A critical assessment of the operations management processes in the company, with an evaluation

of the successful and not-so-successful aspects of the processes.

Company under study is German Automobile company ‘’Volkswagen’’

Description of the Company:

Volkswagen had started on 28th may 1937, the day Gesellschaft Zur Vorebereitung des
deutschemark Volkswagens mbh a society which manufactures car for German community by
the Nazi Deutsche Arbeitsfront. The main objective of the organization was to produce the
Volkswagen car which was earlier known as Porsche type sixty, then Volkswagen type one,
which was known as Volkswagen beetle. A consulting firm known as Ferdinand Porsches
designed the vehicle which was advocated by the abutment of Adolf Hitler. The company
started producing cars for military at the time of Second World War. After completion of the
battle in Europe in 1945 British army royal electrical & mechanical engineers had taken of the
authority of the plant & begin over the manufacturing process. As per the Orders as many
industries were asked to annihilate, so even Volkswagen had to do it, after that the company
continued to live on only by manufacturing cars for the army of British. The army of British
gave back the control to Germany which was been controlled earlier by Opel chief Heinrich
Nordhoff. Slowly the old model manufacturing started & company geared up in 1950-1960
also came up with many new variants. In 1960 as government of Germany had a stake in the
company, then the name became volkswagenwerk.

1st of January 1965 Volkswagen acquired auto union GMBH from its parent organization
Daimler Benz. This subsidiary started manufacturing under the brand name of Audi.

Some of the flagship brands of Volkswagen group

Current operations management processes to meet the needs of customers

(internal or external)

Operations strategy of Volkswagen.

1) Volkswagen adopts new group strategy-2025 in order to become a world’s
leading Sustainability Mobility provider.
 “Together Strategy 2025” it is the biggest change process in company’s history which
will focus transforming the core business and grabbing the potential new segments.
 Crucial electrification initiative is planned- It will help increasing the annual unit sales
from two to three million as more than 30 new e-vehicles variants by 2025 will be
launched.

 The new group competencies will be digitalization, autonomous driving & technology
of battery.
 Business components will be realigned.
 Business will be quickly expanded by new mobility solution.
 Through Group wide improvements in efficiency & optimization of portfolio the
projected investment will reach a mark of double digit billion range.
 There will be quick expansion of new mobility solution business.
 The return on capital deployed will be 15 percent by 2025 in automotive division &
operating return on sales is estimated 7 to 8 percent.
 The key achieving group tasks are efficiency of brand Volkswagen & enlarging
profitability.

2) Volkswagen global operation strategy 2020

 Product planning.
 Positioning of product.
 Development of product.
 Platform for powertrains, lightweight & vehicular communication

Basic concepts of the global operation strategy

 Vertical integration: It is concerned to alliance of a partner venture to handle of

process of manufacturing for a selected product, it refers to a level to which an
organization can control the upstream & downstream suppliers. It helps in achieving
economies of scale.
 Manufacturing process: An organization needs to make decisions between high
volume of homogeneous & low volumes of differentiation product. Haynes &
Wheelwright comes up with a matrix which helps in market-manufacturing congruence
problem & helps in decision relating to production. The matrix consists of two
indicators namely process choice & Process structure. It has been extended by
product life cycle.
 Facility & Design planning: Facility Design & Planning involves a set of critical
decisions which undertakes irreversible & sustainable investment. It acknowledges
raw material, Market, Transportation & local work workforce, it can be solved by using
quantitative method

Volkswagen adopts modular platform in order to enhance production flexibility & efficiency.
Modular platforms means it’s a platform for automobile which shares a set of
manufacturing activities & common design in order to minimize the cost of manufacturing
& create a new model on the same lines, selecting a platform is a very crucial decision to
be made by the group.

