Newcastle Business School Division of Global Logistics and Supply Chain Management

Semester 2 BM0452 Strategic Partnerships and Relationship Module Tutor : 1. David Bennett 2. Thomas Matheus

Student name: Haiqing.zhao ID.: 07035583

1 Work is designed as a series of team tasks that immediately reveal problems and can be cascaded across the supply network BMW is a worldwide famous luxury car manufacturer, history of BMW could trace into 1913 when BMW is only an aircraft engine design shop in Germany. Till 1995, BMW had 34 wholly owned subsidiaries and 130 foreign sales operations around the world (Philippe-Pierre and et.al, 1998).

By 1994, the United States was become BMWs largest export market. More serious, the performance in US market will determine how much profits BMW could get. Just like chairman of BMW Eberhard Von Kuenheim said, US have the largest and competitive consumer market in the world, if BMW can not drive US market, it will fail in Europe as well. Whiling BMW want to success in US market, Japanese automobile manufacturers also introduced a new group of lower price luxury cars to compete with BMW. Moreover, BMW does not have its own manufacturer in US at that moment. All of its cost operated in marks and its manufacturing activities concentrated in Germany, BMW had no operational hedge, and currency fluctuations were eating into its profit margins (Philippe-Pierre and et.al, 1998).

Although the above problems is mostly described as BMWs US market challenges, it could also be seen as an issue within the BMWs supply chain network from the aspects of supply chain risk management. Based on Water (2007)s book, an essential aspects of supply chain is that all members are linked together, and risk to one is automatically transferred to all other members. Back to BMWs case, if BMW suffering high labour cost and currency rate problems, it will cascade through the supply network. Consequence will affect relationship with not only customer but also suppliers; eventually BMW itself will be affected the most and lose most of its profits.

With considering of above problems, BMW announce to set up its own manufacturer in Spartanburg and try to develop its own supply network in US. Also spend millions of investment on developing new system in order to improve relationship with its suppliers and customers.
2

The theory behind BMWs approach could relate to lean strategy. Lean strategy mainly concerns four parts: Lean customer relationships, lean manufacturing order fulfilment, lean product development and lean supply chain. There are at least two parts BMW could try to implement to its new plant. BMW set up its own factory in US could be seen as the first step of implementing lean supply chain. Just like Emberhard Von Kuenheim point out, An American factory is a logical next step for BMW. Lean Supply Chain means collaborate strategically with suppliers to develop new products and manufacture the components and subassemblies without delays (Lean strategies group, 2011). Local factory obviously would faster than producing in Germany and ships to US. Moreover, this local factory could help BMW save unnecessary cost: reduce its exposure to exchange-rate fluctuations, also BMW dont need to pay duties on parts imported from outside US unless the final product was sold in US. As Eberhard Von Kuenheim, BMWs chairman at that time, pointed out that a local factory in American will reduce the exchange-rate fluctuations. Moreover, the factory would also be a flexible and technological in order to satisfy American consumer (Philippe-Pierre and et.al, 1998). As to lean customer relationship, it involves two parts: Provide product customization with fast response and have direct web page contact with customers (Lean strategies group, 2011). After the next two examples, you would see what BMW do to improve its customer relationship. When first start to build the new plant, BMWs chairman at that moment announced that the strategy of the new plant is to be a flexible and technologically advanced and take full advantage of being close to the demanding American consumer. BMW also consider internet technology as an approach to improve customer relationship, BMW has its own website and Facebook page which help customer get latest new of BMW and also customer could leave any comments related to BMW. Above methods could bring benefits to BMW like create loyalty for retention of customers, reduce selling and customer service costs and receive instant feedback from customers (Lean strategies group, 2011). However, the above problems are just a beginning. Setting up a local manufacturer is not only difficult but full of challenge and unknown. First, build a plant normally takes years and millions of money. Second, cooperate of local government and local politics also need to be considered. Third, the new plant has to establish its new global supply network. At last, the new plant needs to create a new culture to obtain its competitive advantage. BMW still have a long way to explore on its American market.

2 Problems can be investigated quickly across the supply network and c ounter measures rapidly introduced. BMWs new plant object is to be a flexible, quality and high technology involved plant and take full advantage of being close to satisfy American consumer (Philippe-Pierre and et.al, 1998). The object is mostly consistent with Gunasekaran and Ngai (2005)s research which is quality, price, responsiveness and flexibility. To achieve the object, BMWs new plant has to implement other aspects of lean strategy which is lean manufacturing order fulfilment. The object of lean manufacturing order fulfilment in short is to reduce customer waiting time by reducing production time and increase efficiency in all business aspects.

