The Supply Chain Management In Volkswagen Marketing Essay


Volkswagen Group (sometimes abbreviated to VW Group]and previously known as VAG) is a German automobile manufacturing group; and according to figures published by economic research firm Global Insight in November 2009, is the largest automobile maker in the world by vehicle production. Its parent company Volkswagen Aktiengesells chaft, sometimes referred to as VW AG or VWAG, develops vehicles and components for all marques of the whole Group, and also manufactures complete vehicles for the Volkswagen Passenger Cars and Volkswagen Commercial Vehicles marques. Volkswagen Group is divided into two primary divisions: the Automotive Division, and the Financial Services Division.The Group consists of 342 Group companies, which are involved in either vehicle production or other related automotive service.

Although it operates worldwide, Volkswagen Group’s core market is primarily Europe. Of its automobile brands, Volkswagen Passenger Cars is its mainstream marque, and the Group’s major subsidiaries also include well-known car marques like SEAT, Škoda, and the prestige marques of Audi, Lamborghini, Bentley, and Bugatti. The Group also has operations in commercial vehicles, owning Volkswagen Commercial Vehicles, along with a controlling stake in Swedish truck and diesel engine maker Scania AB, and a 29.9% stake in MAN SE.

Volkswagen’s second-largest market is China, where its subsidiary, Volkswagen Group China (VGC), is by far the largest joint venture automaker, selling more than one million vehicles in 2008. The Volkswagen Golf is the third bestselling automobile in the world, selling over 26 million units through 2008. In 2009, Volkswagen Group sold 6.31 million vehicles, claiming over 11% of the world passenger car market.


BASF Coatings is System Supplier at Volkswagen Plant. BASF Coatings de México is the new system supplier for automobile manufacturer Volkswagen AG .It also provides the Volkswagen plant with all the surface coating materials needed in the production lines and is together with VW responsible for the smooth and efficient operation of the paint application process.

DHL Supply Chain provides a major part of the in-plant logistics for the Volkswagen assembly plant in Bratislava, Slovakia. It manages in-plant logistics for 50 % of the production materials of the models produced by the Volkswagen Group. This involves engines, gearboxes and windscreens for the Audi Q7, Porsche Cayenne and Volkswagen Touareg. Services provided will include inbound receiving, put away and storage, picking and kitting, sequencing and line-side deliveries directly to the Volkswagen production lines.

Volkswagen in India, Europe’s largest automobile manufacturer is to build up its relationships especially with Indian suppliers. It will establish Volkswagen as a local manufacturer and a long-term business partner in India significant share of the material required will come from local suppliers.

IBM provides technology that improves the automaker’s material logistics operations through the use of sensor technology. The new system will significantly enhance the carmaker’s efficiencies in day-to-day operations, for instance at the goods-receiving stage. As a result, Volkswagen is preparing to introduce this technology at its central logistics hall, located at its major plant in Germany.

The introduction of the modular platform across the VW Group’s different brands will have significant effects on purchasing side and will partially reshape the supply base. VW’s level of vertical integration, which has been higher than its peers, could be further boosted by the new modular platform strategy the car maker.

Since volumes per component will be increased for shared components, VW decide to manufacture certain component families rather than buy them, thus reducing outsourcing to external partners and increasing the number of in-house operations, which already include exhaust systems, axles, steering systems, wiring harnesses and suspensions.VW will yield an in-sourcing strategy as it has good partnerships with major tier-1 suppliers and can avoid the investments required to build up expertise and manufacturing capability

The VW group Procurement division consists of two operational subdivisions

One managing the procurement of production materials,

General supplies

The first subdivision includes five commodities:






The general procurement division is responsible for :




Components assembly

Vehicle assembly services

Group IT purchasing

A network of Regional Sourcing Offices (RSO) support sourcing activities locally.

VW is aiming at improving the interface between the Purchasing department and its Engineering, Marketing and Production departments.

Volkswagen’s modular platform approach promises to have a hefty impact on VW’s purchasing strategy when it is fully implemented at a group level, with two main architectures covering a good part of the car maker’s product offering.

Inventory Management

Dealers and OEMs are only loosely coupled within the system. Each manages its own inventory costs and understands the balance of competitive relationships that exist between them. It encourage dealers to carry as much inventory as possible but understand that excessive carrying costs could force a dealer out of business. Dealers recognize that the carrying costs of excessive inventory are threatening. They also recognize, however, that if they are individually reluctant to purchase inventory, the company may restrict supply or appoint additional, competing dealers. Second, the distribution logic was developed on the assumption that automobiles were configured as a standardized product line.

Problem in Supply Chain

Vehicles for sale in the U.S. are first shipped to one of the five U.S. ports that act like distribution centers. These five ports have also facilities, called processing centers, that all vehicles go through for various handling and quality control checks. They are then shipped to the dealers at major market areas by a combination of rail and truck transportation.

Company focused on improving the flow of vehicles from plants to dealers in terms of cost and customer service. The basic idea was the establishment of more distribution centers closer to metro markets so that the following benefits could be realized:

• The chance of meeting a customer’s first choice vehicle increases with a combined dealer and distribution center inventory

• First choice vehicles are delivered with shorter lead times

• Part of the current expensive truck routes could be replaced by cheaper rail routes, and

• The burden of carrying high inventory for multiple dealers is reduced through pooling various popular vehicles at a single nearby distribution center.

The main issues that need to be addressed were the determination of new distribution center locations and an opening sequence so that the greatest benefits could be realized earlier.

Measures Taken

Vehicle flow cycle starts when dealers issue vehicle orders from distribution centers to replenish their inventories. Distribution centers, in turn, order from the plants to maintain their pool inventory. Currently, all vehicles shipped from a plant must go through a processing center before reaching a distribution center except for the possibility that the distribution center also has a processing center. Therefore, there may be up to two transshipment visits on the route between plants and dealerships. The vehicle distribution cost and transportation delays depend on the mode of transportation (highway, rail, or sea) and the mileage between the two points. For our purposes, we break the total distribution cost into three components:

1. Plant to processing center cost

2. Processing center to distribution center cost

3. Distribution center to market area cost

In addition, inventory holding costs as finance charges are added to the total distribution cost at four levels: market inventory, distribution center inventory, processing center delay, transportation delay.

Clearly, the number and locations of processing centers and distribution centers are major factors that affect both customer service and distribution cost measures. Moreover, there is choice for the type of facility to be installed at each distribution center location. Type I facilities are smaller in capacity and cheaper. Type II facilities are larger, but the increase in operating expenses is nonlinear and allows us to consider economies of scale in locating distribution centers in certain high-demand areas.


The company has taken following measure in order to reduce cost:

Since railroad transportation is cheaper than trucks, a cost-optimal policy includes far more distribution centers than the current one. An optimal solution estimates over $20 million annual savings in transportation related costs.

Distance to existing processing centers adds about $6 million per year to an optimal solution.

Fixed costs of installing and operating pool facilities are insignificant as compared to savings in transportation costs.

The outcomes demonstrated that a decentralized distribution center concept could achieve the new performance criteria. This concept was complimented with other revised distribution subsystems (forecasting, ordering, invoicing, etc.).As decentralized system will reduce the cost and help in easy availability of goods according to needs and requirements of dealers. And hence it will also help company to minimize the cost.

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