BMW AG: The Digital Car Project

Group 4
Anush Saha (11PGDM074) Arnab Moitra (11PGDM076) Ashwani Raturi (11PGDM078) Ayush Manshinghka (11PGDM080) Himanshi Tandon (11PGDM084) Mohit Khera (11PGDM082)

Introduction
The case describes Bavarian Motor Works (BMW) product development efforts toward reducing the product development time to half using various means including computer aided design technologies. In this case we have analysed the challenges faced by the company in order to achieve the objective of reducing the product development time. We have discussed the processes existing at BMW for many years, the changing environment and other competitive challenges and the evolution of product development processes in response to these challenges. This includes a thorough analysis to understand the competition in the automotive industry in 1990s and the consequent changing dynamics. Then we discuss how the product

development process has evolved in response to the environment and what strategies the company wants to employ going forward. We have also tried to capture the new product development process and the risk involved in changing the product development process too slowly or quickly. Finally, we discuss a relevant decision point which the company faces.

COMPETITIVE CHALLENGES AND IMPACT ON BMW

The case was written by Professor Stefen Thomke and research associate Ashoke Nimgade during the late 1990s. Hence we shall concentrate on the changes that occurred in the automotive industry during this period, the kind of competitive challenges it created and the effect it had on BMW. Firstly this decade saw Globalization, regionalization and market convergence in the automotive industry Due to the effects of liberalization, national markets became increasingly globalized. Though this gave companies a chance to expand to new markets, but it also increased the threat of new entrants or increased competition in traditional markets. Hence all car manufacturers were experiencing the boons and banes of the biggest buyer market in history. Next we see the emergence of increasingly diversified consumer aggregate patterns of behaviour Consumers were no longer accepting standardized products, but wanted products that satisfied their individual requirements and tastes. Target groups thus had to be downsized by companies to attract customers by the products offered. However, because of the increased global competition with a stronger focus on price and not on brand loyalty, consumers generally did not reward companies only for their more individualized products irrespective of price. In other words the customers became price sensitive, were not ready to pay a premium for more innovative products, and used their bargaining power to become more demanding. As a result of these factors, automobile manufacturers had new demanding requirements within their field of activity. To help these opulent consumer generous financial schemes were also offered by banking institutions. All in all demand, growth and expanding opportunities increased rapidly. To take advantage of the new demand and market growth, Japanese and Korean automotive companies accelerated modification and diversification of their product portfolio They shortened product lifecycles in order to react to the expectations of individualized and fast changing consumer demands with innovative products. In the past, an average product

lifecycle in the automotive industry was eight years; in 1990s, lifecycles became much shorter, or at least the products design was often modified after just two or three years on the market. With development costs for a new model remaining on the same level or even increasing, this concurrently meant a shortening of amortization time by 30% for the OEM and, potentially, lower profits. To make up for the low margin these companies tried to achieve economies of scale by volume production and large staffing. But this lead to overcapacity in the industry, further cash discount and idle time for workers. A short Engineering lead time was used as a competitive advantage or a differentiation point. The Japanese substitutes were reliable and performed acceptably well. The Japanese and Korean adopted this technique of churning out cheaper, reliable cars suiting local taste at an incredibly fast pace, and the U.S. automotive companies (Chrysler for example) wisely decided to follow suit. Another aspect to meet the specialized demand was the incorporation of increasing number of parallel development projects since companies developed more and more niche models for special target groups. This certainly required the use of new development techniques such as virtual reality or CAD. This technique later enabled BMW to shorten the development time of its Z4 model to just 30 months. Furthermore it became exceedingly difficult to gauge what the customers really wanted. Their demands became whimsical and unpredictable. Even the high-end premium luxury car market realised that with cheaper products in the market their own target market was no longer price insensitive. During the early 1990s the customers verdict was that they did not want big cars since they felt it was difficult to manoeuvre in city streets. For example the Mercedes-Benz S-series model of 1991 could not attract customers since its product design and concept freeze had been drawn up during mid 1980s in keeping with tastes prevalent of that time. But due to a long product life the car was finally launched in 1991 and by then the customer tastes had changed and the new tribe of consumers would be satisfied with nothing less than what they demanded. To take advantage of the high profit margins and growth opportunities of the European car market Japanese automotive brands with their quick development time and flexible processes was able to come up with premium luxury cars at comparatively cheaper prices (almost half). The dramatic compression in the length of time for competitive reaction to be felt and