Because BMW is a global manufacturing company, lean manufacturing is an important part of its supply chain. According to Santos, Wysk and Torres (2006) book, lean manufacturing means to maximize reduce waste and lean is focused on cutting fat from production activities. Harrison and Hoek (2008) analysed that lean thinking could be used to contrast to the just-in-time production methods. Just-in-time is defined as a broad philosophy of management that seeks to eliminate waste and improve quality in all aspects of business activities to achieve perfection (Harrison & Hoek, 2008). In other words, JIT means producing what is needed when needed. Anything over the minimum amount necessary is viewed as waste (Chase, Jacobs & Aquilano, 2004). The principle of JIT here is to make goods produced and delivered just-in-time to be sold. Throughout the supply network, trigger to start work is governed by customer demand (Schonberger, 1991).

Based on the above theory, BMW start to build its own JIT system in American plant. Customization has become a major objective of many Fortune 500 companies (Gunasekaran and Ngai, 2005). BMW implementing this method from two aspects: producing line and collaboration with suppliers. First, BMW changed its standard global factory procedure by assigning vehicles to customers, in short called VIN number. Also, the new plant is applying a computer ordering system which improves efficiency and cooperation between shoppers and retailer. By doing this, customer could have more time to change their minds and also give the manufacturer more scheduling freedom (Chappell, 2002).
4

However, it is not enough to build JIT system only within the plant, BMW has to make this system work within its supply chain network. In other words, BMW need to seeking more opportunities to cooperate with is suppliers. Reason of doing that could be concluded as following: Shift in emphasis, sourcing, global customers, cross-functional and cross-cultural emphasis, declining market price, rising competitive intensity, advanced technology enablers, reverse marketing strategies and strategic positioning (Mentzer, Myers & Stank, 2007). Barriers exist because suppliers used to locking their production weeks before delivery, this obviously can not satisfy BMWs standard. BMW introduced a new global ordering system with processing sales orders nightly and communicated to the factory planning departments (Chappell, 2002).

After successfully implementing the new system, BMW allow customers to make changes to their vehicle within 6 days of final assembly (Gunasekaran and Ngai, 2005). It is obvious that such a short lead time for car manufacturer is rare, this flexibility and agility has become BMWs strong weapon to compete with other companies. Moreover, closely cooperate with suppliers maximized BMWs manufacturing efficiency and minimized inventory size. This means less warehouse space is needed, which lead to reduction of producing cost. The JIT system could also provide benefits like better quality and more inventory turns (Gourding, 2006).

Even the new system is perfect in many aspects, it still have some problems we should concern. There is no doubt that the new system allows BMWs supply chain to operate more efficiently, and hence bring a higher profit. But after a critically analyse, we still have few problems exist to concern. As the system need coordination of suppliers and retailers, during the implementing, information sharing is an essential part to consider. For instance, retailers may reluctant to share information with manufacturer because of fear. Moreover, suppliers may unwilling to share because of afraid of competitive information leak to its competitor (Tang, 2006). In addition, JIT system focuses on efficient flows, no stocks in warehouse and minimizes risk from waste or delays. However, the real thing is much more complicated, if there is even a small delay or breakdown, the whole supply chain will be stopped until delay is solved (Waters, 2009). Gourding (2006) also states similar concern in his book, when firms eliminate inventory, the risk of stocking-out can rise.
5

3. Solutions are disseminated and adopted locally within the supply network When the World Trade Organization created in 1995, global business opportunities increase faster than before, as to a multi-national company, this results logistics become more critical to a multi-national companys success globally than it is domestically (Gourding, 2006). Under the pressure of globalizing and increasing competitions, BMWs new plant can not simply use its Germany suppliers for its American plant because it is inefficient and will drive costs up (Philippe-Pierre and et.al, 1998). In order to obtain competitive in this new global environment, companies should find new approach that could decrease costs but improve service, this means that supply chain efficiency and effectiveness will become more crucial than ever (Christopher, 2005). As a result BMW have to reconfigure its global supplier network by building a global supplier network with maximum use of local suppliers, in the mean time remain same quality and customer service.

