BMW 2015 Annual Report Download - page 74

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18 COMBINED MANAGEMENT REPORT
18 General Information on the BMW Group
18 Business Model
20 Management System
23 Report on Economic Position
23 General and Sector-specific
Environment
27 Overall Assessment by Management
27
Financial and Non-financial
Performance Indicators
29 Review of Operations
49 Results of Operations, Financial
Position and Net Assets
59 Comments on Financial Statements
of BMW AG
62 Events after the End of the
Reporting Period
63 Report on Outlook, Risks and
Opportunities
63 Outlook
68 Report on Risks and Opportunities
81 Internal Control System and Risk
Management System Relevant for the
Financial Reporting Process
83 Disclosures Relevant for Takeovers
and Explanatory Comments
87
BMW Stock and Capital Markets
non-production aspects relevant for bought-in goods
and services, serves as the basis for the supplier net-
work, including the requirement to comply with inter-
nationally recognised human rights and applicable
labour and social standards. The principal tool for en-
suring compliance with the BMW Group Sustainability
Standard is a three-stage sustainability and risk manage-
ment approach comprising a BMW Group-specific sus-
tainability risk filter, a sustainability questionnaire and
a sustainability audit. In addition, the technical and
finan cial capabilities of suppliers – especially those sup-
plying for modular-based production – are continuously
monitored during both the development and the pro-
duction phases of the Group’s vehicles. Particular atten-
tion is paid to the quality of parts. In order to attain the
level of quality required, it may become necessary to
invest in new technological concepts or discontinue
planned innovations, with the consequence that the cost
of materials could exceed levels incorporated in the
forecast. Supplier sites are assessed for exposure to nat-
ural hazards, such as floods or earthquakes, in order to
identify supply risks at an early stage and implement
appropriate countermeasures. Fire risks at series sup-
pliers are evaluated by means of questionnaires and
selective site inspections. Raw materials management
procedures are in place to mitigate the risk of a produc-
tion interruption due to shortages of supplies of critical
raw materials. In order to reduce supply risks, the
BMW
Group works hard to minimise the input of raw
materials or to use alternative raw materials as a sub-
stitute.
The increasingly complex nature of the supplier
network, especially at the level of sub-suppliers, whose
operations can only be indirectly influenced by the
BMW Group, is a further potential cause of downtimes
at supplier locations. Production problems incurred
by suppliers could have adverse consequences for the
BMW Group, ranging from increased expenditure to
production interruptions and a corresponding reduc-
tion in sales volume.
If purchasing risks were to materialise, they could have
a
high negative earnings impact over the two-year as-
sessment period. The level of risk attached to supply risk
is classified as medium.
Purchasing opportunities
Global sourcing is seen as a key area for generating
opportunities within the Purchasing and Supplier Net-
work, whereby the BMW Group benefits from effi-
ciency
improvements and access to innovative solutions
developed by suppliers, in some cases leading to a
broader
range of products.
By observing and playing a proactive role in developing
global supplier markets, the BMW Group continuously
strives to increase its competitiveness by working to-
gether with the best providers in the global marketplace
for products and services. Opportunities arise particu-
larly in conjunction with the introduction of new and
innovative production technologies and by capitalising
on favourable location-specific cost factors that present
themselves when local supplier structures are devel-
oped
nearby new and existing BMW Group production
plants.
The integration of previously unidentified innovations
from the supplier market in the product range is a fur-
ther
source of opportunities. Innovative suppliers are
offered a variety of options when drawing up contracts,
in order to make it more attractive for those developing
innovative solutions. At regular intervals, the BMW
Group honours its most inventive supplier entities with
the Supplier Innovation Award.
The BMW Group does not expect these opportunities
to have a material earnings impact over the two-year as-
sessment period when compared to the assumptions
made in the outlook.
Risks relating to sales and marketing
Changes in global economic conditions and increasingly
protectionist trends are among the factors that could
result in lower demand as well as fluctuations in the
re-
gional spread and composition of sales in terms of
vehicles and mobility services. Risks relating to these
developments can be reduced with the aid of flexible
selling and production processes. At the same time, in-
creased pressure on selling prices and margins caused
by intense competition on the world’s markets, particu-
larly in western Europe, the USA and China, requires
constant analysis, including keeping an eye on develop-
ments in grey market volumes from the USA to China.
Selling price and margin risks are measured using a
scenario approach, based on a bottom-up survey of the
key sales markets and an analysis of historical data.
If sales and marketing risks were to materialise, they
could have a high negative earnings impact over the
two-year assessment period. The level of risk attached
to sales and marketing risks is classified as high.