OPER/051

IBS Center for Management Research

 

Mass Customization as a Differentiation Strategy at BMW

This case was written by Shirisha Regani, under the direction of Sanjib Dutta, IBS Center for Management Research.
It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either
effective or ineffective handling of a management situation.

© 2005, IBS Center for Management Research. All rights reserved.

To order copies, call +91-08417-236667/68 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally,
Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: info@icmrindia.org

www.icmrindia.org
 OPER/051

Mass Customization as a Differentiation

Strategy at BMW
“For us, the experience of driving a BMW has to be aspirational, special. The R&D is designed to
take that ultimate driving experience one step further. There will never be a boring BMW.”
-Helmut Panke, Chairman of BMW, in 2002.1
“BMW is setting an industrial benchmark. Our focus is to follow the market demand. It is a
challenge to our supply chain, but gives us a competitive advantage.”
- Manfred Stoeger, vice president of logistics and information technology, in 2004.2

BMW’S NEW PLANT

In May 2005, the BMW Group (BMW) inaugurated its new plant in the Leipzig area of Germany.
Gerhard Schröder, Germany’s Chancellor, opened the plant along with Helmut Panke (Panke), the
Chairman of BMW. The opening was also attended by several other political dignitaries from
Germany.
The foundations of the Leipzig plant had been laid in 2001. Panke said that availability of highly
qualified staff, high standards of supplier quality, legal security and excellent infrastructure were
the main reasons for choosing Leipzig over hundreds of other German and foreign locations that
had bid for the plant. BMW had invested more than €1.3 billion in building the Leipzig plant,
which was to manufacture the BMW 3-series3 cars. The plant had a maximum annual production
capacity of 650 cars per day and was expected to create 5500 jobs in the area when operated at full
capacity.
As with all other BMW plants, the Leipzig plant was also designed to allow maximum flexibility
and effective communications – two factors that played a critical role in customization. BMW was
reputed for its customization program, which allowed buyers to design their own cars from a set of
available options. These orders were then conveyed to the factory which manufactured them
according to the specifications, and delivered them to the buyers in the shortest possible time. In
manufacturing circles, this system is called ‘mass customization’, as it combines the advantages of
mass production with those of customization. BMW was one of the prominent implementers of
mass customization in the auto industry and therein lay its competitive advantage.

BACKGROUND

BMW’s history can be traced back to 1913, when Karl Friedrich Rapp (Rapp) established the
Rapp-Motorenwerke to manufacture aircraft engines in the Munich district of Germany. In 1916,
while the First World War was on, the company secured a contract to manufacture aircraft engines
for the Austria-Hungarian army. Rapp needed additional financing to honor this contract. To meet
this need, he entered into a partnership with Camillo Castiglioni and Max Friz in 1917. The new

1
Nigel Holloway, “The Best-Driven Brand,” Forbes, July 22, 2002.
2
“BMW: Custom cars on demand,” Modern Materials Handling, February 1, 2004.
3
The BMW model lineup was split into different series ranging from 1-series that included entry-level
small cars to 7-series that included super luxury executive cars.

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 Mass Customization as a Differentiation Strategy at BMW

