Research Report On BMW Group, Its Organizational Structure, Performance, And Strategies

The BMW Group is a global industrial sensation. The Group’s logistics encompasses many procedural details where only through thorough research and in-depth analysis was I able to understand, evaluate and suggest ways that creates a flexible organization. The following report contains a literature review which focuses on key points such as the Group’s organizational structure, performance, strategies and comparisons with its mains competitors. Having assessed the Group’s policies and vision regarding its supply chain, it can be adduced that the Group’ substantial attention is geared towards the creation of premium products on demand in a timely manner. The geography of the Group’s supply chain is widespread globally, allowing the Group to tap into regional and international cultures which heavily influences how businesses goals, vision, mission and objectives. This set up aids in understanding both internal and external factors affecting the Group and also acts as a guide for assessment of those factors. This report further highlights Competitive Analysis and Pestle Analysis.

The contents of this report has been validated by primary and secondary sources. Substantial information was gathered from the Group’s Annual Reports and Sustainability Value Reports. Articles were also incorporated into this report as well as extracts from journals and textbooks, giving an in-depth understanding of the BMW Group Company. Through critical research and analysis, issues were identified and innovative solutions were suggested to aid in mitigating challenges in various areas of the Supply Chain Management.

BMW Group Organizational Structure

The BMW Group has representations in approximately 77% of the world consisting of over 150 countries. To understand its operation on such a huge global platform, the Group is divided and subdivided into various categories (See diagram for illustration). The general purpose of the Group is the development, production and sale of engines, engine-equipped vehicles, related accessories and products of the machinery and metalworking industry as well as the rendering of services related to the aforementioned items. (BMW Group Annual Report 2018, p. 26)

Assessment of BMW Group’s Business Performance

BMW-USA reported that the Group is progressing on the right path as Harald Krüger, Chairman of the Board of Management of BMW AG stated inter alia “The Group's new first-quarter sales record proves that we are putting the right products on the roads, thereby attracting new customers, as well as inspiring existing clients. In operational terms, BMW remain firmly on course and expect business to benefit from tailwinds, especially in the second half of the year, as numerous new models become available. At the same time, they are experiencing the impact of high levels of expenditure in numerous areas affecting the entire automotive sector. In addition, it has also been necessary to recognise a provision relating to ongoing proceedings of the EU Commission. ”

It should be noted that in an effort to secure “mobility of the future”, there has been substantial increase in the Group’s expenditure in early 2019, exceeding that of the previous year. For example, “First-quarter research and development expenses totalled € 1,396 million, 8. 4% up on the previous year. Investments in property, plant and equipment climbed by more than one third to € 999 million (2018: € 734 million; +36. 1%). ” (Article by M. M. Borgman, 2019). See attached BMW Group in Figures at Appendix 2.

Mr Borgman cited key reasons for the increase being mainly the implementation of modern concepts and increased flexibility of plant structures and higher manufacturing costs due to the rise in the number of hybrid vehicles. Additionally, factors such as unfortunate exchange rates and price inflation of raw materials affected the January to March 2019 earnings.

Due to the BMW Brilliance Alliance joint venture in China provisional influence, the Group set a record for the opening quarter of the year 2019 by successfully delivering 605, 333 vehicles to customers, surpassing 2018 by +0. 1%. There was also an increase in gross profit whilst the Group revenues for both years showed similar results.

BMW Main Competitors

With such a successful track record, there is no doubt that the BMW Group is the global leading luxury car manufacturer and as such has been significantly marked by its competitors. Two luxury brands Mercedes-Benz and Audi also based in Germany share similarities to the Group. Like the BMW Group, both brands receive the majority of their revenue from worldwide exports.

In an effort to understand the Group’s position with its competition, a comparative analysis using the SWOT method is outlined below.

