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Project Report ‘MASS CUSTOMIZATION OF BMW’ Course Facilitator: Prof. Amol Roy
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SUBMITTED BY: ………………………….. - (PM 1001) ………………………….. - (PM 1002) ………………………….. - (PM 1003) ………………………….. - (PM 1004) ………………………….. - (PM 1005) ………………………….. - (PM 1006) RAMESH S. PANDEY - (PM 1007) ………………………….. - (PM 1008) ………………………….. - (PM 1009) ………………………….. - (PM 1010)
We would like to express deep regards to our honorable Director Dr. M. A. Khan for his continues encouragement and support. We here after express our profound gratitude to the management of SIMSREE for giving this opportunity for amalgamating our theoretical knowledge with the practical experience. I am deeply grateful to Prof. Amol Roy for his help, valuable guidance, and co-operation which they provided us to complete our project.
- SIMSREE MMM (2010 – 2013)
For years BMW had a reputation for cars that combined great styling with exceptional performance. However, since the 1990s, the company has also gained recognition for its customization program, which allowed buyers to design their own cars from a set of available options. The cars were then delivered within 12 days of the order being placed. Industry analysts have termed this process 'mass customization', implying that it combined the features and advantages of both mass production and customization. This case discusses the process and elements of mass customization at BMW. It traces the process from the time an order is placed till the final delivery of the cars. It talks about the supply chain and logistics practices that BMW followed. It also discusses the benefits of mass customization to the company and customers, and the challenges in the implementing the process. The case concludes with a note on the future of mass customization
• BMW's history can be traced back to 1913, when Karl Friedrich Rapp (Rapp) established the Rapp-Motorenwerke to manufacture aircraft engines in the Munich district of Germany. In 1916, while the First World War was on, the company secured a contract to manufacture aircraft engines for the Austria-Hungarian army. Rapp needed additional financing to honor this contract. To meet this need, he entered into a partnership with Camillo Castiglioni and Max Friz in 1917. The new partnership company was named Bayerische Motoren Werke GmbH. However, the company soon ran into difficulties because of over-expansion and the partners had it to sell to Austrian industrialist, Franz Josef Popp, in 1917. In 1918, Bayerische Motoren Werke manufactured its first aircraft engine, the Type IIIa, which powered a biplane to reach an altitude of 5000 meters in 29 minutes, creating a world record. After the First World War, the Treaty of Versailles (1919) banned Germany from producing aircraft. Therefore, the company had to shift to manufacturing railway brakes. In 1922, Bayerische Flugzeugwerke AG, another company from the Munich region that manufactured small aircraft, was merged with the Bayerische Motoren Werke to form BMW AG. • BMW started manufacturing motorcycles in 1923 and the company's first model the R32 was launched in the same year. It was a 500cc shaft-driven cycle designed by Max Friz. BMW continued manufacturing motorcycle models until the company's foray into car manufacture in the late 1920s. • In 1928, BMW bought a car manufacturing unit in the Eisenach region of Germany. Along with the unit, the company acquired the rights to manufacture a small car called 'Dixi' which was based on the Austin Seven car4. This was BMW's first car and was marketed under the name BMW 3/15. By the early 1930s, BMW had begun designing and manufacturing its own cars, and by the late 1930s, had introduced several successful models. The company's 327 saloon and 328 roadster were considered very advanced at that time (the roadster especially was the most successful sports car of its time and was even nominated as the Car of the Century in 1999 by a panel of auto experts)...
BMW Group, Karl Friedrich Rapp, Mercedes-Benz, MG Rover, Land Rover, Range Rover, Ford Motor Company, Rolls Royce, Mass Customization, General Motors Corporation, Enterprise Resource Planning, Toyota Motor Corp., Volkswagen AG, DaimlerChrysler AG, Mass production • For us, the experience of driving a BMW has to be aspirational, special. The R&D is designed to take that ultimate driving experience one step further. There will never be a boring BMW." - Helmut Panke, Chairman of BMW, in 2002. • "BMW is setting an industrial benchmark. Our focus is to follow the market demand. It is a challenge to our supply chain, but gives us a competitive advantage." - Manfred Stoeger, vice president of logistics and information technology, in 2004.
