Operations Strategy

OPMG 532
Fall 2014
Lecture 8: 3 November 2014

BMW
A synonym for superb performance and outstanding styling in
luxury cars.
Image as high quality producer (German Engineered)
Leader in automotive technology and styling
Acceptable conformance quality

Major markets in EU, US and Japan.

Before 1986 major competitors were Europeans
Daimler-Benz viewed as chief rival.

The Changing Competitive

Landscape

BMW is facing intensifying competition from (high-volume) Japanese

Automobile companies
The US represents neutral ground in the competitive battle.
Japanese are gaining market share!

New Japanese entrants have chosen to compete by:

Rapid introduction of new models
Superior conformance quality and reliability
Prices substantially below those of competitive European models
Performance (on critical dimensions) comparable to European models.

BMW has decided that to maintain its dominant position in the luxury
cars,
must offer customers extensive choice of features,
speed up product development,
and increase conformance quality of newly launched products, while maintaining its
superiority in design and engineering.
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To Improve Launch Quality

The team designing & developing the cockpit of the forthcoming
7-series sedan has proposed that cockpits for the prototype
vehicles, which are normally fabricated and hand assembled by
highly skilled technicians, be made with methods more closely
resembling those in a high volume production environment.
This will facilitate identification and correction of potential
manufacturing problems earlier in the development cycle.
Is this alternative approach to prototyping appropriate for BMW,
given its strategic objectives?
Explore links between development strategy, prototyping, operations and
quality.

Focus: How to Prototype a product

in Development

Why different prototyping approaches may be more or less

appropriate within specific organizational and strategic contexts.
How product development process influences product quality
along such dimensions as conformance, performance and
appearance.

Prototyping issue is a tactical

Question?

Microcosm of broader strategic dilemma facing BMW.

BMW traditionally competed by offering uncompromised design
and performance quality.
This meant relatively long product development lead times, high
costs, and less emphasis on conformance quality issues during
product development.
Attacks from new entrants stressing conformance quality and
lower cost, and who are closing the performance gap by
introducing new and refined models relatively frequently.

BMWs Alternatives
Continue to play off its existing strength in styling and
engineering design, and try to outdistance its competitors.
Try to meet the competition head on: improving conformance
quality, reducing costs, and speeding up product development.
Pursuing this is likely to require changes in the BMWs development process,
including prototyping and its operations strategy!
Discussion of what changes should be done in the prototyping and product
development process can be used to examine strategic issues that are facing
the company in the next decade.

Changing Key Success Factors

Rapid penetration of Japanese entrants in the US suggests that
the key success factors in this market are beginning to change!
Performance Quality was the order winner and conformance
quality, and most distantly cost, were order qualifiers.
The Japanese entrants seem to be using cost and conformance
quality as order winners while using performance quality as
order qualifiers.
Interestingly, prestigious image, long thought to be a critical
entry barrier for the luxury car market, seems to have little effect!
Japanese entrants have done extremely well, while prestigious brands like
Jaguar had suffered.
Japanese entrants can build images as high performance quality producers.

BMW is much smaller than many of the Japanese entrants. High

development and operating costs may compromise its financial
standing.
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Emphasis and Definition of Quality

at BMW

BMW emphasizes various dimensions of performance quality

Superior handling
Safety
Appearance (styling, fit and finish of visible parts)

Strict standards for conformance to specifications;

conformance quality, however, has never been viewed as differentiating
BMW from competition.
Maintained at acceptable levels.

Drivers of performance quality

Heavy R&D investments stay at cutting edge of critical
automotive technologies
Almost 2 years spent on internal and external body styling, much
longer than its rivals.
Engineering level affecting the performance or appearance of the
car are set to extremely precise levels.
Doing whatever it takes to make the design as perfect as
possible. Willingness to make radical changes, if necessary, quite
late in the development cycle.

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Key Drivers of Conformance Quality

Only the major problems are solved during pilot runs in both
engineering center and the plant. Minor production bugs must be
dealt with during the early stages of commercial production.
Heavy use of inspection during ramp-up since production
process is still being debugged. Significant resources assigned
for inspection and rework.
Key role of skilled workers and technicians in identifying and
solving production problems and to adapt to process changes.
Conformance quality is viewed as lying largely outside the
domain of product development, at least until pilot production.
Before pilot production, the entire development process is geared
toward achieving product performance goals.
Manufacturing considerations are secondary at that stage.

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Limits to BMWs Approach

Conformance quality standards have changed.
Increased levels of conformance quality that car buyers expect.
Simply committing more resources to inspection and rework will not cut it!

Current approach to quality is very costly.

Data in the case suggest that it cost BMW at least DM 100 million per launch.
Cannot be sustained with shorter cycles for new models (at least one change
per year).

Current approach is not compatible with the evolving operations

strategy.
If the Regensburg plant is indicative, BMWs operations will increasingly
incorporate flexible automated assembly technology and JIT.
High conformance quality is prerequisite for both.
Also automated production processes are less resilient.