partnership company was named Bayerische Motoren Werke GmbH. However, the company soon
ran into difficulties because of over-expansion and the partners had to sell it to Austrian
industrialist, Franz Josef Popp, in 1917.
In 1918, Bayerische Motoren Werke manufactured its first aircraft engine, the Type IIIa, which
powered a biplane to reach an altitude of 5000 meters in 29 minutes, creating a world record. After
the First World War, the Treaty of Versailles (1919) banned Germany from producing aircraft.
Therefore, the company had to shift to manufacturing railway brakes. In 1922, Bayerische
Flugzeugwerke AG, another company from the Munich region that manufactured small aircraft,
was merged with the Bayerische Motoren Werke to form BMW AG.
BMW started manufacturing motorcycles in 1923 and the company’s first model the R32 was
launched in the same year. It was a 500cc shaft-driven cycle designed by Max Friz. BMW
continued manufacturing motorcycle models until the company’s foray into car manufacture in the
late 1920s.
In 1928, BMW bought a car manufacturing unit in the Eisenach region of Germany. Along with the
unit, the company acquired the rights to manufacture a small car called ‘Dixi’ which was based on the
Austin Seven car4. This was BMW’s first car and was marketed under the name BMW 3/15. By the
early 1930s, BMW had begun designing and manufacturing its own cars, and by the late 1930s, had
introduced several successful models. The company’s 327 saloon and 328 roadster were considered
very advanced at that time (the roadster especially was the most successful sports car of its time and
was even nominated as the Car of the Century in 1999 by a panel of auto experts).
During the Second World War, BMW once again concentrated on manufacturing aircraft engines
and motorcycles for the German army and cars took a backseat. At the end of the war, the
company’s plants all over Germany were heavily bombed and those on the eastern part of the
country were captured by the Soviet Union.
Car production did not resume again until 1952. During the 1950s, BMW tried to enter the
premium segment of cars, but was not successful. Most of its cars also did not manage to make a
significant impact on the market. Faced with too many obstacles, BMW considered merging with
rival Daimler-Benz in 1959, but Kurt Golda BMW’s chairman at that time managed to convince
Herbert Quandt, the majority shareholder, to oppose the move.
This proved to be a sound decision, as BMW’s fortunes turned that same year with the launch of
the BMW 700. The 700 was a small car with an air-cooled, rear-mounted engine (adapted from the
BMW’s R67 motorcycle). The car’s main selling point was its sporty exterior. BMW also
launched another racing model based on the 700, which won many competitions, thus securing the
company’s reputation for sports sedans.
In 1961, BMW launched another of its successful models, the BMW 1500, which was a powerful
compact sedan, with front disc brakes and four-wheel independent suspension that further
consolidated BMW’s reputation for sporting cars. The predecessors of many of BMW’s most
successful models were launched during the 1960s and 1970s. The company manufactured a wide
range of cars including sedans, convertibles and coupes. In 1971, BMW moved into its new
headquarters in Munich. The building’s architectural design reflected the form of the four
cylinders of a car engine.
During the 1970s, BMW increased its focus on export markets. In 1973, the company set up its
first overseas plant in South Africa. It also set up a distribution subsidiary in the United States.
Global expansion continued into the 1980s, as the company increased exports to the US, Asia and
Australia. In 1981, it became the first European car maker to set up a subsidiary in Japan.
Simultaneously, it also consolidated its position in Europe by setting up an engine plant in Austria
(in 1982) and extending its production network in Bavaria (in 1986).
4
Austin Seven was a British car named after Sir Herbert Austin, its designer. The Austin Car Works were
located at Longbridge in England. The plant at Eisenach was producing the cars under license from the
British company.

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 Mass Customization as a Differentiation Strategy at BMW

BMW’s competition with Mercedes-Benz (Mercedes), a luxury car manufactured by rival

Daimler-Benz, intensified in the 1980s, after BMW launched a line of luxury cars. In 1992, BMW
outsold Mercedes for the first time in Europe. In the same year, the company became the first
European carmaker to operate a US plant (after Volkswagen exited in 1988) when it set up a
facility in 1992 at Spartanburg in South Carolina.
In 1994, BMW bought British car manufacturer MG Rover in an attempt to enter the mass market.
The purchase gave the company ownership of successful brands like the Mini, Land Rover, Range
Rover and Triumph. This venture however, was unsuccessful as BMW found it difficult to
integrate many of MG Rover’s brands into its own product line. Most of MG Rover’s brands,
except the Mini, Land Rover and Range Rover, clashed with those of BMW. Eventually, in 2000,
BMW sold MG Rover to the Phoenix Consortium, a group of four businessmen, for a nominal
£10. BMW held on to Mini and Triumph brands even after the sale, while the Land Rover and
Range Rover brands were sold to the Ford Motor Company (Ford).
In the early 2000s, BMW launched new cars in its 1-series and 6-series, which were designed to
consolidate the company’s position in entry level cars, and the large coupe and convertible
segment respectively. During the same period, the company also faced a certain amount of
criticism for changing the design and styling of its cars, which did not find favor with BMW
traditionalists.
In 2004, BMW manufactured and assembled three car brands – BMW, Mini and Rolls Royce – at
24 sites in 12 countries on four different continents (Refer Exhibit I for a list of BMW’s
manufacturing and assembly plants). The company employed 70,000 people in its plants and, in
2004, its customer deliveries exceeded 1.2 millions units. Revenue in 2004 was $60.47 billions and
profit exceeded $3.03 billions. (Refer Exhibit II for annual financial statement.)

