Volkswagen Aktiengesellschaft (Volkswagen AG or VW AG) is one of the world’s leading carmakers in the world. In 2016 they surpassed Toyota in units sold to hold the first place for the first time (unit sales: Volkswagen – 10,312,400, Toyota – 10,213,486). German multinational automotive manufacturing company designs, manufactures, and distributes passenger and commercial vehicles, motorcycles, engines, and turbomachinery, and offers related services including financing, leasing, and fleet management.
Volkswagen AG consists of twelve brands: Volkswagen, Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, Škoda, Ducati, MAN, Scania, and Volkswagen Commercial Vehicles. All these brands are treated as stand-alone companies, which have their own boards of directors, profit and loss statements, and annual reports. This leads to a certain degree of overlapping and duplicating within the company. The company has operations in approximately 150 countries, and operates 119 production sites (of which 69 are passenger car, commercial vehicle and motorcycle locations and 50 are powertrain and component locations) across 27 countries.
Volkswagen AG has a very vertical hierarchy system and a tremendous number of employees (a massive 549,300 people globally).
Having the wide variety of products and services, Volkswagen group has many different types of customers. The different brands are directed towards different contingents (i.e. Volkswagen is directed towards medium income individuals, Audi – medium to high income individuals, luxury cars such as Porsche, Lamborghini, and Bentley, MAN – mostly companies that need trucks.)
Apart from the obvious car manufacturing Volkswagen AG also offers financial services:
• Offering financial products to help people buy our brand cars through dealerships.
• Supporting the dealerships by providing funding and credit to enable them to purchase the cars they need to fill their showrooms.
• Offering fleet services to small and large businesses – anything from two to three cars, up to thousands of vans for larger enterprises.
When it comes to materials, Volkswagen AG uses a very different approach from other car manufacturers. While others buy their parts, be it from their partner companies, or just third parties, VW AG decided to cut down costs by making most of the parts themselves. They figured that the companies selling parts have a profit margin, like any company selling any product or service, so by manufacturing the parts themselves they got rid of that cost.
VW AG portrays itself as customer oriented company. They not only offer the reliably engineered modern design automobiles to their customers, but also help them finance their new cars. Volkswagen AG offers its customers not only the car, the transportation vehicle, but the whole process, starting from the very beginning. To cite their website: “Mobility is the core idea for our automotive value chain. In addition to their ‘automotive mobility’ we also provide our customers with Financial Services and boost their ‘Financial Mobility’”.
Volkswagen AG’s main industry is automotive industry, where many big players compete. The manufacturers try to be one (or possibly more) step ahead of their competitors. In this industry, the manufacturing and product distribution processes play the vital role in achieving this goal (we can look at how Toyota managed to outrun its competition by reducing waste, by introducing lean manufacturing method. Today it is even more difficult. The manufacturers try to cut down costs, innovate, introduce new, modern design cars that consume less fuel and are more eco-friendly, that are comfortable and plus offer their customers something more than a car.
Operating in 150 countries, and managing 119 production facilities is not an easy task and can get unnecessarily complicated without a central system (ERP). Volkswagen AG needs a centralised system to control all the materials, processes, finances, resources, products, and distribution channels from all the brands it unites, to get the overall picture, and to see how each company is doing individually.
Volkswagen AG is a car manufacturer, which by itself means that the process of manufacturing should go according to a precise plan, the defects must be virtually non-existent, and the procedures must be on time. But Volkswagen AG has to do it to all 12 of its autonomous brands, plus the subsidiary companies that supply parts, and bring them all together, find more efficient ways to use the resources.
Since Volkswagen AG consists of many brands, I will talk about Volkswagen Passenger Cars (Volkswagen) and how the data is fed to Volkswagen AG.
The key functions of Volkswagen can be defined as manufacturing the cars, delivering the cars to customers, and supporting the maintenance. The process starts at the autonomous brand level, where the needs for their manufacturing (the materials, labour hours, machine hours, storage requirements) are defined, schedule has to be approved. Then the materials and car parts should be ordered, and the manufacturing should go by the schedule. The information, from Volkswagen and other brands, has to be sent to Volkswagen AG to have the big picture (the costs and revenues, units sold, materials used, defected parts). It is clear that the flow of information is in multiple directions, and can become quite confusing if not organised properly.
