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Bmw: the 7-Series Project

BMW: The 7-Series Project (A) Submitted to Prof Ganesh N Prabhu (New Product Development) 12th July, 2011 Group 1F Abhishek Sonane, 1011297 Namrata Keshwala, 1011254 Nirmal Preethi G, 1011257 Pavan Kumar Uramandith, 1011337 Abstract The case elaborates on the different options considered by BMW regarding the manufacture of its prototype vehicles. Historically, BMW’s prototypes were handcrafted by highly skilled artisans in the company’s shop. A proposal had been made to alter the process so that prototypes are made in a way that can better uncover potential problems that may arise during final production.

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While the new approach is expected to make production start-up of new models smoother and reduce quality problems, there is some concern within the company that it will lead to less flexibility to change (and improve) designs during the development cycle. Through our analysis, we have tried to address the following issues: ? ? Different ways of competing on quality in a luxury product segment and how the product development process affects each of these The notion of a prototyping strategy and the role prototyping plays in linking development strategy and manufacturing strategy

Industry The segment of automobile industry in question was the luxury car market where cost plays a very small role. Generally, the luxury segment was defined as the market of automobiles with a retail price above $ 20,000. Companies in this segment competed on features like acceleration, comfort and handling and intangibles like perceived quality and image. Major players in this industry were Daimler-Benz, Toyota, Honda, Nissan, Ford, BMW etc. BMW differentiated itself on the basis of its engineering and technical prowess.

The evolution of BMW in the luxury car segment and the change in competitive scenario is included in Appendix 1 and 2 respectively. Product Development Approach Strategic Objectives BMW tried to achieve the following objectives to compete with the European players as well as upcoming Japanese entrants: Increased Product Variety: BMW mostly made its cars to order with the new Regensburg plant playing a major role. It produced 420 cars/day but made the same car type only once every month.

More frequent introductions: The Japanese automobile companies had lead time of 4 years against an industry average of 6 years due to their philosophy of introducing new models frequently, incorporating incremental changes in contrast to BMW’s philosophy of introducing new product with bold changes. The new strategy was to introduce a new engine, a new series or redesigned series every year. Improved Quality of Newly launched models : BMW tried to develop a strategy to compete with Lexus’s record of 1. 5 complaints/car to try and meet the expectation of higher standard of conformance from the customers. Stages in the launch of redesigned model (Refer Appendix 3) Prototyping (30-32 months): 3-5 batches of prototypes were constructed using handmade tools, sometimes not made up of material to be used in final product. The advantage of this process was that it provided flexibility to make changes without much time consumption and costs. Pilot Production in Engineering Center’s pilot plant (7-9 months): Done with only the three-quarters of the production tools, but thousands of minor problems would be uncovered and investigated.

Pilot Production in Factory (3-6 months): “Dress Rehearsal “and final opportunity to fine tune the process, change tooling and troubleshoot. Ramp-up: Mixed Model approach used to avoid significant drop in output and better utilize the fixed assets. In this approach the production of old models is continued to utilize the available capacity till the production of the new model can be brought up to full volume. Issues in the above method of prototyping ? ? In spite of multiple cycles of prototyping, the production runs always needed changes.

Even though each successive generation of prototype came closer to resemble the appearance and performance of the final product, the real picture of the final product was clear only during production cycles. Though all the processes are designed to ensure quality, the number of complaints per car was high (10-15 complaints/car at launch while 3-5 complaints/car in year or a half year) compared to the Japanese competitors. Mixed model approach caused confusion and made logistics more complex. The current process for making prototype masked many design and manufacturing problems which only surfaced during pilot production and ramp-up. ? ? New approach to prototyping This approach advocates involving suppliers in both design and prototyping and leveraging on their expertise. This also has a benefit that the suppliers get a chance to learn about the part before they have to make it in volume. The cockpit team also recommended contracting with a single outside vendor to supply fully assembled for prototype, pilot and production runs, and finally have the pilot assembly plant’s workers not the prototype specialists assemble the cockpit into prototype vehicle. Issues in this method ? ? Constrained the flexibility and creativity Increased cost of incorporating change in design Increased lead time ( 6 months to design and 6 months to procure ) 2 This transition of the process can be explained by a transition from an integral architecture product to a modular architecture product. The product manufactured by earlier approach was an integral architecture where the whole product was developed together while the new approach encouraged modular approach of developing each functional and physical part separately allowing greater variety productions, more customization and optimizing flexibility over performance.

Cost – Benefit Analysis for various possible scenarios Scenario 1: Applying early tooling in Prototype building for all modules of the car Costs: 1. Cost of DM 50 million to arrange all production tools which can be more in case of major design changes. 2. Cost of material, labour and other overheads for all the production tools will also have to be borne which will add to the total cost (this data is not given in the case) 3. There are chances of changes in the current design e. g. passenger side air bag might be added which will further add to the cost and lead time.

