International Internation al Distribution Distributi on and Logistics, UV IMBA Dr. Marta Frasquet Del Toro
BMW¶s Description and Evaluation of the Distribution and Logistics L ogistics Strategies
April 2011
Prepared by Gubanov Andrey Suslova Daria Malikova Julia Rodriguez Adrian
Tabl t
fC
t
t
ti
3
t
i w t m bil
4 t
Trends
4
1.2 C st mer Habits
5
1.3 C m etiti n
5
2. The BMW C m any Por tf tf olio
7
2.1 The Com any Sr t t re
7
2.2 BMW Overseas subsidiar ies
7
2.3 BMW Positioning
8
2.4 Environment al record
9
2.5 BMW Strategies
9
2.6 Wor ldwide Sales
11
2.7 BMW¶s line Up
11
3. Target Audience
13
3.1 Analysis of t f the Target Customer Segment s
13
puts Demanded 3.2 Service Out pu
13
4. Distr bu i bution
15
4.1 Distr bu i bution Channel Structure
15
4.2 Market Coverage
15
5. Channel Evaluation
16
5.1 Channel efficiency
16
5.2 Gap Analysis
17
5.2.1 Demand Gaps
17
5.2.2 Supply Gaps
17
5.2.3 Closing Gaps
17
6. Power imlement ation
18
7. Conflict in distr bu i bution channel
19
8. Overview of f llogistics and supply chain management.
20
8.1 Logistics as a par t of t f the Overall Strategy
20
8.2 Supply chain structure
20
8.3 Passing of Proper t y
22
9. Com petitive advantage
23
Conclusion
24
Appendixes
25
erences R ef erences
27
2
Tabl t
fC
t
t
ti
3
t
i w t m bil
4 t
Trends
4
1.2 C st mer Habits
5
1.3 C m etiti n
5
2. The BMW C m any Por tf tf olio
7
2.1 The Com any Sr t t re
7
2.2 BMW Overseas subsidiar ies
7
2.3 BMW Positioning
8
2.4 Environment al record
9
2.5 BMW Strategies
9
2.6 Wor ldwide Sales
11
2.7 BMW¶s line Up
11
3. Target Audience
13
3.1 Analysis of t f the Target Customer Segment s
13
puts Demanded 3.2 Service Out pu
13
4. Distr bu i bution
15
4.1 Distr bu i bution Channel Structure
15
4.2 Market Coverage
15
5. Channel Evaluation
16
5.1 Channel efficiency
16
5.2 Gap Analysis
17
5.2.1 Demand Gaps
17
5.2.2 Supply Gaps
17
5.2.3 Closing Gaps
17
6. Power imlement ation
18
7. Conflict in distr bu i bution channel
19
8. Overview of f llogistics and supply chain management.
20
8.1 Logistics as a par t of t f the Overall Strategy
20
8.2 Supply chain structure
20
8.3 Passing of Proper t y
22
9. Com petitive advantage
23
Conclusion
24
Appendixes
25
erences R ef erences
27
2
Introducti Introduction
The automobile industry produces automobiles and other gasoline powered vehicles, such as buses, trucks, and motorcycles. The automobile industry is one of the most im por tant industr ies in the wor ld, aff ec ecting not only the f the wor ld. It provides jobs f or economy but also the cultures of t or millions of people, generates billions of dollars in wor ldwide revenues, and provides the basis f or or a multitude of related service and suppor t industr ies. Automobiles revolutioni ed orever the way people live, travel, and transpor tation in the 20th century, changing f orever do business. The automobile has enabled people to travel and transpor t goods f ar ar ther and f as aster, and has opened wider market areas f or or business and commerce. The auto industry has also reduced the overall cost of transpor tation by us ing methods such as mass production which is mak ing several products at once, rather than one at a time, mass marketing which is selling products national ly ra ther than locally, and globali ation of production that per tains to assem bling products with par ts made wor ldwide. As a result of easier and f as aster transpor tation, wor ld economies have become dependent on the mobility that automobiles, trucks, rucks, and and bu bu ses provide. This mobility allowed remote populations to interact with one another, which increased commerce. The transpor tation o f goods to consumers and consumers to goods has become an indus try in itself . The automobile has also brought related problems, such as air pollution, congested traffic, and highway f atalities. Never theless, the automobile indus try continues to be an im por tant source of em ployment and transpor tation f or or millions of people wor ldwide. Alternative energy sources f or or cars, such as natural gas, electr icity, ethanol, vegetable oil, sunlight, and water, will com pete with the traditional energy sources in the f uture. Many large automakers are now adapting f ue uel cell technolog ies: f ue uel cells are cleaner, quieter, and more energy efficient than internal -com bustion engines. We have chosen the BMW com pany, because it is one of t f the W or ld¶s super brands in automobile production and as the years proved they are very efficient not only in it, but also in marketing, distr i bu bution and logistics. The com pany has a lot of com petitive advantages, such as the high level of customi ation, broad line up, high level of after-sale service and a wide var iety of highly trained official dealers. All these f ac actors provide an outstanding image of t and f the BMW Com pa ny and contr i bu bute to the strong brand loyalty among the customers.
3
1.
