Bmw Case:

BMW CASE:

Globalizing Manufacturing Operations

INTRODUCTION

This case focus on the dilemma that the president of BMW Manufacturing Corp., Al Kinzer, faced in 1995 in relation to BMW's new plant at Spartanburg, South Carolina and a dramatically increased demand in the U.S. market for the Z3 model.

To study the BMW case, the background information and role of new plant at Spartanburg will be described at the beginning. Secondly, the 3 alternatives options will be analyzed and compared accordingly to determine a proper conclusion. Finally, the recommendation will be presented with various considerations.

BMW BACKGROUND

BMW was found in 1913 by Karl Rapp as an aircraft engine design shop. After WWI, it started building motorcycles and then expanded into motor vehicles industry during the 1930's. After WWII, the company suffered again but survived later when Herbert Quandt took over the control in 1959. The company rapidly grew considerably and reached a market value of nine billion U.S. dollars in 1979; however, it was still small compared to the big U.S. auto manufacturer. Profits continued to grow up quickly. By 1995, BMW had thirty-four wholly owned subsidiaries, fourteen in Germany and twenty around the world. They also discovered that U.S. market would be the largest and fastest growing market for BMW.

BMW soon realized that many threats impacted its market share in U.S. The Japanese auto manufacturers started building plants in the U.S. to deal with the increased U.S. demand at a lower cost than importing their cars. BMW's U.S. export situation was made even worse by the appreciation of German mark and additionally the higher German labor costs. As a result, the decision was made in 1991 to build a U.S. manufacturing plant to stay competitive.

ROLE OF SPARTANBURG PLANT

With the new plant in the US, BMW realized that it had to configure its global supplier network in order to take advantage of NAFTA's tariff exemption and lower down the costs. Moreover, instead of importing cars from Germany, local production could hedge the exchange rate fluctuation. Thus, Spartanburg would be BMW global supply chain manufacturing base. It should be agile in local supply chain management to enhance local and cost effective souring to keep a competitive price. It also should be adaptable for US market expanding and still aligns with the BMW's quality commitment. Additionally, it was responsible for initiating the BMW's production innovation such as designing new model for U.S. market and creating new culture in BMW organization.

ALTERNATIVES

The 3 options for BMW to choose from were expansion, focus, and stay. First, expansion is to gear up for higher production of Z3 and 3 series by expanding the plant's capacity requiring additional investment of $200 million. Secondly, focus is to send the 318 back to Germany's plant that had excess capacity for production at higher costs to allow Spartanburg to focus on Z3 production. Third, stay is to resist pressure of market and continue to produce with the current plan.

These 3 options would be analyzed into three categories, which are internal, external and supply chain management.

Analysis of Internal

Expansion Focus Stay

Cost effective ✫✫✫ ✫✫ ✫

Logistics ✫✫✫ ✫✫ ✫

Quality ✫✫ ✫✫✫ ✫

Choosing expanding the facility in local area would lead a significant cost downward on car price. Only engines and transmission were imported from Germany; on the other hand, rest of materials, parts were sourced from the suppliers in the U.S. Producing car in the U.S. would not only decrease the parts, materials, and labor costs, but also have a reduction on import tariff, delivery costs and lead-time. Regarding the possible quality issue that Kinzer concerned, we believe that it is not a great issue because of the very flat organizational structure the plant has and the effective teams along the line are checking and rechecking each other. Additionally, most of engineering teams include German engineers to provide significant technical supports and development to keep the quality assurance. Although focusing on Z3's existing production is the safest way to maintain the quality, we do not believe that the risk is serious enough to severely injure BMW by a rapid expansion.

Analysis of External

Expansion Focus Stay

Competition ✫✫✫ ✫✫ ✫

Customers ✫✫✫ ✫✫ ✫

Suppliers ✫✫✫ ✫✫ ✫

Market competition, and reaction from both customer and supplier side would be the major factors for external analysis. With a larger facility expansion in Spartanburg, BMW would be able to increase their production to meet the great market demand. The price would be also much more competitive since the cost decrease a lot due to the local sourcing and producing. Competitive price would let customers spend less; and sufficient cars would let customers to have more options to choose from. Suppliers would have opportunity to supply more, thus to increase the revenue. It would be also a plus for suppliers to work closely with BMW technical team and share experience to each other.

Analysis of Supply Chain Management

Expansion Focus Stay

AAA ✫✫✫ ✫✫ ✫

Risk Pooling ✫✫ ✫ ✫✫✫

Global Finance ✫✫✫ ✫✫ ✫

Expansion