Volkswagen: Supply Chain, Logistics, and Operations Analysis

This report provides a comprehensive analysis of Volkswagen's supply chain, logistics, and operations management. It begins with an overview of Volkswagen, its global presence, and market share. The report delves into Volkswagen's quality management practices, including the ISO 9001 standard and the impact of the emissions scandal (Dieselgate). It then examines the company's approach to managing business relationships within its supply chain, focusing on procurement strategies, the FAST initiative, and supply chain digitalization. The report also explores the triple bottom line approach adopted by Volkswagen. The analysis covers the company's efforts to enhance supplier relationships, digitalize processes, and address sustainability concerns. Finally, it provides recommendations based on the findings and concludes with a summary of key insights into Volkswagen's supply chain management strategies and their effectiveness.

Running head: SUPPLY CHAIN, LOGISTICS, AND OPERATIONS
Volkswagen
Understanding Operations, Logistics, and Supply Chain
7/31/2019

SUPPLY CHAIN, LOGISTICS, AND OPERATIONS
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Table of Contents
Introduction................................................................................................................................2
Overview of Volkswagen.......................................................................................................2
Managing Quality...................................................................................................................3
Quality Assurance Theory by Volkswagen........................................................................3
Managing Business Relationship in Supply Chain................................................................5
Procurement Strategy.........................................................................................................5
Volkswagen FAST – Supplier Network............................................................................7
Supply Digitalization.........................................................................................................8
Structure of Procurement market.......................................................................................8
Triple Bottom line..................................................................................................................8
Think Blue..........................................................................................................................9
The social factor.................................................................................................................9
Recommendations......................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................12

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Introduction
Supply chain management is comprised of establishing collaboration between companies to
link them with the customers, suppliers, etc. to boost the production value for the end-users
(Li, 2011). Logistics is one of the parts of supply chain procedure that is involved in
planning, executing and controlling the effective reverse and forward flow and goods and
service storage, and other related information at the point of origin consumption to meet the
requirements of the customer (Ailawadi and Singh, 2011). Furthermore, operations
management is the designing, implementing, and controlling of the operations that transform
raw material or resources in the desired form of service or goods and implementing the
business strategy of the company (Mahadevan, 2015). The intent of this paper is to present
the clear understanding of the logistics, supply chain, and operation management concept in
consideration to the Volkswagen Company which is one of the well-known automotive
companies operating in the United Kingdom. The paper is comprised of a detailed analysis of
two key areas that are managing quality and managing business relationships in the supply
chain. In addition to this, the paper is highlighting the used theories by the company under the
selected areas and issues it faces under the same head.
Overview of Volkswagen
Volkswagen is also known as VW is the automaker of Germany which is established by the
German Labor Front, a Nazi labor union in the year 1937. Headquarter of the company is
established in Wolfburg. It is the flagship brand of the Volkswagen Group which is the
world’s largest automaker in terms of sales in as per the reports of 2016 and 2017. Most of
the revenue of the company is generated from China which is considered to be its biggest
market. The Chinese market helps the company in generating its 40% of the sales as well as

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profits (Volkswagen, 2019). The meaning of Volkswagen in Germany is “people’s car”. The
present global slogan of advertisement of the company is “Volkswagen”, which is
highlighting the meaning of its name. The expansion in the production of the company took
place in the 1950s. At that time, the company established its Transporter van in the year 1950
and also Karmann Ghai vehicle in the year 1955. The abroad sales of the company were
strong many of the nations of export, however, due to the small size of the cars, uncommon
rounded look, and historical link with Nazi Germany, the sales of the company in the US and
UK were initially slow (History, 2009).
Managing Quality
The quality of the services and products offered by the company perform a major part in
maintaining high customer satisfaction. Customers specifically get satisfied and stay loyal to
the brand when the product or service provided by the business meet their expectations or
exceeds. Here, the objective of Volkswagen is to excite and surprise the consumers in all
aspects and winning their trust with the company's product's quality (Volkswagen, 2018).
Volkswagen embodies high quality and confirms reliable mobility for its consumers available
across the world. This is considered as the strategic goal of the company that guides the
complete operations of the quality management of the Group. The Quality Management of
the Group performs a key role at every stage of product development and product testing.
With this, the company make an essential contribution to the successful start-up of the
product, increases the satisfaction of the customer and low warranty and goodwill costs. The
company is also investing in electrification under its "Strategy 2025", under which it is
planning to launch 30 new electric cars (Allan, 2016).

