Bmw Case Study

1. How does the concept of customization within the automotive arena affect the economies of scale on a supply chain?  

1. What are the advantages?
2. What are the disadvantages?

BMW’s reputation was built on cars that combines great styling with exceptional performance. However, in the early 90’s, the general view was that BMW was manufacturing cars that looked alike. This, combined with intensifying competition - from GM, Toyota, Ford, Volkswagen and other auto manufacturers - led BMW to differentiate its offering. Indeed, BMW understood that it had to offer extra value to its customers to be able to make an impact on the market. This was one of the drivers of the customization program that BMW was the first to introduce at that time. As Helmut Panke, chairman of BMW said in 2002: “For us the experience of driving a BMW has to be inspirational, special. There will never be a boring BMW.”

BMW’s customization program provided the key advantage for customer to avoid making compromises while buying a new car, “We want the experience to be completely wonderful” as Vic Doolan, president of BMW North America, said. Through this program, customers’ orders were conveyed to the factory which manufactured them according to the specifications and delivered them to the buyers in the shortest time possible. This system, called “mass customization” combines the economic advantages of mass production with the differentiation and exclusivity of customization but required a great amount of flexibility in the supply chain and effective communication. BMW was one of the prominent implementers of mass customization in the auto industry creating a signification competitive advantage.

One of the biggest challenges BMW faced with the implementation of the “customization” strategy was the increase in the time taken to produce a given car. Indeed, the flexibility required for customizing products, led implement more complex processes, taking more time to produce each car. This is one of the main disadvantages of customization. This significantly hurt the economies of scale upon which the auto industry was based on. In fact, before BMW introduced customization, the automotive industry was based on “standardized models” manufactured on a large scale, thus reducing per unit costs as more cars were produced. Introducing the “customization” prevented BMW to benefit from these “economies of scale” (see chart below),.

However, through its customization program, BMW was able to fulfil its client’s main demand that no other car manufacturer was able to do: to deliver cars matching exactly customer’s tastes without having to do compromises. This allowed BMW to gain market share and deliver products to a larger segment of the population. By successfully changing and adapting if supply chain to support this new business model, BMW was able to product large number of customized vehicles and succeed in applying the “mass customization” model. By doing so, the company was able to benefit from “economies of scope” (see chart below), which is one of the main advantage of “mass customization”.