Industry Overview
1.1 Automobile industry trends After the first practical automobile was built by Kar l Benz in 1885 (Ger many), the Automobile Industry has developed a lot. The automobile industry includes design, development, production, and selling motor vehicles, and is one of the wor ld's most im por tant economic sectors by revenue. Today¶s automobile industry is character ized by several major trends, which we would like to list below: y After the II Wor ld War the com panies all over the wor ld star ted becoming global very intensively. The globalization didn¶t pass the automobile industry over. Car and par ts manuf acturers are merging and take over their com petitors; com ponent design and manuf acture are now f requently outsourced. Meanwhile, all biggest, most successf ul automobile producers have become totally global in nature. y Shifting to emerging markets, in par ticular to Asia and BR IC countr ies (which happens by 2 reasons: the production costs in these countr ies is significantly lower and, on the other hand, the demand on cars in not satisfied there ± so there is a market in that countr ies is not occupied entirely). What is more, this enables leaders of the industry to com pete with local auto manuf acturers that were flour ishing in absence of quality com petition. 1 y The manuf acturers tend to work together in joint ventures on designing platf or ms, engines, electronics (it could be everything except f or exter ior and inter ior design of the models). After the project is finished, com panies continue work ing separately on the design of the models. y Automobile producers tend to work with exclusive dealers and service centers, which are author ized by the com panies¶ headquar ters. It hel ps to control the quality of the entire distr i bution chain and of all contacts with consumers. y Being green, ecologically f ri endly is not just a trend - it is a lif estyle f or a constantly growing num ber of people. So, automobile producers try to meet the needs of customers and produce eco-f ri endly cars. y Automobile producers tend to ex pand the customer segments (and consequently the product line). In par ticular, com panies f ocus on produc tion of low-pr iced cars. y E-commerce has had a strong influence on the car industry. Bef ore purchasing a car, consumers use the Internet to become better inf or med with the models and the services. Automobile manuf acturers now use the most up-dated ecommerce methods to deal with their supply chains. Besides there are var ious online organizations that steer millions of car buyers toward specific dealers and
1
Ar ticle. Auto Indus try Trends Economy. Watch - online economics community that publishes economy, investment & finance repor ts. htt p:// www.economywatch.com/wor ld-industr ies/automobile/auto-industry-trends.html 4
even deliver com peting bids f or cars, off er insurance and fi nancing in such a way 2 that lowers costs and im proves satisf action among consumers. y The f ranchisee type of contracts ar ise in many spheres in automobile industry: production of motor vehicle par ts , supply stores, equi pment rental and leasing, tire dealers and repair and also maintenance f ranchises. The automotive f ranchise industry (excluding dealers) generates around $25 billion in sales annually and em ploys over 175,000 people in 35,600 f ranchise e stablishments (according to the International Franchise Association sponsored study "Economic Im pact of Franchised Businesses: Vol. 2" by Pr icewaterhouseCoopers, March 3 2008) y In coming years, auto ex per ts believe that among the f ollowing trends in the auto motive industry the most significant is f uel efficiency f rom both ecological and economical sides. 1.2 Customer Habits In order to have the whole image of the trends in the industry, it is necessary to have the understanding of consumer buying habits, which are as f ollows: y Ecological issue: as the Planet is f acing ser ious problems with the Global War ming, Carbon Dioxide Emissions, Pollution and ot her environmental problems, it is becoming more and more popular to buy the products and use the services of green com panies. y Pr ice consciousness: many people are not in the race f or ex pensive cars and there is a great demand on low-pr iced cars f or everyday use (par ticular ly of Asian automobile producers, like K ia, Hyundai, and Cherry). y Innovation: people enjoy it to use cutting-edge technologies in a car, such as Wi-Fi, TV connection, enter tainment, autopilot system and so on. y Tendency to use small cars, because of their mobility, which is extremely relevant in big cities. 1.3 Com petition Here are the main com petitors of BMW according to their positioning on the 4 market : 1) Mercedes-Benz com petes with BMW in almost every single segment and both try to catch up with each other, star ting f rom designing and production and finishing with marketing and distr i bution. Nowadays, this tendency is changing, but not very f ast. R ussians consider Mercedes as a classy and stylish brand f or 2
hAr ticle. Overview of Plunkett's Automobile Indus try Coverage. Plunkett R esearch, Ltd. ± the organization that deals with industry statistics, trends and in-depth analysis of top com panies. htt p:// www.plunke ttresearch.co m/automobiles%20 trucks%20 market%20research/industry%20an d%20business%20da ta 3 Ar ticle. Automoti ve Indus try Trends - Automoti ve Franchises. Franchise Direct web por tal htt p:// www.f ranchisedirect.com/au tomotivef ranchises/automoti veindustrytrendsbus inessrepor tii/ 7/249 4 BMW goes ahead/toget her with Mercedes-Benz 5
individuals who achieved everything, but the com pany doesn¶t provide as many services as BMW. Another problem of Mercedes, is that they provide customers with cars within a long per iod of time (about 4 to 6 months) and pr ices f or additional packages are very high. What is more, Mercedes doesn¶t have the production in R ussia, which is quite a relevant issue f rom the point of view of R ussian economy. 2) Volk swagen Group in general , and Audi brand in par ticular, are considered by the R ussian consumers as not very innovative and classy. Audi off ers the same level of customization f or the customers, but the Audi cars (along with Mercedes) are not produced in R ussia. Besides, customers have to wait f or the cars f or quite a long per iod of time. In ter ms of brand image, Audi is considered to be not as good as Mercedes and BMW. 3) Jaguar brand com petes with BMW in the segment of upper class of spor ty and saloon cars. The f act that Jaguar is an exclusive brand, accounts f or a num ber of problems. The cars are produced in the UK only, the cost s of production are lower, thus the pr ice is lower as well, but they are not able to o ff er that var iety of services and additional packages f or their cars that the com petitors do. Sometimes a waiting list f or a Jaguar car in R ussia is a year, which is also very high in com par ison with the com petitors. 4) PSA (Peugeot and Citroen) just as Jaguar com petes with BMW only par tially - with BMW¶s 5-ser ies. The pr ices f or PSA¶s cars are low, the level of customization is the same, but again in ter ms of logistics they are not equal to Mercedes and BMW. Besides, customers still tend t o think of Peugeot and Citroen 5 as stylish cars, but not of the same high quality and class as BMW and Mercedes.
5
according to numerous ar ticles f rom the magazine AutoR eview (htt p://www.autoreview.ru/), such as htt p:// www.autoreview.ru/_archive/sec tion/detail.php?ELEMENT_ID=717 36&SECTION_ID=2 048 6
2.