MASS CUSTOMIZATION AT BMW

BMW’s reputation was built on cars that combined great styling with exceptional performance.
However, one of the main criticisms levied against the company in the 1990s was that all BMW
cars looked alike – ‘like sausages cut to different lengths.”5 This was one of the drivers of the
customization program that BMW introduced in the 1990s.
In addition to this, BMW understood that, as a maker of luxury cars, it had to offer extra value to
customers to be able to make an impact on the market. “The average price of a BMW is close to
$40,000. For that, we’d like to make sure that customers can receive exactly the car they want,”
said Vic Doolan (Doolan), president of BMW of North America (BMWNA).6 He elaborated that,
under the old way, customers had to make do with whatever options they could find in the dealer’s
lot and had little chance of getting a car that matched their requirements exactly.
For instance, a customer might have been looking for a red convertible with black interior, but he
would find one with a tan interior. In that case, he would have had no option but to take whatever
was available. If the customer was not too particular about the black interior, he would be satisfied
with his purchase. However, the purchase would involve a certain amount of compromise and thus
be tinged with regret. Compromise purchases were what BMW sought to avoid through its
customization program. “We want the experience to be completely wonderful,” said Doolan.7
Post-purchase customization was big business in Europe and the US, and BMW observed that
many of its buyers were purchasing standard cars and refitting them with accessories and parts of
their choice. Several small companies were specializing in customizing factory-bought cars.
Customers approached BMW dealers and sometimes, the factory itself, to get their cars
personalized. BMW realized that it did not make good business sense to turn away so many

5
Kerry Hannon, “Tracking an illustrious automaker’s history,” USA Today, July 18, 2004.
6
Dale Buss, “The Ultimate Designing Machine,” Context Magazine, June 1998.
7
Dale Buss, “The Ultimate Designing Machine,” Context Magazine, June 1998.

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 Mass Customization as a Differentiation Strategy at BMW

customers. The customization program therefore, fitted cars according to the buyers’ specifications
at the manufacturing stage itself and gave a full factory warranty on all the parts and accessories
used (something that after-market tuners did not do).
As a result of the customization program, the emphasis at BMW’s dealers was not on stocking
large amounts of inventory in lots, but on showrooms, where customers could explore various
options available and place their orders.
In 1998, BMW launched a system called Customer Oriented Sales and Production (COSP), which
was a variation of the ‘pull’ manufacturing system8. The principle on which COSP was based was
that the production process at any time was defined by the car ordered by the customer, and not by
the car that the company wanted to manufacture. To aid this, the company introduced an
interactive website and an Online Ordering System.
Potential customers of BMW could visit the company’s website and explore the e-brochure, which
listed the various options, colors and combinations available. Customers could mix-and-match
colors and options to arrive at one which met their specific requirements. They could then print out
a custom brochure and take it to their BMW dealer to place an order.
Alternatively, customers could directly approach a dealer and ask him to suggest the various options.
(BMW did not take orders on its website unlike automakers like General Motors Corporation (GM),
which announced Direct Web ordering in the late 1990s. Customers necessarily needed to approach a
dealer. The company believed that dealers played a vital role in developing and maintaining long term
relations with customers and therefore, played up their role.) Once the specifications were decided, the
dealer placed the order with the factory using the Online Ordering System and immediately received
the order confirmation and delivery date (it usually took five seconds).
The order information was then conveyed to the company’s suppliers so that they could supply all
the components in the sequence in which they were required for production. Proper production
planning and sequencing was imperative at BMW due to fact that there a huge number of
variations available in its cars. The company estimated that, arithmetically, there were 1032 options
available within the BMW product range. The BMW 7-series (a top-end line of luxury models)
alone offered 1017 variations and the BMW X-5 sports utility vehicle had 1,000 bumper variations,
4,000 instrument panel choices and 448 different types of door panels. Offering so many options
required a wide variety of parts and a strong supplier communications system.
Advance planning formed a very important part of BMW’s supply chain management. The company
prepared a detailed requirement plan for each component periodically. This plan was developed
centrally at the company’s headquarters in Munich and involved the cooperation of all the
manufacturing plants across the world as well as the supplier for that particular component. After the
plan was prepared, its implementation was the responsibility of the logistics manager at each plant.
BMW invested heavily on sequencing technology and Enterprise Resource Planning (ERP). The
company’s ERP solutions were provided by German software provider SAP. Using this
technology, all BMW’s suppliers interacted with the company in real time. The company’s ERP
system allowed data to be entered once and then automatically sent to all the functional areas
within the system that required the information. Investments in developing transatlantic
communications were also significant.
Specific requirements to fulfill individual orders were communicated regularly to the suppliers so
that the parts could be supplied at the right time. “We are able to keep our suppliers constantly in
the information loop. This helps us to keep an extremely high sequence adherence in assembly.
This provides accurate and stable demand data to our suppliers,” said Manfred Stoeger (Stoeger),
vice president of logistics and information technology at one of the company’s plants.9