However, it is not easy to select suppliers as it will affect the whole companys performance and profits when suppliers are not suitable for the company. On the other hand, doing business with the appropriate suppliers will bring the company many benefits, for example sufficient production volume while maintain good quality (Choy, Lo & Lee, 2004). After a critical analyse of American suppliers BMW decide to only import engines and transmissions from Germany, because other high quality parts could be found locally at a lower price than many other countries (Philippe-Pierre and et.al, 1998). Localise supply network bring BMW many benefits, for example, the new plant get tariff exemption if all goods manufactured with at least 65% local content. Nevertheless, local plant provides convenient access to highways and rail also near an international airport.

Comparing to select local suppliers, BMW spend much more time on improving relationship with local suppliers. According to Szwejczewski, Lemke &Goffin (2005)s paper, in todays business environment, supplier is becoming essential and making a major contribution to a manufacturers performance related the areas of quality, delivery, cost containment and new product development. The paper also point out that effective management of suppliers is one of the ways manufacturing companies could enhance their performance. Park et al (2009) also analysed that collaboration with suppliers could help company developing new product
6

and improving its new products competitive advantage. For a multi-national manufacturing company such as BMW, it is necessary to find a way to maintain a sustainable and effective supplier relationship. Function of supplier relationship management could be described in following three aspects: support of enhancing business processes across the supply chain, a next-generation approach which could deal with multi-enterprise processes and reduce product cycle time and assist of innovating new product (Park and et. al). Concern to BMWs new plant,

To improve relationship with suppliers, following two aspects should be concerned: Simple and flexible contract and intensive management involvement (Mentzer, Myers & Stank, 2007). Bearing above two points in mind, BMWs new plant conducted two methods to get closer relationship with suppliers. One is that held an unprecedented 2-day seminar for over 100 suppliers quality control managers, and another seminar for suppliers account managers. The other is that invite supplier representatives to the new plant to show assemblyline workers the best way to handle their parts and systems, and plant employees often visited the suppliers plants (Philippe-Pierre and et.al, 1998). Benefits of improving supplier relationship could calculate into following three aspects: dramatic cost savings, increase flexibility and responsiveness to customer requirements and substantially faster cycle times (Park et al, 2009). In addition, BMW also seek to develop long term relationship with its American suppliers. In order to maintain long-term relationship, three key factors should be concerned: mutual strategic and operational goals, two-way performance measurements and formal and informal feedback mechanisms (Bowersox, Closs & Cooper, 2007). BMW maintain long-term relationship by encouraging it U.S. suppliers to form joint-ventures with German firms. Before doing this, BMW need to identify whether the supplier is appropriate and qualify to do so. However, risk and challenge still exist in BMWs global supply network. Harrison and Hoek (2008) analysed that global logistics leads many unexpected risks come true, like Geopolitical threats and transportation breakdowns. Major challenges include extended lead time supply, extended and unreliable transit times and multiple freight modes and cost options. Moreover, the influence of different culture between Germany and American push the new plant to establish an unique culture in order to improve its competitive advantage.
7

4. People at all levels of the organizational supply network are taught to have empowerment, with the help of coaching, mentoring and training. In the fast developing, ever changing business environment, every company eager to find employees who are creative, flexible, loyal and highly motivated. In recent year, employee empowerment is considered by many organizational theorists and practitioner to be one of the most important and popular management concepts (Potterfield, 1999).

In general, empowerment defines as encouraging and allowing individuals to take personal responsibility for enhance their performance on their jobs and contribute to the organizations goals (Clutterbuck & Kernaghan). In other words, empowerment could be seen as decentralization. This means to give employees more power of judgment and discretion in their work and motivate employee to participate more fully in decisions that affect their working lives (Potterfield, 1999). By adopting empowerment and with avoiding traps and misconceptions, the empowerment could make a stagnant organization into a vital one (Dover, 1999 & Hur, 2006). As the result, a multi-national enterprise like BMW should establish principles and instruction before implementing employee empowerment program within its supply network.

According to the Wilson (1996)s manual book, training of empowerment is divided into four stages. First training stage should make individual fully aware that constant change is normal. Second training stage helps people understand why organizations have to change; concept of empowerment should be introduced. Following training stage concentrates on individuals and helps them overcome difficulties related in organizational structures, process and empowerment to their perception and methods of working. Last training stage will give participants a deeper understanding of empowerment.

The four training stage could consider as general guideline for multi-national enterprise especially if they are just start to conduct the employee empowerment program. As to BMWs new plant, the most important objective is to develop a new atmosphere in which employees could be creative and productive. By adopting the training method, the new plant
8

could combine the best of German and American traditions and its objectives will accomplish. Some results already prove success of this method, the new plants main production line is based on one floor and required place is much less. Also, new plant could produce different models in a single line. Moreover, new plant also keeps its technology ahead of other pants.