The BMW Company Portfolio
2.1 The Com pany Sr tucture Bayer ische Motoren Werke AG (BMW) is a Ger man automobile, motorcycle and engine manuf actur ing com pany f ounded in 1916. BMW is among the most recognized automobile manuf acturers in the wor ld today. The com pany has established a reputation f or quality, effi ciency and prestige. It is Ger many¶s biggest multinational com pany that operates in diff erent par ts of the gl obe. BMW em ploys the strategies that hel p the com pany to gain com petitive advantage and maintain its position in the market in spite of the increas ing com petition and other environmental challenges. The headquar ters are situated in Munich, Ger many. Besides the BMW brand it owns and produces the Mini brand, and is the parent com pany of R olls -R oyce Motor Cars. Also BMW produces motorcycles under BMW Motorrad and Husqvana brands. In our project we will f ocus on BMW Auto. («Appendix 1. The Com pany Structure»). 2.2 BMW Overseas subsidiar ies In order to be efficient in overseas markets BMW has 6 subsidiar ies, so as to gain a f oothold on diff erent markets: 1) South Af ri ca BMWs have been assem bled in South Af ri ca since 1968, when Praetor Monteerders' plant was opened in R osslyn, near Pretoroa. BMW initially bought shares in the com pany, bef ore f ully acquir ing it in 1975; the com pany became BMW South Africa, the first wholly owned subsidiary of BMW to be established outside Ger many. 6 Since 1997, BMW South Af ri ca has produced vehicles in left hand dr ive f or ex por t to Taiwan, the United States and Iran, as well as South Amer ica. BMW's with a VIN num ber 7 star ting with "NC0" are manuf actured in South Af ri ca. 2) United States ( BMW Spar tanburg f actory) BMW Manuf actur ing Co has been manuf actur ing the X5 and, more recently, the X6 in Greer near Spar tanburg, South Carolina, USA. BMW's with a VIN num ber star ting with "4US and 5US" are manuf actured in Spar tanburg. In 2010 BMW announced that it would spend $750 million to ex pand operations at the Spar tanburg plant, which will allow production of 240,000 vehicles a year and will make the plant the largest car f actory in the United States by num ber of em ployees. 8 6
Ar ticle. BMW South Af r ica website htt p:// www.b mw plant.co.za/Content/f ra me_cont ent.jsp@content=htt p-3a-2f -2f haf 0gau02~5.htm 7 Vehicle Identification Num ber 8 Ar ticle. BMW to Ex pand P lant in South Carolina The Wall Street Journa l: p.B5. 7
3) India BMW India was established in 2006 as a sales subsidiary in Gurgaon (National Capital R egion). An ultramodern assem bly plant f or BMW 3 and 5 Ser ies star ted operation in ear ly 2007 in Chennai. The plant star ted operation in the first quar ter of 2007 and produces the diff erent var iants of BMW 3 Ser ies and BMW 5 Ser ies.9 4) China In 2003 the contract was signed on the production of sedans in China. May 2004 a f actory in the Nor th-eastern city of Shenyang was opened, where Br i lliance Automotive produces BMW-branded automobiles in a joint venture with the 10 Ger man com pany.
5) Canada In October 2008, BMW Group Canada was named one of Greater Toronto¶s Top Em ployers by Mediacorp Canada Inc., which was announced by the Toronto 11 Star newspaper. 6) Egypt Bavar ian Auto Group ( BAG) is a multinational group of com panies established in March 2003 when it was appointed as the sole im por ter of BMW and Mini in Egypt, with exclusive r ights f or im por t, assem bly, distr i bution, sales 12 and after-sales suppor t of BMW products in Egypt. 2.3 BMW Positioning BMW is a ³Nicher´ - it does not go directly against with large automobile manuf acturers. R ather it f ocuses on niche markets. Through market niching, the com pany identifies its target markets and produce products that will satisf y their needs and wants. BMW f ocuses on the premium segments. The com pany was able to establish a strong position as a premium car brand. BMW, em ployed niche marketing in order to fill in the void in the automobile industry. The com pany f ocused on small, market niches. The niche markets that BMW f ocused on developed into mainstream markets, propelling the growth of BMW. BMW ex per ienced a gradual change in position f rom a f ollower to a nicher. 9
International BMW website htt p:// www.b mw.com/ 10 Ar ticle. BMW opens China f actory. TestDr iven website htt p:// www.testdr iven.co.uk/bmw-opens-china-f actory/ 11
Ar ticle. BMW Canada Inc. htt p:// www.eluta.ca/work-at-bmw-group-canada 12 Bavarian Auto Gr oup website htt p:// www.bag-eg.com/ 8
Today, it is one of the market leaders in its category, which is the high per fo r mance and premium category. The com bination of a production system (which gives the com pany a par ticular advantage in its chosen market segment ), a wor ld-wide reputation ( f or product quality) and a brand (which immediately identifies the aims and aspirations of its customers) ± continues to make BMW one of the most profitable automobile manuf acturers in the wor ld. 13 2.4 Environmental record The com pany is a char ter mem ber of the U.S. Environmental Protection Agency's (EPA) National Environmental Achievement Track, which recognizes com panies f or their environmental stewardshi p and per f or mance. It is also a mem ber of the South Carolina Environmental Excellence Program and is on the Dow Jones Sustainability Group Index, which rates environmentally f ri endly com panies. However, there have been some cr iticisms directed at BMW, and in par ticular, accusations of greenwash in ref erence to their BMW Hydrogen 7. Some cr itics claim that the emissions produced d ur ing hydrogen f uel production outweigh the reduction of tail pi pe emissions, and that the Hydrogen 7 is a 14 distraction f rom more immediate, practical solutions f or car pollution. BMW has taken measures to reduce the im pact the com pany has on the environment. It is trying to design less-polluting cars by mak ing existing models more efficient, as well as developing environmentally f ri endly f uels f or f uture vehicles. Possi bilities include: electr ic power, hybr id power (com bustion, engines and electr i c motors) hydrogen engines. 15
2.5 BMW Strategies One of the main strategies em ployed by BMW is niche marketing. BMW protects its niche position by engineer ing, manuf actur ing, and developing adver tisement cam paigns. BMW off ers a distinctive product and service and it developed diff erentiation between its products and the com petitors¶. BMW used f rontal attacks in order to gain a com petitive position in the automobile industry. The com pany em ployed a limited f rontal attack, which f ocuses on specific custo mers. Another f rontal attack that was em ployed by the com pany is through research and design. The com pany invested large amount of money in designing and diff erentiating its products and services. The com pany 13 14
according to numerous ar ticles f rom the magazine AutoR eview (htt p://www.autoreview.ru/) Ar ticle. BMW's Hydrogen 7: Not as Green as it Seems. Spiegel, online newspaper
http://www.spiegel.de/international/spiegel/0,1518,448648,00.html 15 Bird, J and Walker, M: ³BMW A Sustainable Future? ´, page 11. Wild Wor ld 2005 9
introduced im prove ments on the products and off ered innovative f eatures and designs in order to enhance the value of its products.