8
Pull manufacturing is where the flow through the operations is pulled by the demand at the finished good
stage. Therefore, the starting point in a pull-based manufacturing system is final demand.
9
“BMW: Custom cars on demand,” Modern Materials Handling, February 1, 2004.

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 Mass Customization as a Differentiation Strategy at BMW

BMW required its suppliers to be located close to the manufacturing plants. In Spartanburg, all the
suppliers were located within 20 miles of the plant. This was because shipping a large variety of
components became more complicated with distance.
The parts received from suppliers were temporarily stored at the highly automated parts warehouse
known as the Sequence Center, which was located a short distance away from the plant. When the
parts were needed for production, they were arranged in the specific build order, and transported
by pallet conveyor to the plant through a connecting tunnel. Since a large number of the cars
BMW manufactured everyday had customized options, accurate sequencing of individual parts
was crucial. Therefore the process was designed in a way that ensured that a part needed for a
particular order was sequenced exactly to match a car body just as it reached a specific assembly
station.
BMW’s plants around the world were highly automated. It was estimated that the extent of
automation in BMW’s plants was between 50 percent and 75 percent. The company also made
extensive use of robots to do heavy manual work. The use of robots was especially prevalent in the
initial stages of production like building the bodyshell, where work was of a routine nature. It was
estimated that the company used nearly 1000 robots in the production of its 5-series of cars.
However, manual labor was not undermined. In the later stages of production, especially assembly,
the company relied extensively on manual skill to give the cars the impeccable finish that was not
possible with machines. The rationale behind this was simple. Studies had shown that a human
being was able to work in almost 30 different modes and levels with his hands. In contrast, even
the most sophisticated robots could only manage to operate on seven planes or modes.
Wherever engineers did manual work, they were assisted by sophisticated machines that moved
and placed heavy tools and parts to avoid physical labor. They were also assisted by a special
Information System for Associates that presented the parts and components to be fitted at each
stage on a screen. This was especially important, considering the large variety of parts that went
into assembling a BMW.
In order to support its customization program, BMW emphasized on flexibility in its
manufacturing process. Each plant was designed keeping production flexibility in mind. For
instance, the new BMW plant in Leipzig was constructed in a circular design, with most of the
buildings forming a circle around a central building. This was done to facilitate future expansion
and to allow the process to move smoothly from one stage to another (which is difficult when
buildings are dispersed).
Most plants also produced at least two models of cars, and assembly lines were designed in such a
way that they facilitated shifting between the models when demand fluctuated. Each plant could
also turn out a large number of variations in the models it produced. The company also had a
flexible work program which allowed the plants to operate different capacities. Shifts were flexible
to enable the company to match different levels of demand. In most European auto companies, the
standard work shift was seven-and-a-half hours. On the other hand, BMW had 300 different labor
scheduling programs, depending on the factory.
Interchangeability of parts also enhanced flexibility. BMW used many of its large components in
more than one model or car. For instance, the three-liter gasoline and diesel in-line six-cylinder
engine was used in the 3-series and the 5-series and could also be used in the 7-series in future.
The 1-series developed in the early 2000s shared nearly 35 percent of its parts with the 3-series.
The engine used in the M5 model was also used in the Z8 sports car.
Flexibility of operations ensured that BMW was able to deliver a customized car in approximately
12 days. (It took another 11 or 12 days more if the car had to be shipped from Europe to the US.)
Flexibility also ensured that customers had the option to change their specifications up to six days
before the delivery. Research within BMW showed that customers modified their order three to
five times in the time between placing the order and final assembly.

