Group E, Sec A - BMW

New Product Development Prabhu
Faculty: Prof. Ganesh N.
BMW: The 7 Series Project (A)

Case Analysis
Submitted by Sec A, Group E Anu Monal MInz Atul Mehra Mayank Gupta Rajat Kumar Das V. Arun Kumar
BMW: THE 7 SERIES PROJECT

BMW was a leading player in the luxury car segment mainly dominated by European manufacturers in the 1990s, and was at the leading edge of technology in many critical areas. However, the entry of Japanese car manufacturers into this segment challenged their supremacy. These automakers were able to provide equal and superior value to the customers while pricing substantially lower than BMW and other European manufacturers. This led to a large shift in the market share in US. BMWs strategy was to be a leader in technical and styling innovation. Given the new events, BMWs top management had three major strategic objectives: 1. Increased Product Variety 2. More Frequent Product Innovations 3. Improved quality of Newly Launched Models Product development at BMW took about 6 years, which was a high number given the industry. While Japanese manufacturers spent only 6 months at the design stage, BMW spent 2 years to perfect their design. Their persistence in ensuring that they got the styling exactly right can be seen in the example of costly re-design of the 7-Series only 20 months prior to the launch. Their prototypes were hand-made to ensure that any sudden changes in the design could be accommodated easily. This required highly skilled workers and saved them the costs they would have had to incur if they were to use pre-production tools. However, despite the claims that creating prototypes by hand ensured that flaws could be easily identified and rectified, it still took about 3 to 5 design cycles before a prototype could be finalized and was deemed ready for pilot manufacturing. If preproduction tools were used a prototype could be created much faster, however design changes could not be incorporated as quickly as with hand modelled prototypes. During their Pilot Production Stage, they used a mix of production and pre-production tools to simulate an actual production line, even though the production rate was only 1 car per day. However many minor and a few major problems were discovered at this stage, which could delay introduction of a car. This was followed by a factory Pilot Stage, followed by the full production ramp-up, where, to utilize the high fixed costs, they phased out old models in a progressive manner as the production of the new models increased. This, however, added to the confusion as a lot of minor problems still crept up in the actual production stage. It was found that incidence of customer complaints about new models was higher than the current norm in the market. (The entry of Japanese players had raised the bar.)
1
THE 7-SERIES PROTOTYPE

The 7-Series project has already crossed the design stage, and is just 2 years away from actual production. The prototype team is considering whether to get prototype cockpit components fabricated by outside suppliers using more automated methods, more specialized tooling and less skilled workers. A single supplier would then construct major subassemblies of the cockpit and ship these to BMW where they would be assembled into prototype vehicles on a pilot assembly line directly (rather than the prototype shop).
CORE ISSUES
From the above, two core issues can be identified: 1. Current process of making prototypes masks many design and manufacturing issues which only surfaced during pilot productions and ramp-up. 2. Late design changes lead to higher costs and delay in product launch.
RECOMMENDATIONS
The new approach considered by BMW is a step in the right direction as it moves towards the more downstream steps earlier in the product development cycle rather than getting bogged at the design stage. However, they should make some changes to the implementation as outlined below: 1. Rather than waiting for their long design phase to complete before starting on prototyping and then moving to pilot production and later steps, they should start the pilot production in parallel, so that they can catch any problems occurring in the later stages and capture in design. Even though, they start these stages after design, they have to make many changes later on which could be fast-tracked by this process. This is applicable not only for the cockpit, but the entire automobile. This means that rather than concentrating on using expensive pre-production tools in prototyping, they must focus on starting the pilot production stage early so that they can capture any possible issues in the basic features of the product early. As more design changes are made, these will be tested in other prototypes. 2. BMW should involve suppliers from an early stage of product development to ensure that the suppliers can foresee any problems in the production process. However, keeping in line with the idea of the previous paragraphs, the final specifications to the supplier should not be frozen and should allow for some ambiguity to allow for flexibility in the system.
3. Everyone in the development team should be made aware that this process does not constrain their creativity or flexibility, but rather gives them more leeway to incorporate changes into the design late in the development cycle. There should be greater flexibility in the production process; the team can have a matrix structure. 4. There should also be some checks and balances in the design process to determine why so frequent changes are needed so late in the cycle. By stipulating the restrictions on the design, the design time can be brought down from the current style of 3 to 5 design cycles.
REAL OPTIONS IN NEW PRODUCT DEVELOPMENT

In essence, BMW should take a leaf out of the Toyota product development process, where multiple concepts were prototyped and tested simultaneously (The Second Toyota Paradox). The time in design alone is reduced and next stages start quickly. This is the opposite of waiting for a single finalized design and start working only after it. The key idea here is allow for some deliberate uncertainty and to not freeze those variables (some dimensions, shape factors, etc) which could be changed later. This would save time for BMW, as it means they are explicitly giving time for the design to finalize over a period, rather than putting a constraint by not starting the prototyping until concept development is finished. This is equivalent to a real option in the case of product development as by keeping options open till as late as possible, BMW can save money it would have lost if it had selected a final alternative earlier. Rather than focusing on reducing waste of material, this approach focuses on reducing time spent before actual production starts. The flexibility is maintained in the design as there is an understanding that the product features have not been frozen yet. This would ensure that they can spend the saved time in ensuring that their actual production process ensures quality in the final products. The time needed for the switchover from prototype stage to the pilot stage to the production stage can also be reduced, as there will be less communication needed between the various teams as they understand that design is still flexible. Over the whole product development cycle, this approach saves time as well as cost by overlapping the design and production phases. As BMW does not compromise in the design, and is willing to make changes even very late in the cycle, this is a sensible approach which they should adopt. Rather than desiring an impossibly ideal situation of perfection before moving on to the next stage, they must recognize them and keep their processes moving while design is still on.
GENERAL STRATEGY FOR NEW PRODUCT DEVELOPMENT

BMW approaches every new model development with the intent of creating a new car. Their aim is to create a design that will still look fresh and be sellable in 12 years. However, this is completely opposite to their current strategy of want more frequent product introductions with increased product variety. 1. Thus they must concentrate in providing small upgrades/derivatives in their product lines, rather than targeting a breakthrough design every time. This would save much of their time and money in the new product development process. This will not mean that they have to take a hit on their quality. Instead, the consumers would have a fresher recall of latest BMW brands. 2. Thus parameters for the design stage-gate should keep these targets in mind, and rather than always looking at one ambitious derivative in next 5 years, they can split it into 2 or 3 small design goals to be achieved through multiple derivatives in the same period. 3. This would also ensure that the confusion in the ramp-up period due to mixing of existing and latest designs is reduced, as the variations would be on a smaller extent than earlier.
REFERENCES
1. The Second Toyota Paradox, Sloan Management Review, Spring 1995.

Group E, Sec A - BMW

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New Product Development Prabhu

Faculty: Prof. Ganesh N.

BMW: The 7 Series Project (A)

BMW: THE 7 SERIES PROJECT

THE 7-SERIES PROTOTYPE

REAL OPTIONS IN NEW PRODUCT DEVELOPMENT

GENERAL STRATEGY FOR NEW PRODUCT DEVELOPMENT

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