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 3) 2018 Group strategy of Volkswagen
 Volkswagen wants to be world leader through using technologies & intelligent
innovation & at same time quality & customer satisfaction is considered.
 In the coming future company wants to hike its sales to more than ten million units a
year. It wants to capture above average market chunk.
 In order to build a first class team Volkswagen aims at becoming top employer at all
levels.
 Company is targeting a return on sales of at least 8 percent before tax in the distant
future in regards to maintain its brick wall financial position & take action during
uncertain period.
 As the company has imposed an aspiring deadline of 2018 in its Annual general
report-2014.Companys core strategy is to come up with environmental friendly
variants. While administering the expenditure & cost company will address people on
quality front rather than holding a regular stick of pricing. The organization will work on
process standardization in both means direct & indirect sector of the team & lowering
throughput times. The Team will be accountable on the seven key performance
Indicators which are as follows

I. Customer timely deliveries.

II. Sales revenue.
III. Operating profit.
IV. Capex revenue.
V. Operating return on sales.
VI. Return on Investment.
VII. Net cash inflow

Strategy 2018 Toyota as a standard in Volkswagen

The main feature of this strategy are
 Company is on attacking strategy to be on top.
 To give a clear challenge to the Japanese giant & the global leader.
 To be more than them in quality & sustainability
 To be customer choice brand

TOYOTA PRODUCTION SYSTEM:

Toyota Production System(TPS) yardsticks are

1. Just-in-time (JIT) & 2. Jidoka

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1. Just-in-Time- Just-in-time means getting the ancillary products in the factory during the
time of production just-in-time of process which means zero inventory.
2. Jidoka- Jidoka means automation. It was invented by toyoda sakichi founder of Toyota.

Planning of Operations in Volkswagen group:

OPERATION PLANNING
Operation planning means it is a process which minimizes inventory, reduces customer
lead time, keeps manufacturing rates constant & provides top management an edge to
handle on the business in order to give customer life time value of the product consumed
by him. Operation planning is integrated approach from different departments of the
organization in order to maintain the operational plan on the same track with business
plan. It involves a series of meetings at the top level which determines the budget &
production activity for the near future.

Volkswagen has the beginning coordinate as the medium term planning which is
scheduled once in a year which takes in consideration of coming Five years & forms a
crucial interior part of operations planning of the company.
At Volkswagen the company specifies systematically & looks for necessity of
accomplishing strategic projects designed in order to reach the set bar both at economic
& technical fronts in order to acquire liquidity effects. It is also used to correlate all
business areas inline to strategic creation. The sectors kept in mind while formulating this
are product, process & markets.
When it comes of deciding company’s operational Planning in the future individual
planning components are buckled down on the basis of time scale involved.
 The unit sales plan for a long term which catches market & segment growth, then
acquires the company’s volume delivery from them.
 Planning will be done for individual locations both capacity & utilization.
 The corporate policy decides the long term factor of product programme

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Process of introducing new vehicle in Volkswagen

Operation planning efficiency improvement:

Without increasing the staff, Volkswagen with the support of Siemens came up with a
digital production planner software ‘’Techno matrix’’, through which planning can be done
both internally and externally. By this move Volkswagen has reduced its cost of production
and faults are mitigated without extra manpower.

Innovation at Volkswagen for capacity management of the manufacturing plant

To provide maximum gains at an affordable price to the consumer is very challenging task
but it can be achieved by proper capacity planning & capacity utilization. Capacity
Management can be done on the basis of logical construction & remarkable principles of
design. This can be achieved by standardization of manufacturing process & functional
equipment at prior stage

Volkswagen uses two concepts for better capacity management

1) Modular Tool kits: Modular tool kits helps in designing the production sites flexible
according to the requirement of the product. Modular tool kits helps in using single
platforms for different brands which helps in efficient capacity management.
Modular toolkit strategy for company has caused thunder in automotive sector the
decidedly flexible platforms with which are called as MQB- Modular Transverse
Matrix. Volkswagen benchmarking MQB is appreciated by the other industry rivals
that is Toyota & Ford

2) Turntable: Turntable is also a concept of capacity management which is used

when there are sudden changes in demand or frequent fluctuations & if there is
shift from one segment to another segment. At present turntable are at Emden,
Wolfsburg & Zwickau.

