BMW Falling Out of Favor With Suppliers

[EnI]

The main BMW AG problem is that the company has relatively weak purchasing power. They are a small company after all.

MB - as a part of DaimlerChrysler had this advantage of big company with strong purchasing power being behind the brand. Being able to make much stronger pressure (without hearing any crying from the suppliers) on the suppliers. I'm eager to see what will happen now, when Chrysler is gone - and purchasing quotes are much lower. As you can see MB is already being forced to cooperate with other carmakers. As it is BMW, and seeking even more cooperation opportunities.

Lexus, Infiniti, Jaguar, Audi, Porsche, Bentley, Lamborghini, Ferrari, Maserati, Bugatti etc - all this brands have big companies behind, companies with enormous purchasing power. A power that can force any supplier to do anything.

Unfortunately BMW (neither MB from now on) is in this position. So, the suppliers can cry loudly, and threaten, scaring the BMW customers etc. Of course also BMW is not in a position to simply walk away - they are dependent on some suppliers very much. So, the negotiations for the new prices will be hard, and a lot of dirty laundry will be washed in public.

Till the prices were reasonable, there was no problem. But in the last 2, 3 years the raw material & energy prices exploded. And still rising. And that's a very dangerous situation for BMW - due having weak purchasing power. Not to mention the US Dollar position to Euro (or any other currency). All these things are eating into BMW profits. And expensive workforce as well: Most BMW plants are in Germany. None of them in Eastern Europe.

What can BMW do to increase profit margins?

Moving production elsewhere? No way. That's more long term goal - if getting green line.

Reducing workforce? No way. They are already employed at 110%. Actually even new workforce will be needed - since all major plants are expanding!

Stop exporting to US? Yeah right.

But they can make production & purchasing more effective. With cooperations, with innovative working methods, new production technologies etc. And a part of this solution is also a pressure on suppliers - and of course the suppliers won't sty silent, since they have the same goal as BMW do: higher profit. And lower prices are not compatible with higher profit, aren't they.


But be sure: BMW won't compromise the quality & reliability of their product. That would be fatal! The competition is just too strong. Any wrong move in this direction would be really, really fatal. And the Directors know that, as well as shareholders do.

So, I'm eager to see who will win these battle ... who has stronger cards in hand. I hope it's BMW AG.

 

[Imhotep Evil]

>
^ Even if it pains me to say it, the only way I see BMW and MB dealing with these problems, is to share some platforms (Mini/A/B klasse, Smart/Isetta), even some engines (disottos) and even create something like a PAHSE (witch groups VW, Skoda, Seat, Audi, Bentley, Bugatti, Lamborghini and Porsche=VAG+PAG).

Alone, I don't think anyone of them can make it, from the looks of things.

 

[vabboud]

diesotto is more of a marketing gimmik
it is not a realistic technology before at least 10 years, the complexities in building it, and making it run relaibly do not make something feasible right now
it will cost a lot more than a comparable diesel,, which makes it now in the phase of :" we want it to happen, we know how to do it, but we cannot practically do it"

 

[Osnabrueck]

...Not to mention the US Dollar position to Euro (or any other currency). All these things are eating into BMW profits. And expensive workforce as well: Most BMW plants are in Germany. None of them in Eastern Europe.

The US Dollar is the elephant in the room, not just for BMW, but for all European car makers. It was one thing when it was hovering between $1.15 - $1.25 on the Euro, but now we're set around a solid $1.45.

With the second shoe yet to drop in the Real Estate bubble we don't know where the bottom is. In all likelihood, the dollar will grow weaker as the US Federal Reserve attempts to increase liquidity and stave off inflation. The more we try to fix it, the worse it gets for the exchange rate.

 

[Mr. Mercedes]

diesotto is more of a marketing gimmik
it is not a realistic technology before at least 10 years, the complexities in building it, and making it run relaibly do not make something feasible right now
it will cost a lot more than a comparable diesel,, which makes it now in the phase of :" we want it to happen, we know how to do it, but we cannot practically do it"

Really? I thought MB said the market introduction was 'not far off'. So say 2-4 years? And if the tech is as good as they say...LIKE HELL they should share it with BMW.

In a broader sense however, I would prefer if MB and BMW cooperated with each other, as opposed to larger mainstream companies like Fiat etc. who's goals may be a bit too incongruous.

 

[EnI]

The US Dollar is the elephant in the room, not just for BMW, but for all European car makers. It was one thing when it was hovering between $1.15 - $1.25 on the Euro, but now we're set around a solid $1.45.

True. But it affect BMW the most ... since BMW import in US from Germany is the biggest among all European car makers.

 

[vabboud]

not far off in engineering terms is i can do it today if you give me a million, but since you won't give me a million, i'll do it in 10 years for 1000
diesotto is WAY off if it will ever be a viable technology

 

[EnI]

Really? I thought MB said the market introduction was 'not far off'. So say 2-4 years?

MB plans till 2012 do not include DiesOtto engines. So, definitely no DiesOtto engines in the next 5 years. Personally I also doubt they will be available in 2013. In 2015? Perhaps.

Unless something dramatic happen, and MB will have to speed up the development. But just like EVT camless engines, also the DiesOtto engines are still very faulty. Thermodynamic issues are huge, making the engine too laud, with too much vibrations - not suitable for luxury car at all at this moment. Perhaps MB will debut the engine sooner in some truck or bus earlier.