changes in consumer behaviour to be incorporated into product design accompanied this phenomenon. Their adaptability to survive in global niches and flexibility in moving from one niche to another helped them eat away at the market share of the overpriced European brands like Mercedes-Benz, BMW and Jaguar. But since the consumer was whimsical he went back to liking European luxury cars in 1996 as can be seen from the short-lived popularity of Toyotas Lexus LS400 a luxury car from the Japanese stable. As soon as the value of yen increased the affluent American and European buyers went back to their Benz and BMWs for speed, power and most importantly status. However the new consumers of BMW in the latter half of 1990s were those who were more involved in driving the car and appreciated BMW for its speed, performance and the sheer passion and fun one derived from driving it. Needless to say BMW became popular among the young rich buyers who had a passion for driving. However the changing market scenario made BMW decide to cut down on its notoriously long product development time using a newly developed system code names digital car. But the main dilemma that BMW was facing was whether to adopt CAD in place of its traditional handcrafted design techniques. BMW sells many low volume vehicle models as compared with its competitors. To be profitable they used to rely on longer production runs, to spread their fixed cost over longer time period. The trade-off was a lessened ability to respond to changing market demands. To achieve this they had to reduce their product development time. But BMWs strategic differentiation had been its meticulous engineering, and handcrafted styling and designing. They used hand-drawn models and later made the approved ones into real-life clay models. This was an iterative process where each model and product idea took 12 weeks to work out. This period also saw intensification in competition between BMW and Mercedes-Benz since they had the same target market. While this encouraged them to improve and achieve new heights of excellence, it also got sour and personal.

EVALUATE THE PRODUCT DEVELOPMENT PROCESS AT BMW

A generic product development process looks like the following:

Planning Production Ramp up Concept Development

Testing and Refinement Design Detail

Figure 1: Generic Product Development Process

System Level Designing

The evolution of product development process at BMW from 1970 onwards can be delineated into two processes - Old Process and Current Process on the basis of: Total development lead time The time it took from initial concept development to market launch The number of major prototyping cycles

The Old Process: Dominated in the 1970s and 1980s Product development took 72 months 3 major prototyping cycles with each cycle involving a generation of dozens of physical prototypes

Cost for each prototype exceeded $1 million dollars and often required months of superb craftsmanship Functional and manufacturing problems identified during testing and solved while an increasing number of design and financial commitments were made to suppliers and manufacturing

While the early release of design specifications to suppliers could speed up development, it had to be balanced against the very high cost of making design changes to such dies

The Current Process:

Figure 2: Current Development Schedule

This process started from the early 1990s Product development took 60 months 2 major prototyping cycles Employed rapidly emerging computer simulation methods throughout the product development cycle

Computer-aided process was relatively untapped as the current process was modeled after the old hardware-driven process

Process Type Complex System

Description System Decomposed in several subsystem and many components

Distinct Features Systems and components are developed in parallel process System Integration and validation

Figure 3: Categorization of Product Development Process for Automobile

The need to re-engineer the product development process: Meticulous handcraftsmanship in BMW products resulted in long spans of time between platform changes (about 7-8 years) Less reliance on outsourcing process activities than other firms Higher fixed costs because of its significantly smaller volumes per model Focus on developing cars whose lives outlasted competitors products Losing to competitors on account of longer development span (Japanese firms were providing more variety in shorter span of time) Customers preference are changing at a fast rate, with the long product cycle it is difficult to meet the customers expectation Superior quality cannot be the only differentiator as it restricted BMW to reach customers looking for variety

Approach taken to slash new product development times by 50%:

Figure 4: Approach adopted for re-engineering certain initiatives

Key principles in re-engineering process: Increased parallelization of design tasks Elimination of some design tasks such as physical prototyping Quicker completion of the remaining design iterations

Implications of the re-engineering process: Required direct involvement and support of functional managers Involved friendly rivalry between different areas to identify teams coming up with the best development process The Digital Car heralded the widening role of computers in car development at BMW

Figure 5: New Projected Development Schedule

Comparison between the traditional styling process and CAS-Driven process:

Figure 6: Traditional styling VS CAS-driven process

RISK INVOLVED IN FAST PRODUCT DEVELOPMENT PROCESS

BMW is famous for styling, quality and longetivity of product.BMW cannot compromise on these attributes as they are the value proposition given by the automobile company to their customer. A fast product development process can be a compromise with the quality of the product as only single prototype model will be manufactured and thus the time spent and the detail check of the product design will not be done properly. BMW motive is to compare with the Japanese manufacturer as they are eating away the market share, but important point to understand is that Japanese Automobiles are all about incremental changes from the previous product and thus they take less amount of time in the product development.

Packaging
Refers to the component invoved in the propelling of the autrombile This will include everything under the hood,wheels,axles,steering,climate control and exhaust

Skin
The exterior,the seatings and the layout of the dashboard

This incremental change generally is in the styling of the Car or in the skin of the automobile they do not make any tectonic changes in the package of the automobile.BMW whereas is a very uniquely designed car, the design complexity can be understood by looking into the appendix six which gives a fair idea about the number of design elements used just on the door. Compact Car Basic Design Surface Additional Elements Legend: S-Basic Surface C-Character element G-Gap 2(Sx) 3(Cx+Gx) BMW 3 Series 6(Sx) 7(Cx+Gx)

One of the other important factor to be considered is that the employees working in the company are accustomed to the minute detailing of the work and giving the perfection of the data, the employees often hold back data with them to make sure that data is correct. In the current system the interaction between different team is very less as the processes are not working at parallel but now when the product development cycle will be fast there will be a change in the organisation which will need high interactive cross functional associations between team, which will be against the very culture of the BMW. People generally try to maintain the status quo in their system which can hamper the product quality.