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Quality Assurance Theory by Volkswagen
The quality of the company’s products and services perform a major part in maintaining the
satisfaction of the customer. Customers are specifically satisfied and stay loyal to the
business when the company meet their expectations or exceeding them regarding the service
or product. Consistency, appeal as well as service define the quality because it is apparent by
the consumer during his/her product experience. Under quality assurance tool the objective of
the company is to positively amaze and excite their consumers in each segment and hence
win their trust through outstanding quality. In the Volkswagen group, quality management is
dependent on the standard ISO 9001 (Volkswagen, 2015). According to this standard, the
business must meet the requirement in order to attain the license for operation and kind of
approval for manufacturing and vending their vehicles. However, in the reporting period, the
same standard was revised which is considered to be the major revision in the business made
due to some risk assessments for the non-compliant procedures. For ensuring that these
revisions are properly executed in the entire Group, the Quality Assurance introduced a
concept in the year 2015, under which it set the rules, references, and tips for the consultants
of quality management for specific brands, and assisted them in the execution procedure
(O’Marah, 2016).
In spite of the execution of different quality management and assurance tool in the business,
Volkswagen has been involved in experiencing different types of issues and scandals. For
instance, the Volkswagen emission scandal which is also called as Diesel-gate was identified
in the year 2015 by the Environmental Protection Agency of US. According to the petition
filed by the agency, Volkswagen was involved in violating the Clean Air Act (Cohen, 2015).
According to the analysis of the agency it identified that Volkswagen Group had deliberately
set the diesel engines that are turbocharged direct-injection for activating its emissions
controls only when the vehicles are tested for identifying the emission level in the laboratory

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which resulted in causing the vehicles NOx output for meeting the standards of United States
during the period of regulatory testing. Volkswagen arranged this program in almost 11
million cars at a global level which includes 500000 cars in the United States region in 2009
through 2015. For this scandal, Volkswagen has to cost around $30 billion as the penalties,
restitution, settlement, and fines of the lawsuits since September 2015 (MacDuffie, 2019). In
the year 2019, the security and exchange commission of US accused two of the subsidiaries
of VG and Martin Winterkorn the former CEO for cheating the investors and raising huge
amount by corporate bond and fixed income markets and making number of misleading
claims regarding the negative impact on the environment on the clean diesel fleet of the
company.
The scope and scale of this scandal are huge and stretched organization towards different
troubles that have majorly impacted the company's reputation, customer trust, loyalty, and
satisfaction. In addition to this, the customers of those cars have asked for a huge amount of
compensation which squeezed the profit of the company and employee’s termination.
Managing Business Relationship in Supply Chain
Volkswagen is regularly involved in enhancing its business relations with the suppliers,
distributors, retailers, and customers in its supply chain in order to have a smooth supply of
the vehicles from the manufacturing unit to the retailers and end-users. In the year 2017, the
main task of the company was to safeguard the essential supplies and to support in becoming
competitive, offer innovative products, and enhance cost structures. Volkswagen has initiated
to digitalize its procurement procedure and enhance supplier corporation under the FAST
Initiative (Future Automotive Supply Tracks).

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Procurement Strategy
The entire Group has planned as a procurement strategy that is TOGETHER which is focused
towards offering the best customer value at the best cost. The strategy of the company was
focused towards attaining six goals that are:
 Forward-looking structures
 Group-wide synergies
 Access to supplier innovations
 Excellence in supply chain
 Attractiveness, expertise, and people
 Active cost structures
To meet these goals, the company has created 100 measured as part of the initiative and are
being executed:
“Greenfield costs” that is known as technical and commercial activities for increasing the
component costs.
“Value sourcing” is focused on systematically integrating the suppliers in the procedure of
development from the initial stage (Volkswagen, 2017).
“Innovation and partnership” confirms that procurement is placed at the central part of the
procedure and decisions associated with both the concepts.
“Software” implemented in the company is driving the required alterations to the procedure,
structures, and capabilities leading from the procurement of the software and its augmented
significance to the added value of the Group.

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“Digital supply chain” includes an Information Technology system assimilating all the main
procurement procedures in the single solution and creating the foundation for a digital
network comprising all the partners of procurement.
“Sustainability” supports the objective of the Group of becoming the leading brand in the
automotive industry along with the strong supply chain.
“Employees, strong team, organization” this measure of the initiative grabs the attention and
places the basis for the success of the strategy with the flat hierarchies, employee’s freedom,
and the trust and respect culture.
The initiative is a big success because it is involving suppliers in the number of vehicle
projects at the initial stage, for instance has allowed quick attainment of the targets of
material cost at the same time also enhancing the quality in comparison to the competitors
and contributing in changing the perspective of the customer. In addition to this, the company
has placed the order of products for implementing particular innovations for the products
from different suppliers in order to allow consumers to gain the benefit of then at the initial
stage. Further, the company decided to separate its software and hardware in the procedure of
procurement and introduce a new division in the organization that is Connectivity
Procurement.
Volkswagen FAST – Supplier Network
FAST is being considered as the main procurement initiative executed by the Group,
established in the year 2015 with the motive of making the supply chain network of the entire
group future-proof. The FAST initiative aims to positively execute the main topics of the
globalization and innovation by incorporating suppliers at the initial stage. The initiative
‘FAST' improves the speed as well as the quality of the collaboration with the main partners
of the business and thus allows them to coordinate their global strategies and technology