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 Mass Customization as a Differentiation Strategy at BMW

Therefore flexibility was critical to BMW’s manufacturing process. “Our logistics challenge is to
let customers change their choices right up until the production process starts. If we are successful,
the right parts in the combination the customer wants arrive at the right time on the line,” said Ralf
Hattler, manager of logistics planning at the BMW plant in Munich.10
Analysts have called the processes such as those followed by BMW ‘mass customization’. Mass
customization at BMW involved mass producing vehicles with highly customized parts. Therefore,
while a certain part of a vehicle was mass produced (such as the body shell and the other
individual parts), the combination of the final elements was customized according to individual
preferences. Therefore, mass production essentially combined the economic advantages of mass
production, with the differentiation and exclusivity of customization.
Differentiation was an essential attribute for a manufacturer of luxury cars. It was the single most
important factor that determined why people were willing to pay more for a luxury car brand when
they would get a mass produced car at a considerably lower price. “Mass-produced goods do not
comply with the trend towards differentiation. More and more customers are tending towards
premium brands in order to satisfy their desire for differentiation and individuality,” said Joachim
Milberg, a high ranking official of BMW.11
This was the reason why BMW looked on its buyers as ‘investors’ and not just customers. The
company differentiated between the two on the parameter that customers bought cars that were on
the lot immediately, while investors were choosy about what they bought and laid down the
specifications for the car down to the smallest detail. They were willing to wait a reasonable
amount of time to obtain a vehicle designed to their specifications.
Considering that BMW customized to a great extent (in the early 2000s, around 80 percent of
BMW cars were customized in Europe and 30 percent in the US), it was expected that BMW
owners derived a feeling of exclusivity and pride from their cars. This, according to analysts, was a
long term competitive advantage the company enjoyed.

BENEFITS AND CHALLENGES

Analysts said that the main reason for BMW’s global success, despite being much smaller than
auto giants like GM, Toyota Motor Corp (Toyota), Ford, Volkswagen AG and DaimlerChrysler
AG12 in terms of annual sales volume was that the company offered personalized cars. BMW
offered customers a wide variety of options while allowing them to get their car manufactured
exactly the way they wanted it. Because of this, customer satisfaction with a BMW purchase was
higher than what they obtained by buying a mass produced car. This enhanced the company’s
image in the auto industry. It was also one of the major reasons for BMW’s profitability, which
was higher than many of the auto industry majors with the exception of Toyota. (Refer Exhibit III
for a comparative picture.)
Mass customization also improved the company’s manufacturing process and made it more
efficient. Because of a streamlined production process, BMW cut its inventory, reduced order
processing time and eliminated parts storage at the line. All this, while providing customers with
the exact kind of car they wanted. “This approach has had a huge impact on our entire supply
chain. It provides a great amount of flexibility while we customize to meet the needs of our
customers,” said Stoeger.13

10
“BMW: Logistics planning and collaboration critical to ‘build to order’,” www.ebusinessforum.com,
October 5, 2001.
11
“BMW: Logistics planning and collaboration critical to ‘build to order’,” www.ebusinessforum.com,
October 5, 2001.
12
DaimlerChrysler was created with the merger of Daimler-Benz and Chrysler in 1998.
13
“BMW: Custom cars on demand,” Modern Materials Handling, February 1, 2004.

