Managing Business Operation - BMW

TEAM : Sara Zanella, Peter Martaller, Kumar Samanvaya, Meeta Vaney, Zhang Xiang

BMW Financial Analysis

BMW - Bayerische Motoren Werke AG
German automobile, motorcycle and engine manufacturing Founded in 1917, headquartered in Munich, Bavaria, Germany Brand:

2012 Financial Facts

Manufacturing Cost - 48.8% of total sales

Low manufacturing cost percentage means BMW has a excellent cost control in their operation process

R&D Cost 5.2% of total sales

High R&D expenditure means BMW focuses on product innovation

BMW Financial Analysis

2012 Financial Facts
Labor Cost 11.2% of total sales

Relatively low labor cost mainly due to the cost effectiveness in BMW

Operating Margin 11.7%

High operating margin mainly due to control of manufacturing and labor cost

Inventory Turns 6.24x

Not the best for turns, probably because BMW is premium cars which targets high class market

MARKETS & COMPETITION

Premium Luxury Automobiles Appreciators of driving fun and sporty yet elegantly designed cars. Sales subsidiaries in 43 countries Major Markets in Europe, US , Japan, India, China , Brazil, etc.

MAJOR COMPETITORS: MERCEDES (Daimler AG), Audi (Volkswagen) COMPETITORS : Lexus (Toyota), Porsche (Volkswagen), Cadillac (General Motors), Jaguar, Acura (Honda), Infinity (Nissan), Lincoln (Ford) CRITICAL FOR COMPANYS SUCCESS: Product Innovation and Time to Market Technology Innovation

STRENGTHS
Strong Brand Image and effective marketing Strong Research and Development - Recent Strategic alliance with Toyota for research Evolving Product Innovation Focus on Sustainable Mobility fuel economy and emissions , sector leader in Dow Jones Index for sustainability Extensive production and distribution network In house financing capabilities High production standards focus on quality

WEAKNESSES
Recent Product Recall Lack of economy of scale Growing competition in emerging markets ( BRIC Nations)

STRATEGY TO TACKLE MARKET

Penetrate emerging markets aggressively Focus on environment and sustainability Innovation and New Technology Utilize low manufacturing costs of developing countries Making use of international procurement markets Further Develop purchasing and supplier network

RESOURCES Plants (24 sites in 12 countries, global

network regional + international benefits) provide infrastructure of BOSC (Build to Order Supply Chain) Capacity (production facilities full utilized and increased in response to the economic upswing) of BOSC has greater impact on the throughput as compared to traditional supply chain system

PROCESSES Mass customization: combination of benefits

from mass production and customization. ( brand image, consumer satisfaction, level of inventory) Build-to-order system helps in meeting greater flexibility Strong and long term collaboration with suppliers is important to leverage flexibily accross value chain Focus on innovation

Highly skilled employees (staff training

schemes and performance management system) are valuable asset

High quality components

OPERATION STRATEGY COMPETENCES

Exceptional performance Customer orientation Quick and flexible production (plants well organized and cordinated) Exclusivity and high Quality Focus on Substainability Focus on Safety

Operations Strategy
BMWs operation strategy is based on BOSC, Build to Order Supply Chain

Key C h a ra c te r i st i c s
Helps in determining optimal product mix based on the demand of product. Helps in determination of optimal customer order decoupling point of product differentiation along the value chain can be positioned inside their manufacturing operations or it can be positioned at the suppliers Optimize cost of logistics Logistics plays a major role in determining the partnering firm including location of incumbent's assembly points Helps in developing real-time information flow. Information sharing systems play an important role in handling uncertainties

Internal Synergies
Cost advantage by eliminating inventory, & forecasting Quality standards are maintained by a system of quality audits Pull system strategy deployed Low volume of products based on predetermined variety Integration of upstream supplier, mid-manufacturers & downstream distributers Development of steady market policy Built a brand and follows its core values. Own sales subsidiary in 41 countries with an extensive network of dealers

To be the most successful premium manufacturer in the industry Provide a sense of individuality to our customers Detecting trends in early stages by worldwide research

Build Strong Brand

Process-based Capabilities
Broad plant network
risk-reduction and minimizing distributions costs

Cost efficient manufacturing

operational excellence

Supply-chain integration into operations

incentivize suppliers Innovation Award

Built-to-Order Supplier Chain implementation Clean production

reduce consumption of water, energy and waste cost efficient and sustainable

System-based Capabilities
Large investment in R&D focus on innovation and product improvement
Research and innovation centers as "engine" for technological progress Leadership in the field of lightweight construction new carbon production plant increasing fuel efficiency through weight optimization