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more closely. The shared objective is to develop imposing technologies and make them
accessible to the target audience quickly and to execute global vehicle projects efficiently and
effectively. In the year 2016, the company has 55 FAST suppliers, however, in the coming
year, it increased to 64 suppliers (Volkswagen Newsroom, 2015).
Supply Digitalization
Volkswagen Group operates its work systematically for executing an utterly digitalized
supply chain. This will support the company in ensuring its supply, leverage synergies all
over the Group and become a frontrunner in terms of innovation and cost. The company is
hence developing a shared database and making use of innovative technologies for enabling
well-organized, networked association in real-time within the Group and with the business
partners. After the popular introduction of the company's ONE KBP platform in the year
2017, it is working together with its suppliers on a single platform (Volkswagen Group
Supply, 2019).
Structure of Procurement market
The procurement is planned at world level, with the major existence all over the globe. This
ensures that the material of production, property investment, services and plant, and
equipment could be obtained globally to the required quality in possible terms. Networking of
the group allows leveraging synergies in the different procurement markets.
Triple Bottom line
The triple bottom line is said to be the theory or framework that is organized to recommend
businesses to be focused on environmental as well as social issues like they focus on making
profits. The TBL suggests that in place of the single bottom line, the businesses must
consider three bottom lines that are people, profit, and the planet. The triple bottom line seeks

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to device the level of the commitment of the company to its corporate social responsibilities
and its influence on the environment with time (Henriques and Richardson, 2013).
In the automobile and transportation industry, Volkswagen is considered as one of the biggest
organization. The company has around 106 facilities of manufacturing and 12 brands in 27
nations across the world employing around 570000 people; Volkswagen is capable to make a
record of producing around 9.73 million vehicles in the year 2013 (Volkswagen, 2013). The
management of Volkswagen is intensely conscious of how ecosystems pressures, natural
resources, and social threats and susceptibilities can and do influence its operations, and
therefore it is focused towards enhancing the circumstances in all the three fronts.
The triple bottom line principle of the Volkswagen group are summarized and enlarged in
both the terms that us qualitatively and quantitatively in the sustainability report and under
‘Think Blue’, which is one of its long-term strategy of sustainability. The strategy is focused
on improving the environmental and social sustainability rank of the business along with
enhancing the efficiency and quality of its operations and financial status (Supply and
Demand Chain, 2018).
Think Blue
As per the set guidelines under the Think Blue strategy, the company’s manufacturing plants
like Chattanooga, China, Puebla, Foshan, Mexico, and Tennessee are said to be the models of
socially and environmentally conscious construction, organizational development, and
management (Burger, 2014).
The social factor
The sustainability plan of Volkswagen also includes high social standards. For instance, the
company has introduced a German dual model which is concerned about the vocational
training in each of the manufacturing units.

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Recommendations
 For overcoming the issues raised by the emission scandal related to the quality of the
company’s products, Volkswagen Group is recommended to adopt Six Sigma strategy
that is majorly based on the quality improvement methodologies of previous years,
comprising quality control, Zero defects, and Total quality management. It
emphasizes on enhancing the procedure quality by recognizing and eliminating the
reasons for flaws while reducing the erraticism in business as well as manufacturing
procedures (Taghizadegan, 2010).
 In spite of different and intense initiatives executed by the Volkswagen to make a
strong relationship with the business partners, the company is still experiencing the
negative impact of its emission scandal in terms of a negative image in the eyes of
supplier and diminishing trust of the investors (Holweg, 2016). To overcome these
issues, Volkswagen Group is recommended to choose different social media
platforms in order to promote the business effectively and reduce the negative impact
of the scandal. The company is recommended to get involved in the online apology
launch as the communication crisis response that can help in testing the sentiments of
the consumers. Through this company could offer solutions in diverse steps, from
generating awareness and confidence for increasing understanding as well as the
satisfaction of the consumers.
Conclusion
The above report is comprised of a detailed analysis of the supply chain and logistics network
of the Volkswagen group which is considered to be one of the leading automobile companies.
The analysis has highlighted that Volkswagen Group gives major emphasis on offering high
quality to its customers by adopting different quality standards. In spite of this, the company

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is yet dealing with the consequences of its emission scandal resulting in diminishing investors
and customers trust. Hence, to overcome this, the report has recommended the Volkswagen
group to focus on adopting Six Sigma strategy to manage the quality in all the segments.
Besides this, Group must get involved in the online apology launch as the communication
crisis response to increasing the trust and satisfaction of the customer as well as investors.

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