The three vehicles cited are:

2019 BMW 540i X Drive;

Audi A7 and

Mercedes E-Class

Specifications

BMW 540i X Drive

Audi 7

Mercedes E-Class

Horsepower 335

335 429

Engine 3. 0-liter 6-cylinder

3. 0-liter 6-cylinder 3. 0-liter 6-cylinder

Miles per gallon 20 City/29 Highway

22 City/29 Highway 21 City/28 Highway

Strengths

• Effective fuel efficiency
• Smooth transmission and proper handling
• Progressive brand identification
• Sporty & Vibrant appearance
• Safety features of world class rating
• Will be available multiples variants allowing for customers to have options
• World class status in premium quality vehicle segment
• Excellent advertising and strong brand quality
• Availability of special purpose vehicles (ex. ambulance/ police)

Weaknesses

• Premium vehicles demand high maintenance cost.
• Competition reduces market share
• Not fully established globally
• Competition reduces brand market share.
• Luxury brand at a very high price point
• Expensive to maintain

Opportunities

• Avenue to leverage brand identity.
• Increasing production capacity and manufacturing plants
• Expansion of distribution and service networks
• Expansion of market.
• Focus on affluent customers to purchase international brand
• Enhancing various conditions in the distribution and service network
• Rapid growth of premium automobile market.
• Increasing purchasing power parity

Threats

• Fuel price inflation
• Close competition with competitors
• Fuel price inflation
• Close competition with competitors
• Competitive products at low cost
• Increased competition
• Government policies and increasing fuel prices

From the analysis, it can be adduced that BMW lacks horsepower in comparison to its competitors. Noting such results, the Group must maintain a strategy to realize this issue in order to have future competitor advantage.

BMW Strategic Approach

To maintain its title of one of the world’s leading company in luxury vehicle manufacturing, the Group has to activate a progressive strategic approach. This is no simple task as focus needs to be channelled towards construction, manufacture and campaign advertising.

Noting that presentation of a vehicle is the first thing that catches the eye of the customer, the Group strives to achieve high quality appearance and consumer wishes. As part of its strategy, the Group necessitated proper branding and so created a Brand Academy which ensures uninterrupted evolution and development. Another important strategic weapon of the Group is its ability to be accommodating to the customer’s requirements. Notably, the customizations does not the date of delivery of the vehicle.

The Group also has a direct link to the customers through which allows for business models that are digital in nature. This strategy expeditiously advertises new services and products. Noting that the Group’s goal is to lead the industry’s transformation, profitability is the main pillar of its strategic approach. As such the Group continues to evaluate its efficiency and cost methods.

BMW Group’s Current Challenges

There are three major challenges faced by the Group, namely globalization, scarcity of resources and climate change. Each challenge will be analysed in turn.

In recent times global economic activity has been influenced by political circumstances. This results in the Group having to adapt to such changes on a worldwide scale and embrace a flexible approach. Liason Press Release 2017 highlighted the need for the Group to have “partners with vehicle construction knowledge in order for them to be more efficient and improve the quality. Furthermore, they have to extend or maintain fast delivery lead times to customers who want to receive their products on schedule despite the increased complexity in the manufacturer’s supply chains. Finally, they also have to maintain real-time visibility into their production cycle — from raw materials to finished goods — to ensure the efficiency of their manufacturing processes. ”

Alarmingly, one of the major difficulties hindering the process is keeping track of climate change.

Major challenges in society result as the effect of climate change:

• Escalation in consumption on worldwide scale
• Reduction/Scarcity of resources

In order to mitigate such challenges, the Group makes it a priority to revise and upgrade resource and energy productivity and reduce pollutants such as CO2 in its industrial processes. Such measures results in reduction in cost of production. It was reported that “in 2007, BMW defined a goal for 2006–2012 of reducing the consumption of resources and emissions per vehicle by an average of 30 percent. This was over-achieved with a reduction of 35. 7 percent using the parameters of energy, water, process wastewater, waste for disposal, and solvent emissions. The new target for 2020 set by BMW is the reduced consumption per vehicle by 45 percent compared to 2006. ”(BMW Sustainability Value Report, 2018).

Climate change is a global challenge. As stated in the aforementioned paragraph the Group is conscious of CO2 emissions and is consistently researching and developing strategies to reduce same to improve air quality and meet legal requirements.

The Sustainability Report further highlights that the Group had innovative ways to mitigate its contribution to climate change as “its Incentives for sustainable mobility also play an important role in the purchase decision of customers. Besides buyer’s premiums and reduced taxes, examples of these include exceptions to potential traffic restrictions as well as preferential treatment in lane usage and concessions in parking policies for electrified vehicles. We respond to the growing environmental awareness of many customers by expanding our portfolio of low-emission, efficient vehicles. ”

BMW Value Chain Analysis

The value chain concept developed by Michael E Porter, helps a company to determine which activities create value and which do not. When the value chain is capable of creating additional value at no additional cost, a competitive advantage is realized.