The detailed view on Strategies is as f ollows: 1) Well-Executed Strategies BMW is a com pany with well -executed strategies. The com pany recogn izes its distinct capabilities and chooses the market and subsequently markets, which realized its f ull potential. Its dealings with its suppliers and distr i butors, its pr icing approach, its branding and adver tising strategies, are all built around that recognition and these choices. The com pany maintains a tight control over its distr i bution network. This control suppor ts the brand image and aids market segmentation. BMW cars are positioned diff erently and pr iced very diff erently in the var ious national markets. The same tight control is reflected in BMW¶s relationshi ps with suppliers, who mostly have continuing long associations with the com pany. BMW¶s activities are f ocused almost exclusively on two product ranges ± high-per fo r mance saloon cars and motorbikes ± which reflect its com petitive strengths. 2) Image of Prestige Par t of the com pany¶s overall strategy is to market its products as µprestigious¶. The com pany was able to develop an image of quality, reliability and consumer aspiration. Adver tising images can create strong diff erentiation in the customer ¶s eyes. BMW has spent millions of dollars on adver tising to create an image of per fo r mance and prestige f or the automobile buyer. 3) Branding Branding is also an im por tant strategy of BMW. BMW was able to develop premium brands. In the development of premium brands, BMW subjects its products in a process of continuous evolution and development. The com pany established a Brand Academy. 4) Flexi bility f or the Customer The BMW Group has optimized its internal processes to such extent that wishes ex pressed by the customer to modif y the power unit, the color, upholstery and special equi pment of the car he has ordered may be taken into account just six days pr ior to the star t of assem bly ± without any aff ection on the delivery date of the car.
5) Diff erentiation Diff erentiation is the act of designing a set of meaningf ul diff erences to distinguish the com pany¶s off er ing f rom com petitor ¶s off er ings. The five dimensions of Diff erentiation are: 1.Product ± physical products vary in their potential f or diff erentiation. 2.Services ± when the physical product cannot be diff erentiated easily, the key to 10
y M-ser ies models (fifth column in the table): based on the 3 Ser ies, the M3 defined an entirely new market f or BMW: a race -ready production vehicle. Since its debut, the M3 is heralded in enthusiast circles, in large par t due to its unique geometry and award winni ng engines. The newest V8-powered platf or m became available the autumn of 2007 in Europe, and second quar ter of 2008 f or the U.S. in coupe (E92), and later the cabr iolet (E93), and sedan (E90) var iants. Based on the 5 Ser ies, the M5 is the M division's V10-powered version of the E60 5 Ser ies. The M6 is the M division's version of the 6 Ser ies, and shares its dr ive -train with the M5. The Z4 M, or M Couple/M R oadster, is the M division's version of the Z4. The X5M is the M division's version of the X5, and the X6M is the M division's version of the X6. Both the X5M and X6M share the same V8 twin scroll twin turbo. y Hybr id ser ies models (sixth column in the table): the same cars as 7 and X6-ser ies models, but with a hybr id engine. These cars have the same packages. All ser ies (except M) can have 4 types of package: Basic, Comf or t, Exclusive, and Individual.
12
3.
Mark et Segments
3.1 Analysis of the Target Customer Segments After a caref ul investigation of R ussian market we have divided BMW customers into 3 major segments: Individuals, Businesses and Government (which includes Police, Administration and Ar my).16 For clar ity have a look at «Appendix 3. Types of Customers» y Individuals, amount f or almost half of all customers (45%), are businesspeople of medium and high income (star ting f rom 2,500 Euros). These are people, who work f or large com panies or businesses¶ owners. These are middle-age people, living in big cities, of high-status, open-minded, adventurous and young in spir it. These people usually have at least two cars in the f amily. Their cars are usually o f such models, as 5, 6, X3, X5, X6 and Z4 (usually as the second or the third car in the f amily). y Businesses amount f or 20% of BMW¶s clients. These are medium and high-sized businesses with a year ¶s revenue of more than 2,000,000 Euros. They pref er to use the cars in a leasing f or m (and then lease new ones). Their cars are 5 and 7 models. y Government: administration amount f or 27% of the clients. All governmental staff that have cars with dr ivers (BMW 7-ser ies); and governmental staff of middle level which use 5-ser ies. Government: army amount f or 1%. These are generals who have y cars (7-ser ies) with dr ivers. y Government: police amount f or 7% of the customers: Special Forces r m high-speed pursuits and catch very f ast of police, who work in order to per fo cr iminals. Their cars are BMW 5-ser ies, pref erably star ting with 3 .5-liter gasoline engines. 3.2 Service Out puts Demanded Diff erent customers have diff erent needs, as it is im possi ble f or a product or brand to be everything to all customers . So any com pany should m atching target its segments with specific core com petencies . (³Appendix 4. SOD´) Bulk Breaking. Most of the potential customers of BMW can buy any models in any amounts desired. Businesses usually buy f rom three to five cars; the Govern ment Structures tend to buy quite a big amount of cars, about 5 -7 units. As f or the Individuals, the bulk break ing is higher; as f or them it is more im por tant to buy one car instead of three. Spatial Convinience . In big cities t he distance between dealers is not more than 30 k ilometers; so that every dealer covers radius of 15 k ilometers. What is more BMW can transpor t the cars wherever the client wants.
