BMW listening: the prestigious German automaker plans to strengthen supplier ties and is...

Suppliers with innovative ideas should be knocking on BMW AG's door.

The German automaker is rolling out the welcome mat for suppliers with the latest technologies.

With continuing sales success in the United States and new models coming from BMW'S Spartanburg, S.C., plant,

But all won't qualify. BMW is looking for suppliers willing to work within BMW's culture and with the knowledge that they will never integrate the whole vehicle for the company.

Automotive Industries recently sat down and talked supplier strategy and about what BMW wants and doesn't want from its suppliers with Burkhard Goschel, BMW AG board member for purchasing and development and Gerhard Schuff, manager of production materials purchasing.

Q: You have a new model, the Z4, coming soon from Spartanburg to replace the Z3. How will this and other future models affect your purchasing strategy in the United States?

Goschel: The Z3 was developed in Munich; there was no plant in Spartanburg when we started so we had strong relationships with our supply partners in Europe. But now we are looking into our supply logistics structure, and we have a lot of second and third tier supplier parts coming from Europe. So there is a lot of room for improvement. As we develop new models we are trying to start to set up more of the supply base in the United States. That's a new development.

Schuff: We are trying to localize the second and third tier parts, which don't necessarily have to come from Europe. If there is any supplier who fits our needs they should approach us either directly or through Enno Biermann (enno.biermann@bmwmc.com) who is our 'ambassador' in South Carolina.

Goschel: I believe there are a lot of U.S. middle-size suppliers--with 1,000 employees or so--who have the capabilities, but they are not involved in development processes with European OEMs. The question is how can we discover these suppliers?

Our search for suppliers has been difficult because we have special requirements; we have very high quality standards but low volumes, and big number of variants since customizing a BMW is normal How to handle that is an important issue. Overall, though, we want to improve our NAFTA content

Q: Some OEMs, such as DaimlerChrysler, have instituted severe supplier cost reduction programs. Do you have such a plan?

Goschel: Double-digit cost reductions may happen at companies in turnaround situations, but we don't have such programs. We have cost targets we define with the supplier before start of production and targets for where we want to be three years after start of production. That's a common commitment.

Schuff: We try to get component costs decided at the very beginning and to define how much room we have for price reducif you have constant processes and productivity improvements.

Q: Does the ongoing consolidation of the supply base concern you?

Goschel: Obviously there is concentration--who can resist it? But there are chances for smaller suppliers to get into niches with specialized products. We are building our networks with small and large suppliers because it can be that a small supplier has innovations but is not able to industrialize them, so our purchasing department is creating a network to produce innovations at a realistic price.

Things are changing; we see a big step forward in terms of technical changes in the car itself; introducing new software systems and so on. That will change the relationship between OEM and suppliers tremendously. We want to be fastest at bringing innovation to cars.

Question: What are the essential qualities you seek in suppliers?

Goschel: Firstly we want innovations. Secondly, quality, and thirdly, cost. We have to be innovative at BMW--that's our brand, what we stand for, especially in electronics and telematics. We are changing from hardware to software systems, components are becoming much more intelligent, you can network components and create new functionality. We are looking for new ways to handle functions in cars, with much more intelligent components--by-wire technology--and how to handle the software structure and hardware structure.

It's important that there is a cultural fit in this respect between the supplier and BMW By this I mean that we are not interested in big suppliers who want to integrate the whole car for us. We at BMW have to decide the functionality and how components are connected. Also as we change over to electronic components it is becoming very important that you have a standardized software structure on which the supplier's hardware and software components can be fitted.

Q: There has been criticism of BMW's new 7-series model, with its I-drive control system, for being over-complex and difficult to operate. What's your opinion?

Goschel: Compared to our rivals, we are very satisfied, we have the more logical solutions. We don't think the 7-series has too much functionality. There is a lot of discussion in the United States about the I-drive system, but to have only one control with no additional switches is the way to go. Obviously there will be improvements in the future as with any such system. And maybe there will be a roadster or sports car without these systems, but all other cars will have such systems for business purposes or driver assistance.

RELATED ARTICLE: Panke Power

BMW's new chairman sets sights on a rosy future

It seems BMW AG's Chairman Helmet Panke is in a most enviable position.

He's at the helm of one of the most desired brands in the industry, his plants are working at capacity and financially things look rosy.

Can all this be too good to be true? Apparently no, but there are some glitches in the outlook.

Panke took over the top spot at the German automaker this May. He inherited a healthy company with strong sales. A Rover-free company that was in the process of expanding into new markets with its Mini brand and future 1-series.

"It is our commitment to concentrate exclusively in the premium segments of the worldwide automotive markets," Panke says. "Ongoing results are showing that our strategy is effective."

Panke says the world's economy will recover only gradually with automotive growth coming in the fourth quarter of this year and next year. Nonetheless, Panke is not concerned since he says it's the volume segment that will grow only moderately this year. It's the premium segment that will see dynamic growth. This is the segment where BMW is and always will be.

This is particularly true in North America, where BMW continues to break monthly sales records and is hindered by a lack of supply. Even with an additional 22 shifts and no summer vacation in Germany, U.S. BMW dealers have only a 15-day supply. It is a similar situation at the company's Spartanburg, SC., and South Africa plants.

And this will not be enough. Panke says he expects the worldwide demand for premium cars to continue to grow above average.

This is quite convenient for BMW since it has pledged to stay in the premium market even as its vehicles move down market segments with the upcoming rear-drive 1-series and current Mini family. Even though the Mini may be small in size it continues to be a premium vehicle for BMW, Panke says.

"Premium is not a question of size but premium is a question of concept," Panke says.

But Mini is also one of those glitches in the rosy outlook. Experts say much like the once highly demanded VW Beetle or the Chrysler PT Cruiser, Mini sales will taper off. Panke's solution is to have a family of Mini products with many engine variants and several bodystyles.

Says Panke, "Mini as a brand will not and cannot rely on one body style." -- Andrea Wielgat