Firm Infrastructure:

• Centralized Structure
• Top-down management style
• Management information systems

Human Resource Management:

• Unionized workforce
• Vocational training
• Employees views as key success to BMW future
• New apprentices concept

Technology Development:

• Interchangeable parts with different cars
• High selection criteria ( suppliers, dealers)
• Development of environmental friendly products and parts
• Research and Development partnerships

Procurement of Resources:

• Strategic alliances for long term relations with suppliers for high quality inputs.
• Good management of partner networks for timeless of resources.
• Innovation networks

Inbound Logistics

• Germany holds 47% of components parts, hence BMW saves shipping fees to get small parts.
• Few suppliers, BMW gain market control.
• Owns entire control system. Operations
• JIT production low inventory on hand.
• More than 300

Flexible schedule.

• Systematic linking of suppliers into vehicle development process. Outbound Logistics
• 10 days order delivery system
• Set up business manufacturing units in developed countries like USA, Australia where demand is high, locate near customers Service
• Motor workshops for customers.
• Well-trained sales and customer service staff.
• Long term packages for vehicle maintenance (after-sales) Marketing
• High brand awareness.
• Clean, lavish dealer showrooms.
• Ability to customize automobile to customer’s demand.
• Strong brand loyalty and customer base

BMW views their employees as important valuable asset in order to be a thriving enterprise, where various employees’ upgrades are employed with the right skills and positive attitudes to become future mangers and leaders in order to manage changes towards a sustainable automotive industry. By hiring new talents to the company, this will help transfer understanding and learning about new ways to develop high quality products and new technologies.

BMW’s partnership with Sprint Corporation help connectivity and manage all operation units efficiently and rapidly. This helps to reduce operation cost and provides BMW the flexibility to move production more precisely.

BMW procurement are able to help manage its plans for innovative products and design. BMW created a partnership network which allows focused on innovation. By forming this alliance with successful companies such as Apple and Sirius, it made them the differentiating aspect to the rest of the automobile industry. This let BMW to offer full customization for customers, which fit its niche market goal

BMW cost drivers help to stay within profit while serving the niche target market. Since BMW is able to produce multiple vehicles in one facility, shares asset reduces cost of production due to geographical locations. Research and development as well as production improvements are executed across region to cover the cost of these investment gradually.

This shows BMW’s competence to stay ahead of the competition in terms of strategic planning and superior technological edge.

Finding solutions to Globalization using PESTLE Analysis

PESTLE analysis is a method adapted to filter macro-environmental factors that impact businesses.

PESTLE:

P – Political

E – Economic

S – Social

T – Technological

L – Legal

E – Environmental

To assess the challenges of and solutions to globalization, the social, technological and environmental arms of the PESTLE method was utilized:

Social environment

David Cambell et al, 1999 cites that cultures of countries can affect the social and cultural future of the organization or business. The impact of culture affects the consumer’s behaviour, influencing their personality, preferences, attitudes, desires etc. As the Group has tapped into markets globally, it allows itself to be exposed to varying cultures, values, desires, expectations and income. Therefore has to be cognisant of the fact that production in certain areas has to be culture specific for progression of that market.

Technological environment

Reflected by the many awards for engineering, BMW focuses on technology engine production. With a global renewed focus on “going green”, the Group now has the opportunity to exploit production in a different direction, that is, an environmentally friendly one. Through innovative research, the Group is able to produce products such as hydrogen vehicles and electrified vehicles.

Environmental

Eco-friendly motor vehicles have become a global phenomenon. There exists great demand for hybrid as well as fuel cell vehicles. This new demand allows BWM to shift its focus to deliver such products. In so doing, environmental awareness is integrated into the Group’s current market evidenced by increased production of fuel efficient vehicles. An example of this is the Group having been successful on the Dow Jones sustainability index (Walsh, 2012).