BMW'S NEW PLANT
In May 2005, the BMW Group (BMW) inaugurated its new plant in the Leipzig area of Germany. Gerhard Schröder, Germany's Chancellor opened the plant along with Helmut Panke (Panke), the Chairman of BMW. The opening was also attended by several other political dignitaries from Germany. The foundations of the Leipzig plant were laid in 2001. Panke said that availability of highly qualified staff, high standards of supplier quality, legal security and excellent infrastructure were the main reasons for choosing Leipzig over hundreds of other German and foreign locations that had bid for the plant.BMW had invested more than €1.3 billion in building the Leipzig plant, which was to manufacture the BMW 3-series3 cars. The plant had a maximum annual production capacity of 650 cars per day and was expected to create 5500 jobs in the area when operated at full capacity.
As with all other BMW plants, the Leipzig plant was designed to allow maximum flexibility and effective communications - two factors that BMW emphasized for customization of its cars. BMW was reputed for its customization program, which allowed buyers to design their own cars from a set of available options. These orders were then conveyed to the factory which manufactured them according to the specifications, and delivered them to the buyers in the shortest possible time. In manufacturing circles, this system is called 'mass customization', as it combines the advantages of mass production with those of customization. Most analysts agree that BMW was one of the prominent implementers of mass customization in the auto industry.
Understand the concept of mass customization and how it differs from mass production and customization. Competitive advantages accruing to a major car maker employing mass customization. The role of suppliers in implementing manufacturing changes and lowering inventory.
Mass Customization at BMW: BMW's reputation was built on cars that combined great styling with exceptional performance. However, one of the main criticisms levied against the company in the 1990s was that all BMW cars looked alike 'like sausages cut to different lengths." This was one of the drivers of the customization program that BMW introduced in the 1990s. In addition to this, BMW understood that, as a maker of luxury cars, it had to offer extra value to customers to be able to make an impact on the market. "The average price of a BMW is close to $40,000. For that, we'd like to make sure that customers can receive exactly the car they want," said Vic Doolan (Doolan), president of BMW of North America (BMWNA)...
Analysts said that the main reason for BMW's global success, despite being much smaller than auto giants like GM, Toyota Motor Corp (Toyota), Ford, Volkswagen AG and DaimlerChrysler AG in terms of annual sales volume was that the company offered personalized cars. BMW offered customers a wide variety of options while allowing them to get their car manufactured exactly the way they wanted it. Because of this, customer satisfaction with a BMW purchase was higher than what they obtained by buying a mass produced car. This enhanced the company's image in the auto industry...
Benefits and Challenges
The Future of Mass Customization
Analysts said the driver of mass customization was the gap between what the customer wanted and what a company could supply. Mass customization was used with great efficacy by Dell Inc in manufacturing computers. While it was simpler to mass customize computers than cars analysts were of the opinion that the auto industry could benefit from building products to order.
• It was said that more than 50 percent of the cars built did not have a potential consumer when they rolled off the final assembly line... What is Mass Customization? • Mass Producing vehicles with highly customized parts.
• • •
At BMW it combines economic advantage of mass production with the differentiation and exclusivity of customization. Mass producing body shell and other individual parts. Customizing interiors finishing. ADVANTAGE
Advantage to company:
Fewer Inventories parked with dealer. Customer satisfaction. Huge sales.
Advantage to customers: Cars as per their requirement. Satisfying their Ego. CHALLENGES Time taken for an order to process. US consumer Protection law. Integrated Customer Preference. Intensive focus on Supply Chain Management. Changing Customer needs. Depend on the Suppliers. Different Scheduling Programs. Having a Proper Assembly Line.
“Investors” rather than “Customers”
Differentiation was an essential attribute for a luxury car. Customer bought from the lot and Investors where choosy what they bought laid down the specification and ready to wait for a long period of time. • BMW promoted differentiations by proving 1000 bumper variation, 4000 instrument panel choices and 488 different door panels. • With the help of Dealers too. ROLE OF SUPPLIERS AND IT Everything was planned. Many suppliers were located near the factory. ERP System. The suppliers interacted with company in real time. BMW kept the suppliers constantly in the Information loop. Information Systems for assembling Mass Customization
The false promise of mass customization
Mass Customization is more complex and difficult than building computers. Still, auto companies such as BMW have high hopes for the build-to-order (BTO) approach, a variant of mass customization. BMW are convinced that the costs they can wring from their business systems by switching to BTO are enormous, that the benefits to customers are numerous, and that the difficult challenges they face in implementing BTO can be overcome. The challenges of implementing it in the auto industry are daunting, clear that the economics will work. Moving from a mass-manufacturing (or "push") system of production, which BMW have continually refined over the years, to a BTO (or "pull") system and they have done numerous operational and organizational changes throughout the company. The BMW understands customization and brand identity is carefully balanced. Auto customization consists of a series of options based on a standard, stripped-down version of the car. Customizing a BMW 7 Series involved hundreds of options for the car. At the end of the day, it's still a 7 Series. A huge point for one simple reason: People driving by don't know what all your customized options are (unless they're on the outside). What they know is you're driving a 7 Series. Mass customization of products will revolutionize the way cars will be bought and sold. BMW a Big brand has jump on the bandwagon once they realize personalized products form an even closer bond between the consumer, the product, the brand, and the company. BMW a brand mass customizes has their biggest revenues will come from bigger brand names. The BMW understands customization and brand identity is carefully balanced. Auto customization consists of a series of options based on a standard, stripped-down version of the car.