16
according to numerous ar ticles f rom the magazine AutoR eview (htt p://www.autoreview.ru/) 13
Businesses and Government Structures are not so interested in spatial convenience as Individuals are. Waiting time. Intensity of demand diff ers f or: y Or iginal equi pment ( low) y Postsaleservice and par ts ( high) There is often a correlation between bulk-break ing, spatial convenience and waiting-time. Businesses, Government Administration and Police the supply is equal to demand, as these segments need cars asap, and the delovery time is f rome 1 to 3 months which is much less then com petitors' delivery time (of 6 months in VolksWagen, Mercedes, Jaguar a nd PSA group). As f or the Individuals and Ar my, the supply is much higher then the demand as these segments are used to wait f or a longer time, and a couple of moths is seen as a very shor t per iod. Depth of Assortment / Variety . As Individuals tent to diff er in their pref erences, they need a multi ple option. As f or the rest, Businesses and Govern ment Structures, they are quite aware of the models they are intended to buy and they choose par ticular ly what they need. Customer Service . Individuals and Police use service centers, as they don¶t w ant to deal with repair ing themselves. Besides, Police orders 5 ser ies models, but they also have a pr ivilege to choose specific power engine. Other segments, Businesses, Government Admini stration and Ar my, have special services of their own within their structure, so they don¶t need any BMW service f acilities. Information provision: education of buyer about product, attr i butes, usage, services, etc. As individuals don¶t sometimes know about the BMW cars they need to be educated ± so BMW dealers provide f ull high-quality consultation to customers if
needed. Other segments tend to be f amiliar ized with the car option and var ious packaging so they don¶t need any inf or mation provision.
14
4.
Distri ution
4.1 Distr i bution Channel Structure
Table 2. Distr i bution Channel Structure
according to the BMW official web site After the cars are manuf actured, the Logwin com pany transpor ted them to BMW R u F land Trading and dealers (more detailed inf or mation in ³Supply chain structure´). Besides, BMW R uland Trading also provide dealers with accessor ies and par ts. End-users can purchase the cars f rom both dealers and BMW R uland Trading. Major Channel for segments. In order to satisf y var ious customers needs, BMW uses the f ollowing channels. Individuals make orders through the web site and in dealer offices. Businesses as well make their orders in dealers but they also can order the cars directly f rom BMW R uland Trading. Govern ment Structures, obviously, order cars f rom BMW R uland Trading. 4.2 Market Coverage On the R ussian market BMW uses only exclusive distri ution. This type of distr i bution is usually seen with high end and luxury products, which is absolutely suitable f or BMW cars. The structure of an exclusive distr i bution f avors both the manuf acturer and the distr i butor: All dealers receive cars and auto accessor ies without mark up, they have unlimited dealer agreement and are provided with all necessary corporate identity elements. The headquar ters on the other hand have com plete market coverage and a total control over the quality of f ront office, which is especially im por tant f or luxury products. All Customer Segments are covered: those customers who are aware of the BMW products are able to buy very easily what they are intended to buy; those who don¶t know what they need but want to buy some BMW car, receive high quality consultancy so that they can make a decision whether to buy a car and choose the specific package that absolutely suits the customers¶ needs. In order to communicate to those potential customers who don¶t have the intention of purchasi ng BMW, the com pany uses TV, wire adver tising, product placement and screening shor t films dedicated to BMW cars, so that potential customers become interested in this brand. 15
Channel Evaluation There are diff erent types of per f or mance measurement and we have chosen Fairness, Economic Measurement, Channel Efficiency and Gap Analysis : - Fairness: the business is very socially responsi ble and all business processes are transparent, thus the com pany realizes its responsi bility in the whole distr i bution chain, f rom subsidiar ies to dealers and service centers. - From the Economic point of view, the whole business is very f easi ble and in 2010 won a lot of awards, including those about business f easi bility. 5.1 Channel efficiency In order to analyze the channel efficiency and per fo r mance diff erent tools can be used. We have chosen the Coughan¶s Efficiency Tem plate, which hel ps to answer the f ollowing questions: a) Who is doing what flows in the channel? b) How much of the cost/ val ue added each mem ber is responsi ble f or? c) Whether each channel mem ber is being f air ly com pensated ? 5.
Table 3. Efficiency Tem plate
Weight f or flows Major Costs are among Physical possession, Ownershi p, Promotion, Financing as these are the most ex pensive business processes in car manuf actur ing. In 2010 there was a situation that Beneficial Potential influenced the Final Weight as f ollows: - Physical possession appered to be higher as the com pany didn't manage to sell targeted amount of cars. - Ownershi p, Promotion, and Payment were in result a bit higher as in these processes there is always room f or im provement but the com pany manages with them quite sucsessf ully. - As f or the rest, Negotiation, Financing, Risk ing, and Order ing the Beneficial Potential is Low as there absolutely no problems with these. r mance of channel mem ber: Propor tional flow per fo Manuf acturer per fo r ms mostly in Promotion, Negotiation, Financing, and Risk ing, and Payment - as these are the most im por tant par ts of the business. r mance is in Physical possession, Logwin (outsourcing) most per fo Negotiation, Risk ing as it deals with warehousing and transpor ting the cars. Dealer is mostly involved in Negotiation, Risk ing, and Order ing, as it needs to deal with customers directly. 16
r mane is in Physical possession, Ownershi p, Promotion. End-user's per fo Financing, and Payment, as it is the customer who makes the whole system work ing.
