BMW – The OM Blog by Heizer, Render, & Munson

OM in the News: BMW’s Supply Chain Disruption

BMW is halting or slowing production of certain models in response to a shortage of parts caused by delivery problems from first-tier parts supplier, Bosch. “The hiccups show how dependent manufacturers are on a global, smoothly running supply chain,” writes The Wall Street Journal (May 30, 2017). Even small disruptions anywhere along the line can cascade into delays in getting the company’s big money-making products off the assembly line and into showrooms.

In BMW’s case, the culprit is a “Lenkergetriebe,” or steering gear, manufactured by Stuttgart-based auto-parts giant Bosch and used in BMW’s Series-1,2,3, and 4 models. “Our supplier Bosch is not currently able to provide us with a sufficient number of steering gears,” said a BMW exec. Bosch, in turn, said the trouble arose when a 2nd-tier supplier in Italy experienced difficulties in delivering the casing for the steering gears.

As a result of the shortages, production is restricted at several BMW plants in Germany, China, and South Africa. “Automotive value chains are international. An interruption in delivery of parts from a partner in Europe can therefore also have implications in China,” said the BMW exec. “The vehicle is not complete until all parts, most of which are supplied just-in-time, are installed. It is, therefore, understandable how a missing part—even if only a small one, as in this case—can have a major impact.”

Classroom discussion questions:

What can BMW do to prevent such supply chain disruptions in the future?
What are the differences between 1st, 2nd, and 3rd tier suppliers? Provide an example of each in a non-automotive industry.

OM in the News: German Apprenticeships in South Carolina

BMW’s plant in Spartanburg, S.C., is its biggest production facility in the world. It produces 1,400 cars a day and sends 70% of them overseas, making BMW the biggest car exporter in the U.S. By employing 9,000 people and training 100 apprentices at any one time, the BMW plant contributes to a skilled American workforce.

Overall, German companies employ about 700,000 people in the U.S. Often they implement the German-style training schemes for young people. In Germany, half the graduates of high schools and junior high schools choose a track that combines training on the job with further education at a public vocational institution. “This apprenticeship model,” writes the German ambassador to the U.S. in The Wall Street Journal (May 5, 2017), “is one reason why Germany has the lowest rate of youth unemployment in Europe and has been able to keep manufacturing jobs in the country.”

As high-wage countries, Germany and the U.S. face similar challenges in protecting existing production facilities and creating new manufacturing jobs. One of the most decisive factors for companies is whether they can find skilled and motivated workers, which is what apprenticeship programs provide. It’s also important to prepare for the industries of the future. In the era of New Manufacturing (what Europe has dubbed “Industry 4.0”), artificial intelligence and other digital technologies will transform factories and the workplace.

We all know that there is a tendency toward higher education in the U.S. Nevertheless, the success of the German apprenticeship model builds on the conviction that it is an equivalent alternative to college education. That approach in Germany has provided a solid return on companies’ investment, helped them to innovate, and contributed to warm relations between employers and employees.

Classroom discussion questions:

Why is this model so rare in the U.S?
What other German company has widely used apprentice training in the U.S? (see Chapter 1)

OM in the News: German Auto Makers’ Major Capacity Expansion Outside of Europe

For a bit of good news regarding manufacturing jobs in North America, The Wall Street Journal (Nov.26, 2012) writes that VW, BMW and Mercedes are all ratcheting up capacity investments beyond the troubled European market.

Taking the lead, Volkswagen announced last week that it would invest $65 billion in its global operations over the next three years; this as Germany’s robust auto industry seeks to limit its exposure to Europe. The move cuts a contrast to the belt-tightening of cash-strapped rivals such as France’s Peugeot and Italy’s Fiat which have shed assets or shelved model and technology changes this year as plummeting European sales push those companies deeper into the red. VW’s plan marks its efforts to step on the gas in its bid to dethrone Toyota as the world’s largest auto maker. Billions will go to a new Audi plant in Mexico. VW is likewise pouring money into Russia and China.

“Despite the challenging economic environment, we are investing more than ever before to reach our long-term goals,” says Volkswagen’s CEO.

BMW, which opened a second plant in China this year, is investing an additional €500 million with its Chinese joint-venture partner to boost production there. Meanwhile, it is spending $900 million to expand capacity at its plant in Spartanburg, S.C., and last month finalized plans to build a $261 million plant in Brazil.

Mercedes, which expanded into China later than rivals BMW and Audi, made plans last year to invest €2 billion in its venture with Chinese partner and a further $2.4 billion in expanding its Alabama plant.

Discussion questions:

1. Referring to Chapter 8’s discussion of Mercedes’ selection of Alabama for its 1st overseas plant, what are the benefits to the US of these expansions?

2. What are the dangers of major capacity expansions?

OM in the News: BMW Loves Making Cars in the U.S.

As the Big 3 auto makers still struggle to reclaim markets and manufacturing leadership, BMW announces that employment will hit 7,600 workers in its South Carolina plant next year. Its $750 million expansion means the plant will be the largest car factory in the U.S., dwarfing any Detroit operation.

Of course, with the economy so bad, this is good news, even if some profits end up in the company’s German headquarters. And because of high-tech firms like BMW, South Carolina is the 4th largest net importer of college-educated adults.

Why did BMW decide to make its luxury SUVs here, when it exports 70% of these vehicles to the rest of the world? The Wall Street Journal (Oct.14,2010) reports that US production helps BMW hedge against currency fluctuations around the globe. Another reason…according to U.S.-BMW President Josef Kerscher (in Fortune, Oct.15,2010): This U.S. group has absenteeism of “less than 3%, better than in Germany”.

Similar good news is that Mercedes plans to shift some production of its best-seller, the C-class sedan, from Germany to the US in 2014. Its not only a currency issue for Mercedes, but the strategy reduces labor and other costs. As we note in Ch.8 (Location), Mercedes already makes SUVs in it Vance , Alabama plant.

Discussion questions:

1. What others reasons are there for foreign car makers to be attracted to the US?

2.Why is South Carolina a primary destination for auto manufacturers?

3. What brought Mercedes to Alabama (see Ch.8’s OM in Action box)?

OM in the News: Mass Customization at BMW

BMW at its Spartanburg S.C. plant along with 170 suppliers wants to build a custom X5 sport utility vehicle for you. The Spartanburg plant thinks they can do it for you as they already export 70% of the vehicles it makes to more than 130 countries; each with its own specifications. And they do it with 18 owner’s manual languages. The number of custom options includes 500 side-mirrow combinations, 1300 front-bumper combinations, 2,500 possible wiring harnesses, 5,000 seat and 9,000 center-console combinations.

BMW wants 4 to 6 weeks to make the custom ordered SUV, but orders are locked in with a lead time of only 5 days. Dealer software is closely tied to BMW’s manufacturing and supply chain, with workers getting the word on what car they are building via overhead screens. The frequent changes required by variations in custom orders complicates every thing from entering the order, to procurement, to moving parts to the line, and balancing the assembly line. Customization is not cheap. But BMW is betting that mass customization for a premium priced car will pay off.

Discussion questions:

Why don’t more auto purchasers request custom-made cars (the car they really want)?

How do we balance an assembly line with many different products coming down the assembly line (the article says the standard time is 106 seconds)?