BMW Assignment

Summary Across the broad spectrum of industry, companies are achieving unprecedented levels of market success through mass customization, an approach to business that integrates and takes to a higher level an organization's efforts to become more innovative, increase quality, improve agility, reduce cycle time, and, above all, create customers who do not want to buy from anyone else by allowing them to design the product that they want. At the core of mass customization is the principle that customers want products and services as unique as their individual tastes and preferences, at prices that translate into superior value. 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. Background 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. They also moved in manufacturing aircraft engines, in 1918 and then manufacturing motorcycles in 1923 with R32 as there first model. In 1928, BMW bought a car manufacturing unit in the Eisenach region of Germany, with license to produced small car ―Dixi‖. Mass Customization What is Mass Customization? Mass Customization is a hybrid of ―Mass Production‖ and ―Customization‖. Therefore, before understanding the meaning of Mass Customization, let us understand what is meant by the terms mentioned above. It is "a strategy that creates value by some form of company-customer interaction at the fabrication and assembly stage of the operations level to create customized products with production cost and monetary price similar to those of mass-produced products". Mass customization is the method of "effectively postponing the task of differentiating a product for a specific customer until the latest possible point in the supply network." The term denotes an offering that meets the demands of each individual customer, but that still can be produced with the efficiency of mass production. In other words, the goal is to provide customers what they want when they want it. Regardless of product category or industry, they have all turned customers’ heterogeneous needs into an opportunity to create value, rather than a problem to be minimized, challenging the ―one- size-fits-all‖ assumption of traditional mass production. The concept of mass customization makes business sense in these times. Mass Customization is about producing highly configured products with the efficiency of a mass-produced product. Mass customization is also commonly referred to as: Build to order Assemble to order Configure to order Make to order Engineer to order Please note the use of the repetitive phrase ―to order.‖ This is important. ―To order‖ implies that configured products are made on the basis of an actual order—it is the order that drives the order demand, not a finished goods forecast. BMW engaged in Mass Customization actually seeks to fragment the market through economies of scope, by providing variants to the existing products. This is in contrast to a mass producer who seeks to consolidate and reduce choice through economies of scale. Shift in the traditional approach of manufacturing: The increase in the competition and change in the attitude of customer has forced the companies to think ways by which they can reduce the cost and can provide better quality of products at the right time. This has enabled the company to roll the traditional method of mass production to mass customization. The diagram below shows the benefits of moving from traditional approach to new approach of mass customization. The above diagram shows that using traditional approach of manufacturing or operations the cost price per unit start increasing at a greater rate and hence restricts customization of products to avoid losses. However, the new paradigm shows that with increase in the customization can help to increase the market size with a nominal increase in the cost per unit of the products. Benefits of Mass Customization Mass Customization can fetch the following benefits to the companies and the customers: By providing tailored products to meet particular needs, company can make comparative shopping difficult and shift the focus from price to benefits. It is possible to manufacture at a mass produced price, you have the option to charge a premium whilst still retailing below the price of a custom product. This in turn will open your product to a wider market. Personalized and customized products and services will differentiate against commodity type products. With their similar cost they will be double attractive. Lead customers will provide a rich source of new ideas that can also be exploited with other customers or with new prospects. As a result, new product development has lower risk of failure and a higher chance of beating the competition. High variant can help the company to gain large sales with available product design. On-going service can be adapted throughout the customer's life because it can be linked to the unique product. It reduces stock and obsolescence of inventory hence reducing the cost. It also enables a company to adjust to the change in technology and makes is flexible to adopt change in the market. Companies will forge close relationships with their suppliers, distributors and customers as they return time and time again for further unique products. It helps customer to get value for their money. Satisfied and loyal customers provide excellent references and referrals. Mass customization at BMW BMW customers can use an online toolkit to design the roof of a Mini Cooper with their very own graphics or picture, which is then reproduced with an advanced digital printing system on a special foil. The toolkit has enabled BMW to tap into the custom after-sales market, which was previously owned by niche companies. In addition, Mini Cooper customers can also choose from among hundreds of options for many of the car’s components, as BMW is able to manufacture all cars on-demand according to each buyer’s individual order. At the same time, the company’s capability to introduce new products has increased dramatically. Due to the modular system architecture, new component technologies can be integrated within a matter of days and not months, as was the case before. Using Digital Surface The BMW Product Navigator, which employs Microsoft's Surface computer, lets potential customer’s hand-pick options, and then sees a computer-generated video of their future car in action. By placing mini discs on the computer table, customers at dealerships can add features like wheels in designing their customized BMW. Users can also use Microsoft's multitouch Surface gestures to rotate, move, and enlarge on-screen images. Instead of showing the usual computer-generated image of a customized car, the program produces a video. The video, which is shown to users on a separate computer screen hung on a wall, shows the customer how their car will look from the inside and outside while being driven. The results of each configuration a customer comes up with, can then be printed, e-mailed, or saved to a USB drive to take home to make necessary changes and can come back with their option. Simulation BMW's North American operations, has built showrooms with driving simulators, which can replace the test drive, and with computers wired into German factories. This enables the customers to further understand the features of cars. Creating such showroom has helped the company to keep lesser number of cars and has further enhance the customer serving experience and reduced the inventory cost. Conclusion The post war period was a time of economic growth when customers would clamor for whatever goods were available. Today, mass production has in many cases produced an over supply of very similar goods, and in a global information based society, ideas and products can easily be replicated by competitors; price wars are common and deadly. Customers are smarter and are wary of blandish marketing phrases such as "new", and "enhanced formula". People’s now are more turbulent and diversified. The "one size fits all" model is out-of-date. Individuals now want to be seen and treated as individuals and many are prepared to pay for this. They are better educated and informed; able and willing to make their own decisions. All companies are promoting value for money, quality, durability, etc. It is difficult to differentiate products. To make matters worse, in automobile industries there is a variety of new entrants, which have brought low-cost car concept, like Tata Nano.

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