The Service Profit chain

Internal Service Quality

Healthy Service profit and gains

Satisfied and productive service employees

Satisfied and Loyal Customer

Greater Service Value

Above figure clearly indicates that the company cannot provide better service quality if the employees are not satisfied and happy, so BMW must take account of this factor Risk Involved in Slow Product Development Process Surviving in the fierce competition offered in the market is a challenging task for the companies. Product differentiation developed by the product design or the development process are few parameters which keeps the competitor at the bay but still it is not enough. Changing customer taste and preference call for new products and different variations otherwise company can become a part of history.

If company opt to change too slowly they can lose the market share and slowly the brad value they have established in the market. Slow product development also demands higher cost which is substantiated. In the slow product development process they are making multiple prototypes which are costing the company millions of dollar. BMWs Current strategy One of the priorities of BMW is reducing series development times, in order to bring new products onto the market even more quickly. For this reason the BMW Group has created the Product Evolution Process (PEP) and redesigned series development, so that in future new models can be developed in a shorter time and will be of an even better quality. All speciality departments involved in the development process are now better integrated and optimally networked to each other. One of the ways that the massive reduction in development times has been achieved is by running the individual phases of the development process in parallel, rather than one after the other, and replacing time and cost-intensive trials with computer simulations. The current BMW 7 Series was the first model to be completely developed in accordance with the new process. The series development time for this very complex vehicle was only 34 months. The aim for future vehicle projects is even lower at 30 months. In the past, a time span of five to six years was necessary. The newly gained flexibility allows quicker reaction to market trends without delaying the start of manufacturing and thus secures a further competitive edge. The BMW Group has optimised internal processes to such an extent that changes in customers wishes in the BMW 7 Series regarding engine capacity, colour, upholstery and optional fittings can be accommodated up to eight working days before the start of assembly without affecting the delivery date. All new models are integrated into this process. BMW is setting new standards in change flexibility. A large number of customers are making use of the option to make changes to their ordered vehicle at very short notice. The manufacturing planning department processes up to 120,000 customer changes each month.

Fast and Flexible

Despite a constantly growing diversity of models, the BMW Group production network is so flexible and the manufacturing technology so harmonised worldwide that different models can be produced in every plant. This gives the BMW Group the chance to react quickly and flexibly to fluctuations in the market and to individual customer wishes. Currently almost every plant in the BMW Group is constructing at least two model series.

THE DILEMMA
BMW is going through a phase where they are going to change the product development time by a substantial amount (50%). They had the choice of either selecting a derivative 3 series model or flagship 7 series project. Recommendation 1. We recommend 3-series touring wagon development project as a target of Digital Car Project. The company wants to reduce the lead time of project by 50% to 30 months from 60 months. This would enable the firm to leverage the latest technology to make their product development quickly and to fit the market needs strategically. It will make BMW in front of the competition and it will save huge money and time of the firm. 2. Digital technology is considerably effective to reduce product development lead time even in other competitors. Rationale There are several reasons for us to make such recommendations: 1. BMW has not experienced revolutionary change in the product development process, which can be proven by the fact that BMW had only changed their development process twice in the last 40 years. As a result, changing process would entail changing habits which had worked so well in the old sequential development plan. Also, more team coordination and other parallel activities to be performed and therefore need is to change the culture of organization. Therefore, pilot project should be conducted by use 3-series. 2. Senior managers should fully consider and anticipate the outcome of any strategic change. There are many unanswered questions related to the new development process and thus it cant be tested on future initiatives. Company executives are not very sure of the success of the new development process. If BMW really uses the latest and revolutionary 7-Series platform as a breaking-point for the new digital technology, the whole development team will be pushed towards the ambitious goal, which may cause demoralization amongst the developers and engineers. Moreover, there seems no way back if the project cannot be implemented as planned because the

project would have a psychological impact if the change is not successful as the firm expect, it will ruin the current good condition of the firm and cause the production processes slower than before. Even worse, they will lose part of market share. In our point of view, senior managers should avoid to make such a ruthless and aggressive decision when the company is running successfully. 3. In a purely technological perspective, it is a more appropriate idea to make changes to derivative 3-Series than 7-Series. 7-Series is still at the early stage of its development and there would be quite a few technological problems occurring in the later processes. If BMW uses 7-Series, probably everyone will be too busy with the other technological problems to pay enough attention to the digital process itself. In this experiment, the impact on the result from one variable (the new digital process) would be ambiguous because of other variables (the other technological problems). Whereas, if the derivative 3-Series, there will be no such ambiguity because most of its technological problems had already been solved as it is a derivative product. And also, how effectively and efficiently the new digital process can shorten the development period will be measurable.

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