What Happened to Derail BMW’s Supply Chain?

Bayerische Motoren Werke AG, or BMW, is the world’s largest and most recognizable manufacturer of luxury vehicles, catering to high-end customers in over 50 countries around the globe. BMW is most known for providing high quality vehicles, and catering to customers with excellent, timely parts and service. This has helped the company garner stellar customer satisfaction ratings, along with intense brand loyalty. But are there cracks in the armor? Some tell-tale problems within the BMW supply chain may spell woes to the automaker if some crucial issues within their supply chain aren’t addressed.

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BMW’s New Logistics and WHM System

After market parts, including repair parts and performance enhancing parts, are a huge part of any auto manufacturer’s profit margins. These parts also help build brand loyalty, a key factor in the success of BMW. About three years ago, BMW embarked on a new logistics and warehouse management system (WHM). At the time IBM was working on the project, but later disassociated from it, offering no explanation for the severance. SAP is providing the software for the initiative.

When the new system rolled out in June of 2013, immediate problems arose. BMW’s 400 dealers in Germany, as well as over 40 dealers in China, and numerous dealers in the United States, Australia, Canada, Belgium, Romania, and South Africa began having problems getting the parts they needed to service customers.

Dealer and Customer Backlash

Customers have reported wait times as high as three months for parts. Gerhard Kossielny of Munich, Germnay waited four weeks for repairs on his flood damaged BMW. Though BMW had increased their inventory before rolling out the system, the backlog of parts orders continued to pile up, as does dealer and customer frustration.  BMW has vowed that the issues will be resolved within the month, and workers at the central warehouse in Dingolfing, Germany are working extra shifts through the end of the year to address backlog parts orders.

The Underlying Problem

On the surface, BMW’s problems seem to be a temporary glitch in the supply chain, attributable to installing a new logistics and WHM system. But combined with BMW’s other supply chain problems, it could be a sign of something more significant — an insecure and vulnerable supply chain that isn’t being managed the way one would expect a world-class luxury products supplier to.

Following the tragic earthquake and tsunami in Japan in 2011, BMW began having problems getting the parts they needed to build vehicles and service customers. With over 10,000 suppliers spanning the globe, it’s no surprise. BMW has partnered with students at Manchester Business School to develop a system for identifying and addressing breakdowns in the supply chain before they happen.

The Bottom Line for BMW

There is no way to forecast certain problems, such as a sudden volcanic eruption, mass riots in crucial areas of the world, or other disasters for which no one can predict. The solution might not be trying to forecast and address problems with more than 10,000 suppliers, but rather to reduce the number of suppliers the company depends on, thereby limiting liabilities.

Customers, likely, will forgive and forget about BMW’s errors to date. But how long can the company continue to disappoint before customer satisfaction ratings and brand loyalty begin to erode? [/show_to]