6
 Mass Customization as a Differentiation Strategy at BMW

Buying a customized car had definite benefits for customers as well. In addition to bestowing a
feeling of exclusivity, it ensured that they derived the maximum benefit from the money spent on
buying a luxury car, as the car perfectly matched their needs. “I figured if I was going to spend this
much on a car I might as well get what I want,” said one BMW buyer on the epinions website.14 It
also catered to their vanity. One BMW official recalled how a customer once wanted the interior of
his car to be trimmed to match his expensive luggage set. Besides, analysts said that most buyers
viewed buying a luxury car as a reward and hence, preferred to get it designed to meet their exact
specifications.
One of the biggest challenges of mass customization, especially in the auto industry, related to the
time taken for an order to be processed. Not all customers were patient enough to order a custom
car and wait to have it delivered. Several times, they preferred to just pick something off a dealer’s
lot. Therefore, for mass customization to really succeed, auto makers would have to find a way to
deliver a custom made car in the shortest possible time.
In the early 2000s, BMW already had one of the lowest delivery times in the industry. The
company was able to build cars in two days and deliver them in 10 to 12 days. However, it took
considerably longer for custom cars to be delivered to the US from Europe. Analysts were of the
opinion that this could prove to be a major disadvantage for the company, as the US was the
biggest auto market in the world. One solution to this problem was to build custom cars in the US,
but most customer polls showed that US customers found BMWNA indifferent to their
customization requests.
Analysts also said that it would take a considerable amount of time for customization to become
standard procedure in the US because of the consumer laws in the country. In the US, consumer
protection laws allowed customers to break a car deal at any time before delivery. This was risky
for BMW and its dealers as they could be left with a custom-built car which no one else might
want. In contrast, a similar breaking of a deal was not allowed in Europe, which probably
accounted for the greater amount of customization there.
Another challenge for BMW was to integrate customer preferences with the image the company
carried. Analysts said that giving customers free reign with color and accessory choices could
result in some outlandish car designs which could negatively influence the company’s image,
especially with people not aware of the customization program. Therefore, it depended on the
dealers to ensure that customers did not choose unbecoming options.

THE FUTURE OF MASS CUSTOMIZATION

Analysts said the driver of mass customization was the gap between what the customer wanted and
what a company could supply. Mass customization was used with great efficacy by Dell Inc in
manufacturing computers. While it was simpler to mass customize computers than cars analysts
were of the opinion that the auto industry could benefit from building products to order.
It was said that more than 50 percent of the cars built did not have a potential consumer when they
rolled off the final assembly line. Therefore, they often spent a lot of time parked in dealers’ lots
before being sold at a huge discount. Analysts said that this could be avoided by taking customer
preferences into account in manufacturing cars. Companies like Ford and GM had already
announced build-to-order programs by the early 2000s. Several other auto companies globally
were on the verge of launching their own programs.
Computers and cars were not the only industries to adopt mass customization. Several other
industries like consumer durables, packaging equipment, window frames and collectible dolls were
also using it to improve their production systems proving that all industries could benefit from
leaner inventories and lower production times.

14
www.epinions.com

7
 Mass Customization as a Differentiation Strategy at BMW

However, there was another school of thought which held that mass customization was largely
overrated. Subscribers to this school of thought argued that industries, such as the auto industry,
thrived on volumes. Therefore, manufacturing in small batches or customizing products was not
economical for plants. Fluctuating production also led to inefficiencies and bottlenecks and did not
allow plants to function at optimal capacity.
The answer to the debate between mass customization and mass production, according to analysts,
lay in virtual customization. This meant that companies would produce a wide variety of options in
large batches and then find a product from among those already manufactured that exactly
matched a customer order. However, despite the various arguments most analysts agreed that the
potential of mass customization in manufacturing was huge.

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 Mass Customization as a Differentiation Strategy at BMW

Exhibit I
Location of BMW’s Facilities
Manufacturing Plants Berlin (Germany)
Dingolfing (Germany)
Eisenach (Germany)
Hams Hall (United Kingdom)
Landshut (Germany)
Leipzig (Germany)
Munich (Germany)
Oxford (United Kingdom)
Regensburg (Germany)
Rosslyn (South Africa)
Shenyang (China)
Spartanburg (United States)
Steyr (Austria)
Swindon (United Kingdom)
Wackersdorf (Germany)
Assembly Plants Malaysia
Philippines
Russia
Vietnam
Egypt
Thailand
Indonesia
Mexico
Contract Manufacturing Graz (Austria)
Adapted from www.bmw.com.