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Prototyping: Current vs. Proposed

Approach
Dim. of Man. Strat.

Current

Proposed

Capacity

Prototype shop maintains excess

capacity

Use of specialized tooling would increase

fixed costs per cycle. Pressure to decrease
the number of cycles and increase number
of prototypes made per cycle

Facilities

Activities largely located in

prototype shop located in Design &
Eng. Center

Spread over several organizations. Late

prototyping would be more decentralized.
Outside suppliers plus Engineering Center.

Technology

Employs general purpose tooling &

equipment. Fab and assembly is
largely manual.

Greater use of specialized soft-tooling.

Vertical Integration

Most parts are made in-house. Some

parts are supplied by specialized
prototype part vendors

Far greater involvement of outside suppliers

in both design & prototyping

Work force

Highly skilled technicians &

craftsmen

Fab and assembly tasks will use less skilled

workers than those in the prototype shop.

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Prototyping: Current vs. Proposed

Approach (2)
Dim. of Man. Strat.

Current

Proposed

Production
Planning

Parts and vehicles are made on a

small batch and make-to-order.

With many more organizations involved,

production planning will become more
complex.
Prototype parts will be made of fixed batch
sizes, instead of lots of one. Parts availability
becomes critical for final prototyping

Quality

How well prototype reflects the

intentions of the designer.
Conformance to dimensional
specs.

Will defined in terms how well the prototype

represents the vehicle will look like when
produced under production conditions.

Organization

Proto. & pilot group under Forster Requires more coordination and
reports to Director of R&D.
communications between a variety of groups
including product designer, tool designers, tool
makers, part suppliers, materials suppliers,
procurement, pilot assembly, production
engineering and manufacturing.

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Current vs. Proposed Approach for

Prototyping

The biggest advantage of the proposed approach is that it

provides far richer information about the production process
earlier in the development cycle that what is currently possible.
Positive impact on conformance quality during launch.
BMW spends at least DM 100 million per launch on conformance quality
problems.

BMW will give up a significant amount of flexibility during the

development process under the new approach.
Far more difficult, time consuming, and expensive to change designs of parts
which require specialized tooling.
Last minute changes would be either very costly or impossible to
accommodate

Trade-off between the two prototyping approaches seems to be

between flexibility in the design process versus conformance
quality at launch.

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What is the value of Flexibility in the

Design Process at BMW?

Value of flexibility is related to the amount of uncertainty

surrounding either inputs of outputs of the process.
Higher uncertainty enhances the value of flexibility.

Designing a new product is production process where the output

is the design as expressed in drawings, CAD data, and physical
models (including prototypes).
To evaluate the value of flexibility in BMWs design process we
must examine the circumstances leading to relatively late design
changes and whether these circumstances are controllable.
Must make some late design changes due to process related problems
discovered during pilot production and ramp-up
BMW also make changes to enhance product characteristics such as
appearance, performance, handling and safety.

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Circumstances leading to late

design changes

Late breakthroughs in Technology.

Difficult to predict when a particular technical breakthrough will be made in

time to incorporate.
Such flexibility is particularly valuable if the company strategy is to be the
leader in automotive technical innovation.
Notice that some of this technical uncertainty could be alleviated through
better communications between groups doing advanced technical
development work, and those involved in product development.
Also technical breakthroughs, while not perfectly predictable, are not equally
likely for all parts or subsystems of a model in development. Flexibility is
important for modules where breakthroughs are more likely.
Complete flexibility to change anything at anytime does not seem to be
necessary.
Also as shorter interval between new product launches, there will be less
need to pack as much new developments as possible.

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Circumstances leading to late

design changes (2)

Late decisions about critical design specification

Can avoid late changing by locking in certain specifications at predetermined

project milestones.

Design Rework
Complex products cannot be designed in one pass!
Seems to be an inherent part of the product development process.
On the other hand, some of late changes are result of rework not
improvement. Change designs later as a result of failing to identify and solve
problems earlier.
Example: page 7, 20 months prior to production a decision was made to
widen the entire car by 40 millimeters because it appeared too cramped.
Redesign of about one-third of the car! Surprising that a problem of such
magnitude was not identified and solve earlier in time! This raises questions
about the quality of the design process. Not enough controls to ensure
problems are identified and rectified as early as possible.

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Strategic Implications
It seems that not all the flexibility in BMWs design process is
being consumed in pursuit of product performance excellence.
Some is being wasted on late stage design problems which might
have been corrected earlier.
Flexibility should be reserved for those occasions and for those
parts of the cars where it is necessary to achieve the utmost in
performance excellence
Flexibility to deal with problems which should have been corrected earlier
adds no value.

BMW should adopt a hybrid approach characterized by elements

of both flexibility and inflexibility. Combine both old and
proposed approach.
If pushing the styling and technical limits of the cockpit requires
experimentation with various designs in different prototyping cycles, it might
be a good idea to use a prototyping process that accommodates design
changes relatively easily.

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