The cost added by each mem ber is as f ollows: Dealers 7-10% Logwin 5% BMW 82-85% So it is obvious that each channel mem ber is being com pensated absolutely f air ly. 5.2 Gap Analysis 5.2.1 Demand-side Gaps From the side of R ussian market, the supply of BMW exceeds the demand of R ussian customers in most cases. This happens due to the f act that R ussian market is histor ically not as used to such a high level of service as in European and US markets. The BMW Com pany uses the strategy of off er ing only the best quality products and services in all markets, so only time can hel p to close these gaps. 5.2.2 Supply-side Gaps Firstly, we would like to star t f rom the sources of the gaps and they are as f ollows: Dealer Off ices: - Manager ial bounds: the service in dealers¶ offices exceeds hugely the demand, so that customers f eel uncomf or table (which goes together with specifity of R ussian market, and makes this gap to be solved with time only). - Environmental bounds: more involvement in introducing new progra ms of customer service techniques (e.g. neiro marketing, playing on the five senses in dealer offices). Manufacturer: Environmental bounds: even more involvement in high technologies and techniques. Secondly, we would like to talk about the supply -side gaps, which in our case is promotion and negotiation, which you can see f rom our Appendix concerning Supply-side gaps.
5.2.3 Closing Gaps Planned techniques f or closing gaps are the f ollowing: Dealer Offices - Environmental bounds: Negotiation: Better usage of new technologies, im prove ment of web-site Manuf acturer - Environmental bounds: Promotion: constant search f or new techniques and new high -technologies. 17
6.
Power imlementation
BMW has the power to influence its dealers¶ decisions. The headquar ters put a lot of attention to the relations with dealers and comes up with diff erent progra ms and bonuses or penalties. Because of its commanding brand image and well recognized automobile s after so many years in the industry BMW has the power to im plement diff erent strategies over the dealers to asser t their power. Strategies used by BMW are as f ollows: R eward power (Promise Strategy) It¶s an often used f ri endly strategy to reward the dealershi p if they do f ollow BMW¶s rules. This also serves as great motivation f or the dealers. BMW monitors the operations of its dealers and to those that have best per fo r mance the com pany provides cer tain rewards, such as discounts, f ree staff training and even f ree accessor ies. Coercive power (Threat Strategy) This is more of an old f ashion strategy still used today to get things done. If the dealers don¶t adhere the ter ms of contract, the com pany can punish them in several ways: call off the delivery, wr ite ar ticles on the official club website (which is under the BMW headquar ters) unflatter ing ref erences, which would damage the dealer ¶s image com pletely. Legitimate power (Legalistic Strategy) The legalistic strategy where the dealershi p agreed bef orehand to f ollow BMW¶s guidelines accordingly, BMW has the r ight to make their own rules and the dealershi p have to f ollow them because they agreed bef orehand mak ing them dependable of the manuf acturer. Expert, reward power (R ecommendation Strategy) As the BMW has enor mously big ex per ience in automobile industry in general and in co-operation with dealers in par ticular, obviously the com pany has know-how in this area, which it shares with the dealers. There is a so-called concept of three ³S´: Service-dealershi p center. The BMW provides standard Schematic Designs f or dealer centers (of diff erent sizes) according to the architectural and engineer ing standards of BMW, as well as f urniture and elements of corporate identity. Servicing depot also must be designed and equi ped according to the BMW standar ts. Spare par ts stock, in which there must be a cer tain amount of diff erent par ts and accessor ies. Dealers treat all these as both an obligation and at the same time as the r ight, as it hel ps a lot f or the new dealer to star t its operations. Most of the strategies that BMW im plements in its relationshi ps with dealers ref er to High Pressure Strategies, which generally results in resentment and potential conflicts. However, in our case it is not so due to the specifics of R ussian culture and mentality. As a luxury vehicle manuf acturer BMW has the power necessary to apply any of these strategies depending on the scenar io must be aw are that there is many ways to asser t their power dominance however they understand how to use it and when is the most adequate time to do so. 18
7.
Conf lict in distri ution channel
The only conflict in the BMW¶s logistic channel is the existence of gray dealers all over the R ussia. The amount of gray dealers is huge despite the constant growth of the num ber of author ized dealers. This happens due to the f act that in R ussia it is absolutely legal to run such gray business. According to the ex per ts¶ opinion, gray dealers in R ussia account f or 20% of the whole market (not only BMW). Gray dealers appear not only on R ussian market, but also in many countr ies all over the wor ld. In order to survive on the market, gray dealers are very flexi ble and prom pt; they eager to satisf y the needs of customers as soon as they appear. And often the new models appear on the R ussian market bef ore the official release date. From the side of the manuf acturer, this conflict is perceived , as BMW, off course, is against unauthor ized centers, but the perception of this situation is cognitive, emotionless, dui to the f act that this problem is im possi ble to solve. From the side of dealers, however, the conflict is aff ect ive, as they lose their potential customers and as a result have less profit. But still, the conflict is not ex pressed, as it is absolutely legal. Gray dealers off er wide var iety of services and can lower their pr ices, thus having lots of customers. They even have their segmentation: Those who don¶t want to wait f or the car being delivered in 3 months, and able to pay more in order not to wait. Those who would like to spare money as the cars shi pped f rom the US are cheaper up to 20%. The paradox is that shi pping the car f rom Amer ica is much cheaper than f rom Europe. This happens because the tax on cars in the US is very low, and the cars mostly are bought f rom the US leasing com panies and get customs clearance on R ussian buyers, which also results in lower ing of pr ices. There are cer tain negative sides f or the customers: dealers off er the cars with poorer accessor ies and without any guarantee (even those which is provided by manuf acturer). Still, official dealers take such cars f or repa ir and maintenance, which is a chargeable service. Never theless, f rom the marketing point of view, BMW takes advantage f rom gray dealers, as they satisf y the need of those customers who cannot off er to buy cars f rom official dealers, which maintains the i nterest in the brand and the offtake level. 17 18
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Ar ticle. Gray Dealers. Auto Ex per t, web por tal http://www.autoexpert77.ru/seryie-dileryi.html 18 Ar ticles. Za R ulem ± russian magazine dedicatet to the automobile indus try 19
8.
