The Supply Chain Management Marketing Essay

Published Date: 23 Mar 2015

BMW is firmly focused on the premium segments of the international automobile markets and aims to be the world's leading provider of premium products and premium services for individual mobility. It produces a range of luxury cars, which includes BMW, Mini and Rolls-Royce. The company's strategy aims to provide the end consumer with a unique experience. To achieve this objective, the company is focused on a culture of excellence and uncompromising quality throughout its production network.

Ford is a mass-market automaker focused on building vehicles that deliver exceptional value across international markets.  Ford embraces a more populist and inclusive strategy. Its objective is to offer the most fuel-efficient vehicle (or one tied for most fuel efficient) in every automotive category. The company's brand promise is no matter what kind of car you need, you can have the most fuel-efficient one if you buy a Ford.

BMW and Ford both have their eyes on the global markets, however, they are clearly focused on different segments of the consumer spectrum. Whilst BMW is pursuing a "differentiation" strategy (Porter 1980) to be the luxury car maker of choice, through unbending quality, high performance and commanding a premium price, which appeals to the high end of the consumer spectrum. On the other hand, Ford's aim is to be the number one car of choice by making more fuel efficient cars offering value for money and appeals to consumers at the lower end of the consumer spectrum.

3.0 Capacity

An organisation must determine the production capacity needed by it to meet changing demands for its products [1] . In general, the production capacity is designed to accommodate the maximum amount of work it is capable of completing in a given period, however, its "effective capacity" is the maximum amount of work it is capable of completing in a given period due to constraints such as quality problems, delays, material handling, etc. The discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity planning is to minimize this discrepancy. 

In the context of capacity planning, BMW appears to be implementing a match strategy. This involves adding capacity in small amounts in response to changing demands in the market. Specifically, BMW production lines are designed with the flexibility to build up to five different models and therefore, to respond more swiftly to market fluctuations. This is a moderate strategy and eliminates the risks of over-capacity or under-capacity.

In the case of Ford, due to the need to mass produce its cars in order to have enough stock and variety, it operates under a lead strategy. This involves adding capacity in anticipation of an increase in demand. This is an aggressive strategy and has the disadvantage of having excess inventory, which is costly and often wasteful.

4.0 Supply Chain Management

The business environment is continually changing and growing more complex each passing day. As a result, international companies are continually facing issues such as globalisation, economic uncertainty, new technologies and increasing consumer demands.

BMW and Ford are both global companies and are not immune from these problems. In order to address these problems and remain competitive and profitable, they have adopted various supply chain strategies to help them achieve their goals and objectives. These are examined

under the categories of Ordering Process, Production, Suppliers, Distribution and Quality Standards.

4.1 Ordering Process

At BMW, the supply chain process begins and ends with the customer. It starts when a customer makes a request through a dealer using BMW's built-to-order system. The company then processes the order, which involves determining the cost of manufacturing and the most cost effective location to produce the car. This process then automatically triggers the requirements for parts, components and accessories required to build the car to the desired specification. In contrast, Ford operates a mass production system in which vehicles are sourced from existing finished goods inventory.

4.2 Production

At the production stage, BMW uses Just-In-Time (JIT) systems to deliver the relevant parts and components at the right point on the assembly line. Using a JIT supply system saves space by minimizing stock on the premises, and storage and transport costs. BMW uses an advanced inventory optimization system (mySAP), which allows it to effectively monitor and control inventory levels. The company provides its suppliers with access to the system, which provides up to date real-time information on the requirements for parts, quantity required and delivery times. The information is then utilised by suppliers to ensure that requirements are met in terms of products and delivery. A key point here is that BMW is able to gain visibility of the order and inventory situation across all distribution stages.

In contrast, Ford lacks an integrated system that allows for effective communication along its supply chain. To produce a single product, Ford needs several thousand parts and the fundamental issue lies in the management and control of its large data base of business partners, particularly suppliers and sub-suppliers. Ford has several thousand suppliers and operates in a more complex network of business relationships.

4.3 Distribution

BMW has consistently pursued its objective of operating its own sales subsidiaries in all of the world's major markets as part of its sales strategy. Its sales network consists of company-owned sales subsidiaries and independent dealerships. As part of its sales subsidiary networks, BMW operates a Vehicle Distribution Centre (VDC), which effectively coordinates the distribution of manufactured cars to ensure that vehicles bound for dealerships are delivered in the highest possible level of delivery quality. The vehicles are loaded onto car carriers thus saving the vehicles from any undue wear and tear prior to delivery to the customer. In this manner, BMW ensures control over its network of dealerships, which allows it to also control and enhance the customer experience.

In contrast, Ford reaches its customers through a large number of dealership networks who are widely spread in large geographical regions. The lack of proper IT technology increases the risk of miscommunication and lack of coordination between Ford and its suppliers, and exposes the company to undesirable outcomes including higher order lead times, higher costs and operational hassle. Due to the use of independent dealership networks for the distribution and marketing of its products, the company lacks control on the product end consumers. This lack of control combined with dealer mark-ups impacts negatively on its ability to directly control its customer service experience.

4.4 Quality Standards

To ensure optimum customer satisfaction, BMW measures the built quality of its vehicles by carrying out a Complete Production Audit. This audit compares the quality of a car to the customer's requirements, including technical specifications, fitment and function. These audits are performed throughout the build process at specified points based on strict audit standards. In comparison, Ford also performs build quality audits of vehicles along the production line, albeit these are according to generic specifications as its vehicles are mass produced rather than built-to-order.