 

[LaArtist]

man i guess MB and BMW should team up then..and become friends..
maybe this will end all the war on this board..we all can be friends..

seriously..i know that no one wants a totall co-op..
but who cares about A and B class.. and 1er.. hell if they share the same platform..or components..
and if that leads to BMW and MB being able to do their thing across the rest of the range..
then i say well why the hell not..

its more or less the 2 best brands in the world coming together ..
how bad can it turn out..

 

[ArmaniBenz]

...what happened with perceived quality issues at Mercedes Benz stemmed from the company finally acknowledging the success of Lexus and attempting to compete with them and stumbling from their previous position of engineering excellence to one of hitting a certain price point...MB has recovered and finally we have an S class worthy of the name again...as for the future...I think there are worse things than cooperation between BMW & Benz...I agree with the Artist...let them collaborate on some of the small platforms and perhaps share some engine tech...

 

[Guibo]

consequently there have been many recalls for toyota in recent years. an example is with the us camry floor mat that cause the car to accelerate unintentionally.

"Toyota told safety officials it had identified an optional all-weather floor mat that if not properly secured by clips to the floor could stick under the accelerator pedal; in some cases, Toyota said owners had simply put the rubber mat over the standard floor mats."
Toyota Camry Recall Information - Toyota Recalls & Problems

If anything, that sounds to me like an engineering flaw. Not necessarily a flaw as a result subpar products due to rampant cost-cutting. There's a big difference there. Toyota and Lexus retain their high quality ratings, and Mercedes is on the move upward. This year, they ranked 5th in initial quality by JD Power, 13th in vehicle dependability. In 2004, they ranked 10th in initial quality, and 28th in dependability.

 

[Merc1]

...what happened with perceived quality issues at Mercedes Benz stemmed from the company finally acknowledging the success of Lexus and attempting to compete with them and stumbling from their previous position of engineering excellence to one of hitting a certain price point...MB has recovered and finally we have an S class worthy of the name again...as for the future...I think there are worse things than cooperation between BMW & Benz...I agree with the Artist...let them collaborate on some of the small platforms and perhaps share some engine tech...

Yes, yes that was it.

M

 

[EnI]

CHECK this out!!!

While browsing the old threads I found the one (opened on 11/5/2005 !!!) that's specially interesting for this debate!!!



BMW put preassure on suppliers

 

[EnI]

From the old thread (link in the previous post):

BMW's attractiveness as a partner has fallen markedly since the last BMW supplier satisfaction survey conducted in October 2003. The results of the February 2005 survey conclude that suppliers are losing trust in BMW and that the quality of communication between BMW and its suppliers has fallen.

The major area of contention, according to our survey, is cost pressure. In the first survey BMW rated as one of the most attractive OEMs for suppliers to do business with. While on many counts the results for BMW have remained broadly similar, on that specific measure, BMW's attractiveness as a partner now rates more closely to that of DaimlerChrysler or Premier Automotive Group than Toyota. A negative result on this point tends to indicate that suppliers are thinking more carefully about whether business contracts really make financial sense.
In the past suppliers would win contracts and then try to make them work financially over the life of the contract. Now, suppliers are thinking a lot more carefully about whether contracts make sense beforehand. This clearly applies to BMW as much as any other OEM.

Like Toyota, BMW is focusing on long-term relationships and this is causing some frustration that it can be difficult to break existing relationships and win new business, particularly for small and mediumsized suppliers. Innovative technology, management or organisation are the main attributes that will win BMW's attention.

Given the increasing cost pressures that are being felt across the automotive sector, it is not surprising that BMW and its suppliers are feeling this pressure too. "BMW started to reduce prices to increase pressure on sub-suppliers," said one respondent. "BMW cost controlling demands a lot of capacity from the supplier," said another. "There is little willingness to solve older outstanding cost problems," said yet another.

Nevertheless maintaining and strengthening communication and trust is an important focus for the BMW purchasing department, particularly on this cost issue. According to Dr. Klaus Richter, Head of Materials Purchasing at the BMW Group, "you need to get a better insight into the operations of a supplier, to identify the substance of the cost reduction potential. Then you basically change the content or the technology of the product, which results in cost reductions and not just in price reductions." He continues, "what we call the Quality and Cost Initiative, launched in January last year, is aimed at exactly this approach."

BMW claims to have actively sought support for this initiative from its supply base and has held annual meetings in 2004 and 2005 to review processes with suppliers. This joint co-operation, aimed at addressing increasing cost pressures without compromising quality is based on transparency and suppliers are actively encouraged to generate costdown ideas, which focus on the technical specification of parts with no negative impact on quality. Resulting ideas are then evaluated and driven via engineering through to implementation.

BMW expects benefits for suppliers to include:
- having a clearly identified and committed BMW platform to jointly work with on ideas to improve product, process and reliability;
- having an opportunity to address the cost of quality (warranty) thus improving their 'bottom line';
- fair and open exchange of ideas with potential benefits to improve product, process and reliability;

So, the similar alarming voices the suppliers are making about BMW were already present in year 2004!!!! (survey from February 2005) BMW making pressure on suppliers.

And as you can see in the meantime quality of BMW cars improved a lot (check the interiors of X5, 3er, facelifted 5er, 1er etc). Also the reliability was improved.

Despite constant pressure on suppliers, there were no negative impacts on quality. Even more: the quality was improved.


So, the first post of this thread a false alarm - just like I told you.



And as you can see

 

[Sunny]

I am sure every manufacturer is putting on pressure on their suppliers to cut down on prices... they would be stupid not to. Of course we have some here translating that into doom and gloom for BMW quality.