Overview of logistics and supply chain management.
8.1 Logistics as a par t of the Overall Strategy In order to remain com petitive and to protect its niche market, BMW opened manuf actur ing plants in South Af ri ca, the United States, and China. This strategy was im plemented as par t of the overall strategy of the com pany and in order to make the transpor tation of mater ials and products (logistics) more eff ective and efficient. Logistics play an im por tant role in the production and manuf actur ing of the com pany¶s products. The BMW produc ts are created by very flexi ble and highly efficient production network with mature job processes and the most advanced plants and f acilities. As a global player, the BMW Gr oup is represented through its premium products of the BMW, MINI and R olls-R oyce brands in more than 140 countr ies. A flexi ble network of production plants in 12 countr ies ensures that each customer receives exactly the car he has ordered tailored to his s pecific wishes and pref erences. Flexi ble and efficient assem bly at BMW is guaranteed by sophisticated logistics f or a smooth flow of mater ials and efficient production. Efficient logistics ensures precise delivery of the par ts required exactly on time, wit h a smooth and efficient flow of par ts f rom BMW Group com ponents plats or supplier com panies. 8.2 Supply chain structure Suppliers («Appendix 5. Supply Chain Structure») Communications with suppliers are in the responsi bility of BMW Group par tners f rom Purchasing, Development, Logistics, and Quality Management (the so-called ³Clover Leaf ´). The overall responsi bility f or the purchase and procurement of production mater ial lies within the Division ´Purchasing and Supplier Network´ of the BMW Group. Dur ing the process of selection, potential suppliers have to prove that they 19 meet the demanding requirements of BMW Group. The biggest supplier is Saudi Basic Industr ies Corp. (SABIC), which provides 16% of BMW¶s raw mater ials. 20 Other big suppliers are Lilli put Electronics Co., Ltd (China), Guangzhou AutoMile Co.,Ltd (Hongkong), Auka Industr ial Ltd (China), Jeasun Technology Co., Ltd ( China)21 Manuf acturer Under the Bayer ische Motoren Werke AG (BMW), there are about 30 BMW¶s plants all over the wor ld. In our case, the manuf acturer develops
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Ar ticle. Supply Chain Management of BMW. Management Paradise, online community
http://www.managementparadise.com/forums/elements-logistics/211402-supply-chainmanagement-bmw.html 20 Ar ticle. SABIC. Mubasher, exchange trading ana lysis tool. http://www.mubasher.info/portal/CASE/getDetailsStory.html?storyId=1813751&goToHomePa geParam=true&siteLanguage=en 21 Ar ticle. Bmw Dash Suppliers. TradeFord, web market place platf or m http://www.tradeford.com/suppliers/bmw-dash_7 20
corporative brand in order to make all the products known among the end -users. The cars that go to the R ussian Market are assem bled on 4 f actor ies: 1) USA, South Carolina, Greer (the production of X5, X6 models) 2) Austria, Graz (the production of X3models) 3) Germany, Munich (the production of all BMW Auto models, some of which par tially), which produces cars together with 4) the plant in R ussia, Königsberg (the production of X5, X6, 5 models). For more inf or mation look «Appendix 6. Production by C ountry» Transpor tation and Wharehous ing Cars assem bled in these f actor ies (except f or the plant in R ussia, Königsberg ± the cars go directy to BMW R uland Trading) are transpor ted to the warehouse : f or more than 30 years the motor manuf acturer BMW has outsourced the management of vehicle ex por ts to the logistics service provider Logwin (f or mer ly Thiel Logistik). These long-ter m relationshi ps are very strong due to the f act that the major ity shareho lder in Logwin¶s parent, Delton, is also the largest single shareholder in BMW. However, as Dr Stephan Freichel, Managing Director of Logwin¶s Solution business sector points out, Logwin has regular ly and successf ully won repeat and additional business in open BMW¶s tender against the off er ings of por t operators and other logistics com panies. BMW R uland Trading, Dealers The cars than are transpor ted to BMW R uland Trading, which is located in R ussia and includes BMW Finance Services (that provides the credits and insurance f or cars and auto accessor ies) that in its turn includes Leasing mostly f or serving the Businesses Customer Segment. 1) Then the cars go directly to customers: Businesses and Governmental Structures. 2) Another direction is to Dealers. There are 37 Dealers, some of which have affiliates, so the overall num ber of Dealer Offices is 57. The f uture plan of the com pany is to have about 70 dealers in R ussia in a couple of . Every Dealer has a Service Center and a Finance Service office (which has the Leasing section). So there are 57 Service Centers (that are located together with the Dealers) and also 2 separate Service Centers, both situated in Moscow. Besides there is very many non-official service centers in R ussia that off er repair f or BMW cars. But the com pany wants to off er its clients only the best quality service, so non official r mance, have the chance to service centers, which show high level of per fo par tici pate in the BMW's programme, which is call ed ³Par tner in Quality´. Within this program, BMW off ers non-official service centers to become BMW author ized official ones, theref ore BMW provides them with high-quality staff training and official accessor ies without any mark-ups and even an ability to become BMW Dealer.