Customizing a BMW 7 Series involved hundreds of options for the car. At the end of the day, it's still a 7 Series. A huge point for one simple reason: People driving by don't know what all your customized options are (unless they're on the outside). What they know is you're driving a 7 Series. Mass customization of products will revolutionize the way cars will be bought and sold. BMW a Big brand has jump on the bandwagon once they realize personalized products form an even closer bond between the consumer, the product, the brand, and the company. BMW a brand mass customizes has their biggest revenues will come from bigger brand names. BMW has fulfillment houses, not front-end retailers. Consumers will benefit personalized comfort. by combining name-brand cachet with
Mass production has been used since the industrial revolution as a means of creating large quantities of standardized products. It has many advantages over one-at-a-time production. It reduces cost and provides interchangeable parts. Its disadvantages are that it can over produce and it dehumanizes labor. Mass production will often continue to build inventory in spite of an economic slump. Large inventories can lead to massive layoffs. Unemployment reduces consumption and a viscous circle ensues. The worst feature of mass production is its resistance to innovation. Large capitalization in tooling and training make any changes prohibitively expensive. The assembly line must be shut down. The large inventories of parts from suppliers become waste and these suppliers must also shut down, retool and retrain.
Mass Customization is a new manufacturing model that has the advantages of large production and cost reduction, but is flexible, limits inventories and challenges worker innovation. It is a direct result of IT (information technology) and robotics. Mass customization is the production of goods to individual demands with mass production efficiency. A primary goal of mass customization is to eliminate waste by inventory control techniques such as, JIT (just-in-time) production.
THE CHALLENGE OF CUSTOMIZATION: BRINGING OPERATIONS AND MARKETING TOGETHER
Customers want more customized, personalized products and services, But companies struggle to cost-effectively deliver them. Improving communication and coordination between operations and sales and marketing is one critical path to profitable customization. Mass customization” will shape the future of what — and how — consumers buy. Mass customization means — define as the “production of personalized or custom tailored goods or services to meet consumers’ diverse and changing needs at near mass production prices.” Enabled by technologies and lean production, mass customization promises the ultimate stage in market segmentation, where every customer can have exactly what he or she wants. The mass production of individually customized goods and services. At its best, it provides strategic advantage and economic value Mass customization offers irresistible opportunities to re-think brand identity brand loyalty. Everyone may want the “same thing”but especially in an austerity economy — the desire to individualize is greater than ever before. We talk so much today about giving consumers control and listening to consumers through social networks. Mass customization takes these conversations to entirely new levels by inviting greater consumer involvement at the richest point ofengagement. Marketing and selling is to create loyal users, this refocus of mass customization gives brands the greatest array of options at the best possible price. Innovators BMW have already made mass customization techniques a successful part of their moments-of-truth experiences. A moment-of-truth experience is what building brand and building loyalty is all about. The process of mass customization may be more important than the actual product itself.
For both producers and consumers, mass customization may be less valuable as an innovative medium for producing “better” products or services than as a platform for personalizing and individualizing self expression. Creating new chances for consumers personalize and individualize brands creates to deepen their relationship and The ability to personalize, differentiate, and creatively express one’s self is the real core of customization. Features, functionality and price are important, but more consumers want more ways to put themselves into their chosen brands. Consumers are all gravitating to the same mass products — from automobiles, sneakers, handbags, mobile devices, healthy foods, and beverages— while benefiting from the ability to express individual style. The process of mass customization may be more important than the actual product itself. For both producers and consumers, mass customization may be less valuable as an innovative medium for producing “better” products or services than as a platform for personalizing and individualizing self expression. Creating new chances for consumers personalize and individualize brands creates to deepen their relationship and Consumers want much of what everyone else does; that has not changed. Mass products and services have not lessened in the marketplace, but the ability to personalize and customize enhances value exponentially. BMW Virtually can be put through this filter to inspire innovation; this is innovation that is created and co-created by consumers themselves — or the salesperson. The beauty of this is across age groups, demographics, psychographics and cultures. It also serves R&D, manufacturing, retail/sales, and marketing.