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 Mass Customization as a Differentiation Strategy at BMW

Exhibit II
Annual Financials
Income Statement (All amounts in millions of US Dec 04 Dec 03 Dec 02
dollars except share amounts.)
Revenue 60,472.9 52,122.2 44,315.8
Cost of Goods Sold 46,463.3 40,279.4 33,059.2
Gross Profit 14,009.6 11,842.8 11,256.6
Gross Profit Margin 23.2% 22.7% 25.4%
SG&A Expense 8,901.5 7,634.1 7,716.1
Depreciation & Amortization 7,562.0 6,151.7 --
Operating Income 5,108.2 4,208.7 3,540.5
Operating Margin 8.4% 8.1% 8.0%
Non-operating Income 0.0 0.0 0.0
Non-operating Expenses 260.5 185.8 84.9
Income Before Taxes 4,847.7 4,022.9 3,455.6
Income Taxes 1,816.8 1,579.0 1,338.4
Net Income After Taxes 3,030.8 2,443.9 2,117.2
Continuing Operations 3,030.8 2,443.9 2,117.2
Discontinued Operations 0.0 0.0 0.0
Total Operations 3,030.8 2,443.9 2,117.2
Total Net Income 3,030.8 2,443.9 2,117.2
Net Profit Margin 5.0% 4.7% 4.8%
Source: www.hoovers.com.

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 Mass Customization as a Differentiation Strategy at BMW

Exhibit III
The Profitability of the Top Five Car Manufacturers* and BMW
All amounts in millions of US dollars except net profit margin

Net Income after Net Profit

Company Revenue 2004
Tax 2004 Margin%
General Motors 193,517 2805 1.4
Toyota Motor Corp. 163, 637 11,399 6.7
Ford Motor Co. 171,652 3916 2.2
Volkswagen 62,978 479 0.8
DaimlerChrysler 192,433 3195 1.7
BMW 60,472.9 3,030.8 5.0
*Top five car manufacturers ranked according to units sold in 2004.
Compiled from www.hoovers.com.

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 Mass Customization as a Differentiation Strategy at BMW

Additional Readings & References:

1. Dale Buss, The Ultimate Designing Machine, Context Magazine, June 1998.
2. BMW gets more mileage from flexible flow track, Modern Materials Handling,
November 1, 1998.
3. Laurie J. Flynn, Built To Order, Knowledge Management, January 1999.
4. BMW Worries That Cars Aren't 'Involving', Ward's Auto World, December 1, 1999.
5. A Long March, The Economist, June 12, 2001.
6. BMW: Logistics planning and collaboration critical to build to order,
www.ebusinessforum.com, October 5, 2001.
7. Nigel Holloway, The Best-Driven Brand, Forbes, July 22, 2002.
8. Nigel Holloway, The Bavarian Model of Car Making, Forbes, July 22, 2002.
9. Deb Navas, Automotive Embraces Volatility, Supply Chain Systems Magazine, June 2003.
10. David Maloney, What Drives BMW, Modern Materials Handling, August 1, 2003.
11. David Maloney, Destination Production, Modern Materials Handling, August 1, 2003.
12. BMW: Custom cars on demand, Modern Materials Handling, February 1, 2004.
13. Kerry Hannon, Tracking an illustrious automaker's history, USA Today, July 18, 2004.
14. Robert Farago, Low Marks for Hi Tech, www.thetruthaboutcars.com, January 13, 2005.
15. Ian Kuah, BMW M GmbH, www.europeancarweb.com, March 2005.
16. Bob Elton, BMW's Turbo Goes Back to the Future, www.thetruthaboutcars.com, May 3, 2005.
17. BMW Opens New Plant in Leipzig, forums.germancarfans.com, May 13, 2005.
18. www.wikipedia.com.
19. www.hoovers.com.
20. www.epinions.com.
21. www.scripophily.com.
22. www.bimmerfest.com.
23. www.unofficialbmw.com.
24. www.bmwworld.com.
25. www.bmw.com.

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