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There is one more direct channel which is fictional: customers can make the off er (purchase a car) via Internet on the BMW R uland Trading web site. It is fictional because all the documents must be signed physically. («Appendix 7. Order Flow») 8.3 Passing of Proper ty The moment of passing of proper ty (signing the documents) happens directly when the customer comes to the dealer to pick up the car or when car is transpor ted to the customer ¶s place. (Still the potential customer, who ordered a car even with specific package, can ref use to buy it even after the car is transpor ted to the dealer or the customer ¶s place.) The same happens with Leasing: r ight of use is passed in the moment when customer physically takes the car.
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9.
Competitive advantage
The most notional com petitive advantage that BMW gets through its distr i bution and logistic strategies is that the delivery time in no t more than 3 months, whereas the main com petitors such as Mercedes, Volkswagen and Jaguar deliver cars in 6-10 months. This advantage is achieved through several ways: - Localized Production: BMW sets up the plants in strategic geographical points in order to minimize the delivery time. - The high speed of order acceptance due to the well -f or med and f ri ction less structure of client service and drawing up of an order. - Outsourcing the transpor tation to Logwin, which is an international com pany f rom Luxem bourg that provides com prehensive logistics and transpor tation solutions. Logwin has ex per tise in how to deliver the products within the minimum time needed. Other advantage is that customers have a possi bility to choose f rom var ious accessor ies f or any BMW model. BMW is the only producer that off ers this in the premium segment. Besides, the service of deliver ing the car the customer ¶s place, which is provided f or more than 5 years (whereas Mercedes f or exam ple has off ered such service f or only half a year)
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Conclusion
BMW is a com pany with a well -planned and well -executed strategy. It is a com pany, which managed to recognize its distinctive capabilities and chose the market , which realized its f ull potential. Its dealings with its suppliers and distr i butors, its pr icing approach, its branding and adver tising strategies, are all built around that recognition and these choices. It continues to dominate the industry it belongs in. BMW is constantly im proving its product line. It is finding new ways to give their product a more unique identity and provide to clients products that gives them satisf action.
To achieve its aims, the com pany knows how to deploy its strengths with an efficiency that is unmatched in the automotive industry. From research and development to sales and marketing, BMW Group is committed to the very highest in quality f or all its products and services.
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R eferences
1. Kotler, P. Marketing Management Millennium Edition, 10th edn., Upper Saddle River, New Jersey: Prentice Hall., 2000. 2. Ar ticle. BMW to Ex pand Plant in South Carolina The Wall Street Journal: p.B5. 3. AutoR eview, The magazine htt p://www.autoreview.ru/ 4. International BMW website htt p://www.bmw.com/
5. Bavar ian Auto Group website htt p://www.bag-eg.com/ 6. Annual R epor t. BMW Group - 2005. R etr ieved on 16 June 2008 htt p://www.bmwgroup.com/e/0_0_ www _bmwgroup_co m/investor_relations /finanzber ichte/geschaeftsber ichte/2005/_pd f /gb2005 _gesa mt.pdf 7. Annual R epor t. BMW Group - 2007. R etr ieved on 16 June 2008 htt p://www.bmwgroup.com/annualrepor t2007/_do wnloads/BMW _Group_2 007.pdf . 8. Ar ticle. The Fascination Production. BMW Group, 2007. htt p://www.bmwgroup.com/bmwgroup_prod/common/include/teaser/e/pdf /f asz_produk tion.pdf . 9. Ar ticle. It - BMW and Logwin. Finished Vehicle Logistics, magazine. htt p://www.f vlmagazine.com/Ar ticle.aspx?aid=83 10.Ar ticle. BMW's Logistics as a par t of the Overall Strategy. Think ing Made Easy, online management li brary. htt p://ivythesis.typepad.co m/ter m _paper_ topics/2010/07/b mws -logistics-asa-par t-of -the-overall-strategy.html 11.Ar ticle. Auto Industry Trends Econo my. Watch - online economics community that publishes economy, investment & finance repor ts . htt p://www.economywatch.com/wor ld-industr ies/automobile/auto- indus trytrends.html
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12.Ar ticle. Overview of Plunkett's Automobile Industry Coverage. Plunkett R esearch, Ltd. ± the organization that deals with industry statistics, trends and in-depth analysis of top com panies. htt p://www.plunkettresearch.com/automobiles%20trucks%20market%20res earch/industry%20and%20bus iness%20da ta 13. Ar ticle. BMW opens China f actory. TestDr iven website htt p://www.testdr iven.co.uk/b mw -opens-china-f actory/ 14. Ar ticle. BMW Canada Inc. htt p://www.eluta.ca/work-at-bmw-group-canada 15. Ar ticle. BMW South Af ri ca website htt p://www.bmw plant.co.za/Content/f rame_content.jsp@content=htt p -3a-2f 2f haf 0gau02~5.htm 16. Ar ticle. Automotive Industry Trends - Automotive Franchises. Franchise Direct web por tal htt p://www.f ranchisedirect.com/automotivef ranchises/automotiveindus trytre ndsbusinessrepor tii/7/249 17.Ar ticle. Gray Dealers. Auto Ex per t, web por tal htt p://www.autoex per t77.ru/seryie -dileryi.html 18.Ar ticles. Za R ulem ± russian magazine dedicatet to the automobile industry 19.Ar ticle. Supply Chain Management of BMW. Management Paradise, online community htt p://www.management paradise.com/f orums/elements -logistics/211402supply-chain- management -bmw.html 20.Ar ticle. Bmw Dash Suppliers. TradeFord, web market place platf or m htt p://www.tradef ord.com/suppliers/bmw -dash_7 21.Ar ticle. SABIC. Mubasher, exchange trading analysis tool. htt p://www.mubasher. inf o/por tal/CASE/getDetailsStory.html?storyId=1813 751&goToHo mePageParam=true&siteLanguage=en 22.Ar ticle. BMW's Hydrogen 7: Not as Green as it Seems. Spiegel, online newspaper htt p://www.spiegel.de/international/spiegel/0,1518, 448648,00.html
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Appendixes
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