • Flexibility for order change Why offer flexibility?

  28. 2,5 Navigation systems 2,0 Xenon lights 1,5 Comfort seat adjustable electronically 1,0 0,5 Independent vehicle heater 0,0 -0,5 -1,0 20 10 0 30 days before order freeze Flexibility Equipment changes in % (accumulated) % Source: Goudiano CSCMP 2005

  29. BMW USA • ~140,000 vehicles in 2004. • KOVP (Customer-oriented production and sales) • Over 6000 part numbers for X5 • 70% are option driven • Flexibility for order change • 40% of parts from Europe

  30. KOVP Sales System Dealer Dealer Sales System Production System Optimize the whole process Planning Delivery Ordering Dealer order Purchasing Logistics Production Distribution Hand-over Sales Processes and Online Ordering Sales Processes and Online Ordering Production- and Supply- Processes Distribution Process and Hand-over Process Monitoring and Target Control

  31. Push KOVPThe Push-Pull Interface Production System before KOVP Early Order Assignment Start Order Assignment Sort Sort Bodyshell work Paint shop Assembly Production System with KOVP Pull Late Order Assignment Frozen Horizon Start order assignment Sort OSM Bodyshell work Paint shop Assembly

  32. Hand-over to Sales Breakthrough target KOVP : Supplier / Body shell work and Paint shop Assem-bly Distri-bution 1 4 WD 2 WD 3 WD 10 WD Change flexibility till 6 WD Reduction of Leadtime Flexibility for Order Change Ordering/Scheduling Production/Distribution Process Feasibility Before KOVP: Order freeze 28-32 WD 13-17 WD 15 WD

  33. BMW USA • ~140,000 vehicles in 2004. • KOVP (Customer-oriented production and sales) • Over 6000 part numbers for X5 • 70% are option driven • Flexibility for order change • 40% of parts from Europe

  34. Sourcing • Why source from Europe • Relationship with suppliers • Tooling is already there • Social responsibility issues

  35. Why serve global markets? • Tooling • Volume • …

  36. BMW Sourcing Wackersdorf • Receive, Sort, Package • Handles >14,000 part numbers from other BMW plants and over 500 European suppliers. • Receives ~ 160 truckloads of parts per day • Ships ~ 75- 80 containers per day to the BMW assembly plants in Rosslyn, South Africa, Spartanburg, South Carolina and Shenyang, China.

  37. BMW: Capacity • Capacity is a major investment • Labor is highly skilled/ organized • Production set at “takt time” • “A vehicle every 50 seconds” • Capacity adjustments through adjustments to takt time, adding/reducing shifts, shutdowns… • Same number of cars/day

  38. Manage Capacity • From day to day • Mix of vehicles vary • Usage of parts vary

  39. Capacity oriented Production planning Seasonality Manage Capacity • Mix of vehicles Source: Goudiano CSCMP 2005

  40. Manage Supply • Over 6000 part numbers • 70 % option driven • Order changes • 40% from Europe

  41. Usage Standard Deviation in Usage 18/day Average Usage 32/day SAME NUMBER OF CARS/DAY

  42. Decide Shipment Quantities Prepare Shipments Demand Demand Demand Managing Supply Shipments Arrive Forecast Demand Day 10 Day 1 Day 40

  43. Challenge • Huge number of parts: Complexity • Order Flexibility: Variability • Long LeadTimes: Variability

  44. Levers for managing uncertainty • Capacity • Capacity on Supply • Production Capacity • Inventory • Time • Order due date Infinite Constant Given/Strict

  45. Manage Inventory • “Infinitely” many end products from finite number of parts • Stochastic demand • Variable long leadtimes • No shortages allowed: • Production in a predetermined sequence • Expedite

  46. Demand Modeling • Infinitely many end products • Not enough data points to estimate distribution of product demand • Instead: Components

  47. Challenge • Huge number of parts: Complexity • Order Flexibility: Variability • Long LeadTimes: Variability • No shortages allowed

  48. Some Tools & Mechanisms • Safety Stock • Forecast Accuracy • Frequency • Global Supply process • …

  49. Safety Stock • Protection against variability • Variability in demand and • Variability in lead time • Typically described as days of supply • Should be described as standard deviations in lead time demand

  50. Order Quantity Actual Lead Time Demand Actual Lead Time Demand Actual Lead Time Demand Traditional basics Order-up-to level Reorder Point Reorder Point Actual Lead Time Demand Stock on hand Lead Time Order placed T L Time

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