Classification of capabilities:

Functional analysis: Functional analysis determines the key performing sections of the
organization & identifies capabilities of the organization in respect to performance.
Value chain analysis: This analysis separates each action into consecutive chains.
Michael porter’s value chain analysis bifurcates between support actions & primary
actions

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Capability as routine: Organization capability needs are the ability of one to combine
with capital equipment, technology & few other resources. The require routine of a set of
activities are known as organizational routines.
Organizational routines needs to be done on a regular basis if not performed then it will
be difficult to execute at the future level. There is a need of set direction to be given right
from beginning till end.
Identifying the key resources and capabilities analysis to work:
Resources VW relative Comments
strength
1-10 Scale
Finance 6 A credit rating is above average for the industry but free
cash flow remains negative
Technology 5 Despite technical strengths, VW is not a leader in
automation technology
Plant and 8 Has invented heavily in upgrading plants
equipment
Location 4 Plants in key low-cost growth markets ( chine, Mexico,
Brazil ) German manufacturing base is very high cost
Distribution 5 Geographically extensive distribution with special
strength in emerging markets , Historically weak
position within the US
Brands 5 VW audi, bently and bugatti brands are strong – But
added to skoda seat too, VW’s brand lack clear market
focus
Capabilities
Product 4 Traditionally weak at VW, with few big hits, Beetle, golf,
development passat, Vanagon . Despite major upgrading product
development still weak compared to industry leaders
Purchasing 5 Traditionally weak- strengthened by senior hires from
opel and else ware
Engineering 9 The core technical strength of VW
Manufacturing 4 VW is high cost producer with below average quality
Financial 4 Has traditionally lacked a strong financial orientation
management
R&D 4 Despite several technical strengths, VW is not a leader
in automotive innovation
Marketing and 4 Despite technical weakness in recognizing and meeting
sales customer needs in different national markets, VW has
increased its sensitivity to the market, improved brand
management and managed its advertising and
promotion.
Government 8 Important in emerging markets
relations
Strategic 4 Effective restructuring and cost cutting but lack of
management consistency and consensus at top management level.

Form the above analysis

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VW has frequent development of new product with global foot print
The company must assess its competitive strengths & key areas of weakness where it
need to work and give thorough focus.

Major problem / challenges faced by Volkswagen in the operations management and

solution they found

1) Volkswagen of America had an unusual problem that there high priority projects
were not been funded & this lead to informal inserting of the unfunded projects into
the information & technology department. This was caused because there were
forty projects of 210 million dollars but only sixty million dollars was provided by the
Volkswagen headquarter. This resulted in lots of confusion around, so then
Volkswagen used information & technology with a standard process through which
all the funding problem were solved the system would select automatically the right
project to be funded this prevented informal inserting projects for funding.

VWoA (Volkswagen of America) IT Project approval

With the introduction of the above IT system, in appropriate distribution of funds is

completely eliminated.
2) Allegations of Pollution defeat device ’Dieselgate’ scandal : US
EPA(Environmental protection agency) found that many VW cars being sold in
America had a "defeat device" - or software - in diesel as well as petrol engines
that could detect when they were being tested, changing the performance
accordingly to improve results. The German car giant has since admitted cheating
emissions tests in the US.
The allegations completely let to lose the faith of customers on Volkswagen.

Actions taken to regain the trust:

 Paid $ 14 .7 Billions to settle emission cheating scandal

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  Given options to the consumers to keep the car and bring it to their workshop for
updatation and bring to existing regulations or sell back to company and get extra
cash as a part of $ 14.7 Billion deal
 Offer six year of 72000 Miles whichever comes first to all their new vehicles
 Transferable warranty beyond the first owner

Analysis of Key Critical Success Factors of the Industry and critical evaluation of
the strategies adopted by the Volkswagen to gain competitive advantage through
innovations in Supply Chain Management

Supply chain management: Innovative supply chain gives successful results it helps in
continuous improvements it provides operational solution for requirement in demand &
supply.

Sustainable Value enhancements : Volkswagen always incorporates sustainable

development as one among their core principles & the company also believes that
fostering it will be a competitive advantage, but in relating to the emission issue company
has literally failed & also expressed this in their Annual General Report, but the company
is thriving hard to come up with emission free products & working on various fronts to
tackle this problem which is making its stake holders lose faith in the company.

E.O.M- Environment Operation Management it refers to creating operation planning

considering environmental issues. The world’s largest 3 Players in automotive industry
General Motors, Toyota & Volkswagen have planned well before & executed it that is
production through technology driven output. The paint section of the production process
was transformed to make use of waterborne paint sprayers & solvent based of water. Use
of renewable energy, minimizing the use of energy, efficient waste management system &
recycling of the products to gain greater level in greener production.