4.5 Supply Chain IT Platform

BMW uses an advanced IT platform (mySAP Automotive) to monitor production status in real-time. The system registers production confirmation and parts consumption information at regular intervals with parts consumed during assembly immediately removed from the inventory count, and costs posted to calculate the value of work in process. This helps to reduce order-to delivery time, strengthens supply chain activities in the areas of demand planning and tracking and tracing of material deliveries, and improves inventory accuracy and enabling significant reduction time-to customer. It also receives custom-configured manufacturing orders from BMW's planning system. The orders include all the parts required to build each car. BMW sends its long-horizon forecasts and short-horizon JIT delivery schedules to its suppliers. Larger suppliers receive the information via electronic data interchange (EDI) while other suppliers access the mySAP automotive supplier portal for up-to-date information on the company's delivery needs. In this manner, suppliers can view this information in real-time, including release schedules, purchasing documents, invoices, and engineering documents. The suppliers send BMW advance shipping notifications (ASNs), when they ship parts, to provide the company with exact details on parts counts and delivery dates.

In contrast, Ford has over the years have interacted with suppliers and dealers via a variety of systems rather than a single platform. As a result, this has caused difficulties in establishing linkages with business parts, including dealers and customers. Furthermore, the lack of technological sophistication makes it even more difficult to share information with suppliers further down the supply chain (lower tier suppliers). Therefore, Ford must take practical steps to establish Internet linkages with its supply base, which must include design not only of the supply chain but also of fulfillment, forecasting, purchasing, and a variety of other functions that had long been considered separately within the Ford hierarchy.

5.0 Operations Management Challenges

Traditionally, the auto industry has employed mass production focusing on cost reduction strategy (Zhang and Chen, 2006). However, due to changes in the business environment, there has been a shift from the practice (Elkins et al. 2004; Sweicki and Gerth, 2008). The primary issues facing the automobile industry today includes visibility, risk, cost containment, customer demand and globalisation (IBM 2009). Added to this, are rising energy and raw materials cost coupled with the global economic meltdown, which has resulted in a marked decrease in demand for cars and consequent drop in sales and export across the globe. Thus, in this challenging business climate, a superior supply chain is a must to help auto manufacturers redesign and differentiate themselves.

Without doubt, both BMW and Ford have felt the impact of the current environment in a significant way. Nevertheless, both are adopting different strategies to deal with the situation, but with same intended results namely, customer satisfaction, cost reduction and profitability.

In responding to these challenging times, BMW has focused its attention on its supply chain by pursuing cost reduction strategies with suppliers. The company has effectively implemented a dual supply chain strategy which combines the Lean Supply Chain and Agile Supply Chain strategies (Leagile) (IBM 2010). On one hand, lean supply chain employs continuous improvement efforts focused on eliminating waste, improving manufacturing efficiencies and enabling the economic production of small quantities at reduced cost. It also allows for a degree of manufacturing flexibility, which facilitates quick response to changes in the market. In this regard, BMW has the flexibility to respond quickly to major changes in customers' orders at short notice (one week to manufacture) while still adhering to the original delivery time and to high standard of quality. On the other hand, agile supply chain focuses on carrying inventory as generic as possible and is based on the concept of postponement. This has the advantage of moving product differentiation (at the decoupling point [2] ) closer to the end user. It also achieves a dual purpose of reducing the risk of being out of stock and of holding too much stock, enabling strategies of mass-customization to be pursued, which offers a higher level of variety, and at lower total cost.

In the case of Ford, the company has implemented a range of initiatives in order to deal with its supply chain issues. In 1995 Ford initiated the Ford 2000 plan aimed at restructuring certain key processes including Order to Delivery (OTD) and Ford Production System (FPS) to manage its suppliers, improve production processes and lower costs. The company set a goal to reduce the OTD from 60 days to less than 15 days. Through the FPS initiative, the company aimed at reducing the number of suppliers (which had grown to several thousands of different suppliers over the years as the company grew) to create a more cost effective supply chain. Another initiative is the Ford Retail Network (FRN) aimed at reducing competition among its dealerships in the same locality by having only one unified dealer who provides the best possible level of customer experience.

The major challenge for Ford remains a transition from the mass production paradigm or "push" logic, which has become increasingly less competitive in today's market to the more dynamic and flexible built-to-order system. Current "stock push" vehicle supply, whereby the majority of vehicles are sourced from existing finished goods inventory in the marketplace, requires holding stock at the most expensive point in the supply chain (Fisher 1997). The key obstacle for not building an increasing percentage of vehicles to customer order is the company's inability to supply customized vehicles within timeframes acceptable to customers (Holweg et al. 2005). As a result, large stocks of finished vehicles are held at dealerships and distribution centres to enable a certain degree of choice for customers.

6.0 Conclusion

In the current climate of fluctuating market demand and constantly changing customer requirements, the importance of an efficient operational management system is vital to the survival of any organisation and the auto industry in particular. As any problem in the supply chain can have damaging effects on the ability of suppliers to deliver, which could be costly, effectively managing the supply chain is critical. A comparison of the operations of BMW and Ford highlights key differences in their supply chain strategies. BMW focuses on a built-to-order strategy, uses an integrated system for managing suppliers and dealers with ultimate control over the end consumer experience. Ford on the other hand operates in the mass production space and is required to hold a large stock of inventories at distribution centres and dealerships. This approach presents a large requirement for vehicle parts coupled with the complexity of dealing with a large number of suppliers at any one time. It is noted that the company has implemented several initiative in recent years to better manage its supply chain issues. There is no doubt that the global environment will continue to change, in line with changing customer preferences and other global issues such as climate change. As a result of these changes, both BMW and Ford will be expected to continue to make improvements on current levels, and warrants they review their strategies on an on-going basis.