BMW discovered the power of making consumers an innovation partner and platform for their brands. By doing this, they create a deeper connection to establish loyalty and brand preference. BMW has the ability to make ubiquitous products individualized and personalized will further fuel the opportunity to exploit this trend. People also become human billboards for these brands. When people are empowered to express their signature identity through your products there is no stronger endorsement of brand identification. The internet makes this model available to more companies and the possibilities become endless. It also elevates to a global opportunity when consumers around the world have equal access to the ability to customize a brand, service or experience online. BMW considering how to configure and structure their business model to give people choice, variety and, more important, freedom to selfexpress and personalize. All of this can now be done without a corresponding increase in cost or supply-chain production. Though mass customization has grown since the middle 1990s, thanks in large part to the Internet, an era of mass customized commercial and engineered products has yet to fully arrive. When--and if--mass customization becomes commonplace is a matter of guesswork at this stage, according to the experts interviewed for this article. For one thing, much of what can be said of mass customization depends upon how you define it. And of course significant impediments to widespread adoption still remain. The global nature of the markets and competition has forced many companies to revisit their operations strategy. Companies have moved from centralized operations to decentralized operations in order to take advantage of available resources and to be closer to their markets firms have undergone numerous changes in terms of strategies, tactics, and operations with the aim of meeting the changing requirements of the market companies have to compete based on multiple competitive performance objectives such as quality, price,
responsiveness, flexibility, and dependability firms have developed a build-to-order supply chain (BOSC) to be flexible and responsive To achieve mass customization, the BOSC model is now being actively pursued in several different industries. BMW also allows customers to make changes to their vehicle within 6 days of final assembly (including a complete change in color, etc.). This allows BMW to build up to 550,000 permutations of the Z3 vehicle Agility (flexibility and responsiveness) has become a competitive weapon for capturing market share in a global market where products are sold and bought online. The global nature of the markets and competition has forced many companies to revisit their operations strategy. Companies have moved from centralized operations to decentralized operations in order to take advantage of available resources and to be closer to their markets firms have undergone numerous changes in terms of strategies, tactics, and operations with the aim of meeting the changing requirements of the market companies have to compete based on multiple competitive performance objectives such as quality, price, responsiveness, flexibility, and dependability. Firms have developed a build-to-order supply chain (BOSC) to be flexible and responsive to achieve mass customization, the BOSC model is now being actively pursued in several different industries. BMW also allows customers to make changes to their vehicle within 6 days of final assembly (including a complete change in color, etc.). This allows BMW to build up to 550,000 permutations of the Z3 vehicle Agility (flexibility and responsiveness) has become a competitive weapon for capturing market share in a global market where products are sold and bought online.
BUILD-TO-ORDER SUPPLY CHAIN MANAGEMENT (BOSC)
Due to increasing global competition and a decline in profit margins, most multinational corporations are pursuing different operations strategies to secure market share and improve profits.
BOSC and configure-to-order (CTO) markets driven by mass customization and e-commerce are forcing retailers and manufacturers to shorten planning cycles, compress manufacturing lead times, and expedite distribution. BOSC as a strategy can be defined as ‘‘the value chain that manufactures quality products or services based on the requirements of an individual customer or a group of customers at competitive prices.
BOSC provides a level of responsiveness, cost effectiveness, and flexibility that enables companies to deliver the products that customers have chosen at the time they requested it.
U biquitous Integrationmust o is ato t the A utomotive B usiness …
The BMW factory produces 800 carsand 1250 engines a carsand day – each one built to order
The number of possible variants of is approximately approxim ately 10 to the 13
W hy Cant W e Do This With Softw are? ’
On average, no m ore than a handful of cars are produced with exactly the sam e features in a year
S o u rc e: A u to m o tive N e w s 20 0 3
Notes: Provided by Prof. Amol Roy. WEBSITES: 1. www.bmw.com/home/ 2. www.google.com/
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