BMW Group’s plan to mitigate climate change through CO2 reduction. In order to be a part of the competition in the business environment, automotive companies need to be sensitive to the actual environment and through their productions, aid in reducing CO2 emissions. The Group can boast as being one of the automotive companies that has revamped its manufacturing procedure to facilitate its environmentally conscious supply chain. Having been given the title of the World’s most sustainable automotive business in 2016, the Group continues to enhance its practices and aims to reduce a minimum of 50% of its carbon dioxide emissions by the year 2020. In order for this to become a reality, there need to be emphasis on 4 key areas of the Group’s supply chain:

1. Creation of a viable organization and strategy- The Group has created the Sustainability Board to oversee the proper execution of the strategy in the organization. To realize its goal for 2020, the Group has created a decentralized sustainability team which is responsible for realizing short-term and medium term goals.
2. Greater transparency in Supply Chain: The Supplier Sustainability Standards is what the Group will be implementing which is the initial phase in achieving a truly transparent Supply Chain system. This is aided by the Group’s issuance of a sustainability questionnaire. Additionally the Group mandates its suppliers to report CO2 emissions which the Group uses to create a competition which urges the suppliers to strive for sustainability.
3. Suppliers to be trained- High sustainability standards can only be achived through proper training. The Group has initiated programs which bring greater sustainability awareness amongst suppliers.
4. Reduce consumption of supply chain resources- The Group aims to reduce the consumption of its resources per vehicle by 45% by the year 2020 (BMW Group Annual Report, 2016)

Analysis of Resources Consumption

Conservation of resources through revised processes and advanced technology The Group’s Sustainable Value Report of 2018 outlines inter alia that revised processes and new technology can pave the way to reducing CO2 emissions. The report further states that “by finalising the switch to LED lighting in the reporting year in our production plants, we are able to achieve significant energy and cost reductions. In addition, we have introduced new painting technologies at our plants in Munich / DE and Oxford / UK, reducing VOC (volatile organic compounds) emissions, which occur in particular during the painting process. ” (p. 58) The Group is also sensitive to reduction in wasted water and water consumption. To achieve this would be to introduce waterless type processes in its foundries. Additionally the Group targets waste reduction by implementation of re-using and recycling concepts specific to waste streams.

The Report further submits that at the commencement of the “product development phase, we make economical use of resources and design products with the aim of ensuring that as many material cycles as possible can be closed. ” (p. 58) Utilizing Environmental Management to control resource consumption The Group has 5 competent environmental centres namely water, waste, training, emissions and management system staffed by professionals whose work all focus on energy efficiency. These centres develop the most feasible solutions to aid in controlling consumption. Once successful, information is then disseminated to suppliers to adopt sustainability in the Group’s Supply Chain.

Conclusion:

The BMW Group utilizes lean characteristics in its supply chain. The Group utilizes advanced software programs such as Mysap, Just-in-time and Build-to-order rather mass produce.

Through an in-depth analysis the Group shows that with implementation of critical thinking strategy towards sustainability and company management would contribute to a positive brand, both widespread and enterprise oriented. If changes to external environment are to be anticipated then execution of sustainable strategies would lead significant advantages for growth and business gains.

It is evidenced that global competitiveness in today’s business environment produces challenges in areas such as the Group’s international operations, market expansion plants and poor quality of regulatory standards from its various sectoral markets. Challenges also arise when there is information overload with specific references to data gathered from respected suppliers, sales and repair outlets and customers located in geographically diverse areas. Proper data management techniques must be well integrated so as to supply appropriate solutions to any challenges that may arise in the Group’s supply chain management system and its relationships to its suppliers and corporate partners. As a successful manufacturer, BMW Group’s continued profitability must be tied into a very efficient data management system that gives the company much needed transparency and control over all of its supply chain processes such as procurement, manufacturing, storage and logistics.

Lastly, it should be noted that the BMW Group should endeavour to develop concepts for sourcing non conversional materials for car manufacturing e. g. development of prototypes to replace those that contribute to high carbon emission in its manufacturing process and by the employment of green products e. g. recycled carbon fibre plastics products. Additionally, BMW should implement a strict approach with its suppliers to minimize loss of time and quality of supply. The Group should cease sourcing from unreliable suppliers or alternatively put in place a penalty clause in long term contracts should the sustainability goals of the Group not be forthcoming.