Also the design flexibility is very important to BMW to protect their brand image of manufacturing luxury and stylish cars. Benefits: 1. Saving of DM 100 million has been estimated which would come from reductions in labour cost, tool replacement cost and lower warranty expenses. This will be realized fully only after the launch and cannot compensate for the existing budget constraint (DM 80 million). 2. Time to reach full production volume after the launch will decrease (currently they are taking 6 months). 3. Suppliers will know about the parts before they have to make them in volume.

This will again smooth the pilot production in factory. Due to the large costs, risks involved with the process, budget constraint (the whole budget for the BMW-7 Series project is DM 80 million) and also risk of losing the most important design flexibility, it is not wise to apply this new prototyping process to all the modules in the car at this stage. Scenario 2: Applying early tooling in Prototype building for only cockpit module Costs: 1. If we decide to get preproduction tools for cockpit, the management will have to borne cost of DM 7 million (as shown in Exhibit) for getting the re-production tools (this cost can be more if there are some design changes). 3 2. In addition to this there will be variable cost for making these cockpits of DM 1. 5 million for 25 prototype cars (we have assumed 25 cars in one batch) which is comparable to existing variable cost of making cockpit (DM 1. 8 million for 25 prototype cockpits). 3. In addition to the fixed cost, lead time will increase by 6 months in case of design changes. Benefits: 1. Savings from reductions in tool replacement cost and lower warranty expenses (as indicated in case but exact saving estimation is not given for only cockpit case) 2.

Lower customer complaints (this goes well with their strategy of having improved quality of newly launched products) 3. More defects will be found in the prototyping stage itself so pilot production at factory will become more smooth which will facilitate launch on time 4. Time to reach full production volume after the launch will decrease (currently they are taking 6 months whereas competitors are taking less than 3 months) 5. Suppliers will know about the parts before they have to make them in volume. This will again smooth the pilot production in factory. Recommendations

In our opinion, BMW must implement the new process of prototype building only after the first 2 cycles of prototype testing and start this process with only cockpit module for the present 7-series cars. The rationale for the same is as follows: 1. Getting the pre-production tools for the whole car is a costly and risky affair as it involved the huge cost of getting these tools plus other costs like material, labor, overhead etc. Also if any design changes happen, it will change the whole cost-benefit equation. So instead of taking extreme step, it makes more sense to take a phase wise approach towards modularisation. . The core competence of BMW is style and technology. As the pre-production tools limit the design to be at least 12 months old, prototype outsourcing is not recommended. If needed, the pilot production stage can be extended by 2-3 months to incorporate all the fine tuning of the production process. 3. Prototyping process has normally 3 cycles, having use of pre-production tools in all the cycles will result in delay of 3 years. Assuming if most of the design mistakes are found only during the first two prototype cycles then there is no point in finding the manufacturability of the design in these phases itself.

As mentioned in the case if this new prototype technology is reducing the cost then it makes sense to use this only in the last prototype cycle only after design is frozen. Also it will have the flexibility to change the design even in the last moment. Thus, this new approach would result in higher tooling costs and longer lead times, but the team felt that it could drastically reduce problems downstream and greatly improve the quality of the initial production units. (The main calculated line items for this analysis have been included in Appendix 4) 4 Appendix Appendix 1: Evolution of BMW in the industry 920s: Began car production 1916: BMW founded 1986: Launch of Acura by Honda 1989: Launch of Lexus (Toyota) and Infiniti (Nissan) 1990: Completion of Research & Engg Centre of Munich Appendix 2: Change in Competitive Scenario The new competitors Honda, Toyota and Nissan captured the market share in the luxury car segment in USA on the basis of low cost and high quality (on an average 3-4 complaints/car at the time of launch and 1. 5 after one year against the earlier figure of 10-15 at time of launch and 3-5 after one year). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1986 1989

Others Japanese Producers European Producers 5 Appendix 3: Product Development and Launch Process ? ? Pilot Production in Pilot plant 6 months Workers learn about the assembly process and uncovered problems with tooling and assembly process Pilot Production in Factory “ Dress Rehearsals” Last opportunity to fine tune the process, change tooling and troubleshoot If no problems in final pilot runs Mixed-model approach Styling Prototype Ramp-up 2 years Since Aesthetics is an important role in market 3-5 batches of handmade prototypes Used for flexible and easy mouldingremoulding of tools

Appendix 4: Main line items for calculated costs (All figures are in million DM) Status Quo Cost of prototype vehicle Variable cost of material, labor and other overhead for 25 cockpits Pre-production tools for cockpit only Fixed cost of tools Variable cost of material, labor and other overhead for 25 cockpits Pre-production tools for all 30 modules Fixed cost of tools Variable cost of material, labor and other overhead for 25 cockpits Variable cost of material, labor and other overhead for modules other than cockpit 1. 5 1. 8 7 1. 5 50 1. 5 NA 6

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