Further consideration could focus on culture. Based on previous research, culture difference is the most important factor when company try to implementing employee empowerment. As a global company, one important aspect is its cross-culture background. One common example could be work style between German and American, German worker are highly skilled and responsible, and do not necessarily need a manager to motivate them. American workers are more familiar with managers who emphasize motivation (Waters, 2003). As culture is driving a fast-changing market in many countries and regions of the world, organisations need to monitor such changes to identify opportunities (Branch, 2009).

BMWs new plant also should pay attention on the culture issues when implementing the employee empowerment program. Different culture between Germany and American should be fully considered. Moreover, new plant needs Germanys engineer support, how to cope with different culture between Germany and American engineers should be concerned. Taking the above culture issues in account, the new plant could achieve better performance in future.

In conclusion, for multi-national enterprise like BMW, the secret of success is apply localize strategy in order to minimize cost, thinking global but acting local, adopting appropriate strategy in different region. Furthermore, adopt excellent JIT system and integrate it to be most suitable for its company. When facing with different problems during set up new plant, BMW always could find most efficient approach and use less time to overcome these problems.

Reference list:
Bowersox, D. J., Closs, D. J. & Cooper, M. B. (2007) Supply Chain Logistics Management. 2nd edn. McGraw-Hill. Branch, A. E. (2009) Global Supply Chain management and International Logistics. Routledge. Chappell, L. (2002) 'BMW Moves beyond just in time production', Automotive News, 76, March 25, 2002, p. 2N. Chase, R. B., Jacobs, F. R. & Aquilano, N. J. (2004) Operations Management for competitive advantage. 10th edn. McGraw-Hill. Choy, K. L., Lo, V. & Lee, W. B. (2004) 'An enterprise collaborative management system- a case study of supplier relationship management', Journal of Enterprise Information Management, 17 (3), 2004, pp. 191-207. Christopher, M. (2005) Logistics and Supply Chain Management: Creating Value-Adding Networks. 3rd edn. Harlow : Financial Times Prentice Hall Clutterbuck, D. & Kernaghan, S. (1994) The Power of Empowerment. Clutterbuck Associates. Dornier, P.-P., Ernst, R., Fender, M. & Kouvelis, P. (1998) Global Operations and Logistics: Text and Cases. John Wiley & Sons, Inc. Gourdin, K. N. (2006) Global Logistics Management: a competitive advantage for the 21st century. 2nd edn. Blakwell Publishing. Harrison, A. & Hoek, R. v. (2008) Logistics Management and Strategy: Competing through the supply chain. 3rd edn. Harlow: Financial Times Prentice Hall.

Lean strategies group (2011) Available at: http://www.lean-strategies.com/index.htm (Accessed: 8 May 2011)
Mentzer, J. T., Myers, M. B. & Stank, T. P. (2007) Handbook of Global Supply Chain Management. Thousand Oaks : Sage Publications Ngai, E. W. T. & Gunasekaran, A. (2005) 'Build-to-order supply chain management: a literature review and framework for development', Journal of operations management, 23 (5), pp. 423-451. Park, J., Shin, K., Chang, T.-W. & Park, J. (2009) 'An integrative framework for supplier relationship management', Industrial Management & Data Systems, 110 (4), 2010, pp. 495-515.

10

Potterfield, T. A. (1999) The Business of Employee Empowerment: Democracy and Ideology in the Workplace. Westport, Conn. ; London : Quorum Books Santos, J., Wysk, R. & Torres, J. M. (2006) Improving Production with Lean Thinking. John Wiley & Sons, Ins. Schonberger, R.J. (1991) Building a Chain of Customers: Linking business functions to build the world class company. New York: Free Press. Szwejczewski, M., Lemke, F. & Goffin, K. (2005) 'Manufacturer-supplier relationships: An empirical study of Germany Manufacturing companies', International Journal of Operation & Production Management, 25 (9), 2005, pp. 875-897. Tang, C. S. (2006) 'Perspective in supply chain risk management', International Journal of Production Economics, 103 (2), 2006, pp. 451-488. Waters, D. (2003) Global Logistics and Distribution Planning: strategies for management. 4th edn. Kogan Page. Waters, D. (2007) Supply Chain Risk Management. London : Kogan Page Waters, D. (2009) Supply Chain Management: an introduction to logistics. 2nd edn. Palgrave Macmillan. Wilson, T. (1996) The Empowerment Manual. Gower.

11