Volkswagen has different strategies for their different brands for sustainable environment

Brand Strategy
V.W. passenger & commercial cars Think Blue
Audi Ultra-Strategy
Skoda Green factory
SEAT Eco-Motive
Bentley Environmental factory
Porsche Resource efficient production
Scania Blue rating
Man Climate Strategy

Green Logistics: Logistics comprises of major sustainability so company is trying to

minimize consumption of fuels. Company is focusing on collaborating & trying to reduce
the transportation process by using Logistic Process Partner Management. Currently

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company is very much concerned in developing process efficiency as it reduces the
consumption
New fuel sources for vehicles: Electric vehicles, Vehicles which will run by electricity will
have batteries which can accumulate higher energy & can charge their vehicles when it is
parked without the help of driver & even it can create power from on board fuel cells.

Volkswagen Failure in Indian market:

Even the world 2nd largest Car maker which sells one car for every 30 secs failed to
survive in Indian market and maintained to sell only 75000 units approximately a year
from its six brands ,Bentley, Skoda, Audi, porsche,Lamborghani,Volkswagen.
The group had entered India in 2001 and created a niche in the premium segment with
Skoda. By 2007, the mother brand and its premium sibling, Audi, were out. Next came the
sedan portfolio — Passat and Jetta. Polo and Vento facilitated two consecutive years of
over 20% growth from 2010. Group sales even crossed 1 lakh in the Indian market and a
target of 20% market share by 2018 was set.

With premium selling markets for Lamborghini and Porsche are small and a constant slide
in sales since 7 years for small vehicles and emissions issues , Volkswagen existence in
Indian market became difficult.

Reasons:

1) High attrition rate in the top management since ten years

2) Slow in updating models when compared to rivals

3) Integrity issues like emmissions scandal for their Diesel cars in US

4) Difficulty in understanding Indian market which is highly populated and different

from other countries

5) Failed to communicate in the language Indians understand

6) Poor after sales service

7) No customized operations management structure for India and following the same
template of operations management followed in European countries

8) Higher manufacturing cost vis a vis product cost due to consultancies and experts
hiring to understand market

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Proposed actions to Pick –up in sales in India:

1) Vision Indian 2.0 of Volkswagen had already formed and working

2) Engage local R& D team for designing the cars in India

3) Goal setting to achieve 5 % of market share by 2025 and 3% in coming five years

4) Withdrawing participation from the small car category which is 60 % of the market
and participating in premium cars and SUV where the VW is having strength

5) A customized operations management process which focuses on understanding

Indian markets, after sales services, low cost economics is required

Difficulties in implementing actions:

1) Market monopoly in Indian markets strongly resists the new entries

2) More political interferences

3) Small market for premium vehicles

4) High manufacturing cost

Conclusion:

1) Focus on emerging markets: Volkswagen should now focus emerging markets like
china, India & diversify its infrastructure to these rapid developing economies.

2) Hybrid & electric Power train on priority: Volkswagen is focusing electrifying every
segment & also looking for single battery installation which will give it a competitive
advantage.

3) Focusing on passenger safety: It was always kept on priority & is carried forwarded
for the future.

4) Connected cars as a basic & major focal point- Technology connected car
expanding in developing & developed economy in this segment is still very back as
compared to the industry rivals.

References:

https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/volkswagen-
groups-india-project-2-0-approved-skoda-to-take-charge/64697072

AUSTIN, R. D., JUNE 14,2007. Volkswagen of America: Managing IT Priorities. Harvard

Business School.

Burgstaller, S., Rothery, T., Archambault, P. & Yuzawa, K., November 27, 2009. Identifying
global long-term winners: Toyota, Volkswagen and Fiat, s.l.: Goldman Sachs Global
Investment Research.

Chase, R. B., shankar, R., Jacobs, F. R. & Aquilano, N. J., 2011. Operations & Supply
Management. 12th ed. s.l.:Tata McGraw-Hill ISBN978-0-07-070089-05.

Csizmazia, R. A., December 2014. Reconfiguration of Supply Chain at Volkswagen Group

to Develop Global. International Journal of Academic Research in Business and Social
Sciences, Volume Vol. 4, No. 12, pp. 1-12

http://www.volkswagenag.com/
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I.A. Gorlach, O. W., 2007. Case Study: Automation Strategies at Volkswagen.ISBN:978-
98898671-2-6. Proceedings of the World Congress on Engineering,London, U.K., Vol
II(WCE 2007, July 2 - 4, 2007), p. 6.

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