TIME has a fine article on how Germany's Bayerische Motoren Werke (BMW), maker of luxury cars coveted the world over, is finding ways to compete with the Japanese automotive steamroller led by Toyota. The headwinds blowing against Beemer are great, especially a strong euro compared to a weak yen. Alongside changes in governance that have allowed German firms like BMW to act more "neoliberally" (pardon) in dealing with labor and the like, BMW has also invested in making its production process handle a higher level of customization to meet clients' desires. BMW sacrifices sheer efficiency in terms of production output in exchange for more flexibility. So far, it's hard to argue with its results:Cloth seats or leather? Sunroof or spoiler? Walk into any auto dealership to buy a new car, and you'll be offered a multitude of options. If it's a BMW you're buying, however, there's a twist: you can walk out of the showroom and change your mind later. Perhaps you'd really prefer the poplar interior trim to the brushed aluminum. Or maybe those retractable headlight washers would be useful after all. Your BMW dealer will be happy to oblige with as many changes as you care to make, until a cutoff point: six days before your particular car goes into production.
Not only is it a handy marketing device--"our cars are tailor-made," BMW's chief executive, Norbert Reithofer, can boast--but it's also profitable. BMW customers, it turns out, often have second thoughts. And when they do, they invariably add ever pricier accouterments. The company says customers change their orders more than 1 million times a year. BMW doesn't break out details of the additional revenue, but given the profit margins on many add-ons, "it's like a big dollop of cream on the cake," says Peter Schmidt, a British-based auto-industry consultant.
This ability to cater to fickle tastes is just one manifestation of an extraordinary flexibility that BMW has injected into a company that sold nearly 1.4 million cars last year, bringing in $65 billion in revenues. It's a flexibility that affects almost everything the firm touches, from the layout of its assembly lines to the working hours of its administrative staff to relationships with its unions and key suppliers. BMW has mastered the manufacturing fine art called mass customization: no two cars rolling through its assembly lines on any given day are identical. Its factories can cope with a model changeover during the course of a weekend without work stoppages. Detroit would take weeks...
[BMW] CEO Reithofer is more upbeat. Faced with low-cost competition from Asia and Eastern Europe, he says, "many German firms did their homework, and now they are benefiting from it." He thinks Germany could go further, for example, in reducing high nonwage labor costs. But Germany still has competitive advantages, he says, pointing to its traditional engineering prowess combined with a newer ability to cater to the needs of individual clients. The challenge, he tells TIME: "It's all about mastering complexity."
Drop in on BMW's Leipzig plant, and you can see what he means. It's the firm's newest, having opened just two years ago, with a luminous open-plan central building that houses white-collar workers and managers. It was designed by London-based architect Zaha Hadid, and its most striking feature is a conveyor belt that meanders inside the building just below roof level, carrying a steady stream of cars from the body shop to the paint shop. You can see it from almost everywhere in the building, including the cafeteria.
Robots do most of the work in the body shop, welding, riveting and bonding hundreds of components together. Robots also apply the four layers of water-based paint to each car. But it's on the assembly line that BMW differentiates itself from even its Japanese rivals. To be able to customize each car requires highly sophisticated logistics. Workers stationed at regular intervals on the line reach back for components in wire baskets that have been rigorously sorted into the right sequence. The complexity is visible to the naked eye: halfway along the line, just past the section where car bodies are bolted onto the drivetrain and chassis, a gray three-door 1-series sticks out amid a convoy of silver 3-series cars. In theory, the plant is set up to handle five or six different BMW models simultaneously, although for the moment it handles two.
The factory has been designed so that new production processes can be added to the assembly line at any time without disrupting the work flow. That's a huge advantage over more traditional lines, which need to be shut down for any changeover or addition. Several key suppliers are based in the plant, rather than in a nearby supplier park. Jörg Baumheuer says that makes for easy communication when problems arise. He's a manager at the French auto-parts firm Faurecia, which assembles cockpits and seats for BMW in Leipzig and some other plants. The advantage for Faurecia is that it doesn't need to truck in finished parts; it simply assembles them on the spot. That cuts inventories and improves speed and reliability; the firm needs just 20 minutes' notice to put together a customized cockpit. "It cuts out the last step of the supply chain," Baumheuer says. Moreover, since Faurecia's workers eat lunch at the same cafeteria as BMW's, interchange is easy and natural.
The degree of customization that is required means BMW isn't as ruthlessly efficient as Toyota in some respects, including the number of cars produced per worker per day. But there's a trade-off. "BMW is not prepared to sacrifice its ability to give consumers the car they want. The alternative would be reduced costs but not the ability to charge a premium for customized cars," says Garel Rhys, an auto-industry expert at Cardiff University. In the end, he says, BMW's marginal revenue from customization is higher than the marginal cost advantage it gives up.
