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We developed a strategic-planning model to optimize BMW's allocation of various products to global production sites over a 12-year planning horizon. It includes the supply of materials as well as the distribution of finished cars to the global markets. It determines the investments needed in the three production departments, body assembly, paint shop, and final assembly, for every site and the financial impact on cash flows. The model has improved the transparency and flexibility of BMW's strategic-planning process.
Key words: planning: corporate; transportation: shipping.
History: This paper was refereed.
A car manufacturer's decisions on investing in production capacity are critical. A great part of the capacity is product specific, for example, the assembly lines for bodies. The installed capacity must be sufficient for the whole life cycle of the product, six to eight years, because expanding capacity later is very expensive. On the other hand, low utilization of capacity threatens the profitability of the product. Although the time to market for new products has dropped remarkably, it still takes several years from the investment decision to start serial production. Thus, a firm's decisions on very large capital investments affect its competitiveness for the next 10 years.
A car manufacturer's situation for strategic planning is complicated by market trends, currently the market's increasing dynamics and globalization of the supply chain, including sales markets, production sites, and suppliers. Competition forces car manufacturers to launch new car models frequently to provide new functions for customers, new concepts, such as sports activity vehicles, new materials, such as aluminium, and future electronic components, such as dynamic stability control (DSC) or BMW's integrated driving system, I-Drive. Customers want individual configuration, particularly for premium cars. Besides the classical markets in Europe, North America, and Japan, new markets are emerging, such as Eastern Europe and China. The product life cycles in these new markets are likely to be different from those in the established markets. Possibly, manufacturers can sell discontinued models in new markets. Locating production sites throughout the globe brings production closer to such markets, permitting firms to benefit from the individual advantages of certain countries, for example, investment incentives and low costs for labor.
Strategic Planning at BMW
The BMW Group, with its head office in Munich, Germany, manufactures and...