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back to index backEUROtalk April,  2005

BMW Purchasing – Interview with Dr. Klaus Richter – Head of Materials Purchasing BMW Group

The latest supplier satisfaction survey suggests that "suppliers are losing trust in BMW and that the quality of communication between BMW and its suppliers has fallen". Any comment?

I am surprised to see that there is a change, because the BMW purchasing approach has not changed. There has been no dedicated initiative in any direction.  The professional way to buy best is to not exert pressure but to create transparency.

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.

What we call the Quality and Cost Initiative, launched in January last year, is aimed at exactly this approach.  We try to create transparency and involve our suppliers in a discussion around technical improvement of product and processes.  That has turned out to be very successful, in my view, and is one thing I would like to continue to focus on.

Another important thing is that there are certain system areas, technologies, where we would like to start discussions with suppliers much earlier. We have a standard process from request for quotation, taking the supplier on board and series development, typically through to production.

We will probably spread the standard process a bit in terms of when the right point in time is to take the supplier on board, not only in the area of software, but also integrated concepts, where we need the supplier input in the concept phase of the car.

We then basically put the requests in the market earlier and will have the purchasing decision earlier, maybe even a year earlier - so we would then be four years before launch.  We have started to have that kind of discussion where we see areas for earlier supplier development involvement.

What kind of areas would these be?

Integrated modules like the front end or the cockpit, but also innovative technologies - infotainment could be an area - where technology is changing, and we want to be able to integrate the newest developments in our car.
We need the supplier in that process early on, in the concept phase. On the other hand there are also components in the car which are available simply on the market, where we don't have to have the decision at the start of the series development, we can have it six months before launch.

Basically we want to spread the period of time where we select suppliers.

There was another interesting notion in the survey concerning BMW's focus more on big strategic, big suppliers. If you look at projects like the X3, that is certainly true, you can only do that with a very big partner. In general I would not say that this is our strategy at all.

We have always been very successful in working with small suppliers for specific innovations, like the iDrive for example, and there are many other, smaller scale or more technology-based examples that are not as visible.
I'm absolutely convinced that small suppliers which are very agile and have a high performance level technology-wise will always be very interesting for us.  We scan the market systematically. The whole BMW innovation management is prepared to identify new innovative small sources.

Size doesn't matter. The Virtual Innovation Agency, VIA, is part of our internet portal for suppliers where basically everybody can place ideas.  Of course you get a lot of ideas and you have to have strong filters to sort out what's really feasible, but there are always some interesting leads.  I think that this is also a good approach, to get input and to have a broad variety of suppliers.

Do you have long term contracts with suppliers for new technology developments?

Of course.  With all our core suppliers, we have pre-development projects, strategic projects, and vehicle projects running simultaneously, so that is normal business for me.

There's a big debate about collaborative against confrontational approaches to cost reduction.  Where is BMW on that spectrum?

I would hope that we already are very good at negotiating and at the technology discussion.  BMW spends quite some time and effort to create transparency at the interface with the supplier.  Maybe process integration offers one more area of improvement.

Why is that a sensible strategy?

In my view there are three stages of creating material costs advantages.  The first lever, the easiest lever is on the pure purchasing side - you look for the best suppliers worldwide and then you negotiate hard, and then  you get to a certain price.  That you can do with the pressure strategy.

The next stage of purchasing is to improve the technical features of the product that you buy, and then you have to have a discussion with the supplier, the partner, and understand the mechanics, the cost drivers and the products, and then feed back that into the process of designing the cars.
You have to have a discussion of course, negotiations, if you want to participate in that cost potential, but it is a content discussion creating a lot of transparency around cost drivers and so on.  Then you can optimise technology.

A third stage, in my view, would be to integrate processes.  You need a lot of transparency to do that - you have to understand what the needs of the OEM are, and what the cost drivers process-wise of the supplier are.  Then you can discuss jointly where to put the production location, how to integrate it into the production of the OEM and reporting mechanisms, quality approval procedures and supplier/delivery mechanisms and so on.

Here there is some considerable potential.  They have to know what causes quality problems at the OEM, so they can have the right tests, preventive tests.

So suppliers can negotiate what the validation process and interface with the OEM to some extent?

We would basically jointly develop the validation process and the process integration in general between the supplier and the OEM. That would reduce costs at the interface for both parties.  If we are transparent about that, the supplier will be extremely competitive, make margin and offer a good price.

Could you expand on the benefit of the collaborative approach?

I keep coming back to transparency, because I think that's really the key.  If you just exert pressure on a supplier, things will not improve in substance.  You can basically squeeze out 3% or 5% margin, but that's it.
But if you work together on product or process, you may be able to get 20% out.  There are numerous examples of that. If you don't get into a discussion you will never get this potential, because it is not available with the other approach.

Some carmakers ask for more price reductions after a contract has been agreed to...

You can always bring in some low cost competitor that puts a lot of pressure on the supplier base, yes. That in my view is not the right way to deal with partners. I would argue that we get the same kind of cost reduction, but we get it in a different way, and we get it in a mutually beneficial way for us and for the suppliers, because we take cost out of the system.

The full interview published in SupplierBusiness monthly includes comments on China and eastern Europe, e-business, modules and systems and currencies.  For more information about SupplierBusiness monthly or a sample, if you have not already received one, please email

Source: - GAI

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Other articles from the same issue (April,  2005).

Corporate Governance: Why Germany's supervisory boards need reforming
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Tips Regarding Cultural Differences
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BMW Purchasing – Interview with Dr. Klaus Richter – Head of Materials Purchasing BMW Group
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Hybrid Electric Vehicles in Europe
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Single monetary policy a bane?
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Competitive Germany
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Privatization progress in Central Eastern Europe
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