Sustainability integration in value-added chains

ecological and social standards as key criterion in selection suppliers continuous information-flow with suppliers

Tight collaboration with entities all cross and beyond industry

vertically and horizontally integration as well as collaborations with ext. institutions (e.g. Technological University of Munich)

Highly skilled staff

Continuously process improvisation by regular staff training

Organization-based Capabilities
Incorporate the Brand as quality guarantying factor for products Successfully combining sustainability and product innovation
rising customer awareness and simultaneously improving cost-basis

Mass customization
flexible production for "three lines: Sports, Modern and Luxury" postponement of final assembling

Deduct numerous Collaborations to protect (global-) knowledge

joint-venture with Peugeot Citroen electrification further collaboration with Toyota (progress in lithinumion battery) in order to influence the market more easily while acting on both sides

Product leadership innovation

connection Drive and the new "I Family" series with "green engine"

Appendix : BMW Financial Data

in million Total Sales Revenue Cost of Good Sales Manufacturing costs Research and development costs Warranty expenditure Cost of sales directly attributable to financial services Interest expense relating to financial services business Expense for risk provisions and write-downs for financial services business Other cost of sales Gross profit Sales and administrative costs Other operating income Other operating expenses Profit/loss before financial result Financial result Profit/loss before tax Income taxes Net profit/loss Wages and Salaries Inventory 2011 68,821.00 (54,276.00) 33,594.00 3,610.00 918.00 11,723.00 1,914.00 431.00 2,086.00 14,545.00 (6,177.00) 782.00 (1,132.00) 8,018.00 (635.00) 7,383.00 (2,476.00) 4,907.00 100.0% -78.9% 48.8% 5.2% 1.3% 17.0% 2.8% 0.6% 3.0% 21.1% -9.0% 1.1% -1.6% 11.7% -0.9% 10.7% -3.6% 7.1% 2010 60,477.00 (49,545.00) 29,156.00 3,082.00 928.00 11,110.00 2,112.00 893.00 2,264.00 10,932.00 (5,529.00) 766.00 (1,058.00) 5,111.00 (258.00) 4,853.00 (1,610.00) 3,243.00 100.0% -81.9% 48.2% 5.1% 1.5% 18.4% 3.5% 1.5% 3.7% 18.1% -9.1% 1.3% -1.7% 8.5% -0.4% 8.0% -2.7% 5.4%

7,739.00 11.2% 9,638.00

7,394.00 12.2% 7,766.00

Source: BMW financial report 2010 and 2011

Appendix: BMW vs. Mercedes vs. Audi

BMW Manufacturing Cost R&D Cost Labor Cost Operating Margin Inventory Turns 48.8% 5.2% 11.2% 11.7% 6.24 Mercedes 68.8% 3.9% 16.4% 8.2% 5.12 Audi 59.7% 5.1% 11.5% 12.1% 8.46

Best Among 3 Middle Among 3 Worst Among 3

Source: 2011 financial report of BMW, Mercedes and Audi

Bibliography
Build-to-order supply chain management: a literature review and framework for development A. Gunasekarana, E.W.T. Ngaib Strategic Planning of BMWs Global: Bernhard Fleischmann, Department of Production and Logistics, University of Augsburg, Universittsstrae 16, D-86135 Augsburg, Germany, Sonja Ferber, Peter Henrich, BMW AG, D-80788 Mnchen, Germany BMW AG, D-80788 Mnchen, Germany {sonja.ferber@bmw.de, peter.henrich@bmw.de} http://annualreport2011.bmwgroup.com/reports/bmwgroup/annual/2011/gb/English/9010/alldownloads.html http://www.bmwgroup.com/e/nav/index.html?http://www.bmwgroup.com/e/0_0_www_bmwg roup_com/investor_relations/finanzberichte/geschaeftsberichte/2010/geschaeftsbericht_2010.sh tml http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=BMW:GR http://www.bloomberg.com/news/2012-01-05/bmw-projected-to-beat-mercedes-in-u-s-2011luxury-vehicle-sales.html http://articles.economictimes.indiatimes.com/2012-07-11/news/32632804_1_audi-india-indianluxury-michael-perschke http://www.bmweducation.co.uk/coFacts/results.asp?kword=competitor&submit.x=0&submit.y =0&submit=Submit http://www.encyclopedia.com/topic/automobile_industry.aspx