Having a centralised system for the information and processes will reduce the processes’ lead times, the number of errors due to miscommunication, the costs and will overall improve the process. The manufacturing process is the first that comes to everyone’s mind when talking about benefits of automation. From Volkswagen AG’s perspective, if it has the access to see the needs of every brand it unites, it might turn out that many of the brands need the same materials, so ordering in a bigger batch together would them money. Another good example would be if one of the brands’ order of the materials is going to be late for some reason, they could easily check for stock in other brands’ inventory and if it is possible, use it not to disrupt the processes. The sales and delivery system, together with financial department will see a huge benefit from automation too. The orders will be easier to satisfy, the distribution channels will be better planned, and all the financial information will be in one place, accessible and not a subject to miscommunication errors.
Volkswagen AG uses “Fertigungs-, Informations- und Steuerungssystem” (FIS – Production, Information and Control System) group-wide to enable flexible and cross-brand production in the global production network.
Being a car manufacturer, the purchasing plays an important role in how smooth the processes go for the company. If for any production process there is a shortage of materials the whole process will be stopped.
After the brands have defined their production plan, the list of materials needed to satisfy this plan is generated. This list will include every part or material Volkswagen will need to by. Each of these parts/materials will have a code assigned, as well as information like costs and lead times, and the request for order will be sent to procurement module automatically according to planned projects’ needs. After the order is placed, the cost information will be sent to financial module, and the warehouse will be informed about the date and the size of the arrival batch.
The purchases made by Volkswagen are mostly parts, or materials to make parts. Volkswagen AG (all of its brands, including Volkswagen) uses the Group Business Platform as the central interface between the Volkswagen Group and its partners. The external suppliers have the opportunity to access the business areas’ systems and process knowledge centrally via the Group Business Platform. Every supplier, at the same time as employees in procurement, has the same view of the current supply situation regarding its parts. This network is thus able to react to every external influence in every part of the world at the same time. The Group Business Platform itself feeds information to Volkswagen AG’s FIS.
Volkswagen uses a lean method to produce cars. They do not wait for orders to come in to start manufacturing, they stick to pre-established plan. This enables them to have a ‘constant flow’ of parts as the production process is underway. The ‘constant flow’ of materials also helps Volkswagen keep their inventory levels considerably low. The inventory is used as a buffer for unaccounted situations. As all of Volkswagen’s suppliers have access to their relevant information on the Group Business Platform, it is very rare for mix-ups to happen.
Unlike the traditional lean method introduced by Toyota, Volkswagen do not use the classic just-in-time method (even though they do not have stacks of inventory), they cut down costs with parts-sharing among models.
After warehouse receives the approved project plans, it automatically checks the necessary inventory levels and sends out requests in procurement module to place according orders.
The inventory is supplied to the production site upon need (which is pre-determined as Volkswagen uses push manufacturing system.
Since Volkswagen AG is using cross model part-sharing, it is common for one factory to be making several models of different brand cars. This cuts down costs on inventory.
The inventory levels should be as flexible as the approved plan, which can sometimes change due to a drastic change in demand.
Volkswagen uses the push method in manufacturing, meaning that the cars are made as planned over a certain period. Some other brands in Volkswagen group start manufacturing only after receiving orders (Porsche, Lamborghini, Bentley).
Volkswagen’s production planning can be described as consumption planning, they set the goal, they manufacture that many cars, and get them out to shops to sell. But this does not mean that the targeted number does not change, Volkswagen’s plants and materials management (the inventory buffers) are designed in a way that enable them to be flexible even after the plan has been approved, and gives them freedom to fluctuate from the plans if a drastic change in demand is evident.
For any car manufacturing industry Material Master Data is vital. Volkswagen is no exception. Master Data is basically the reason the production planning can go smoothly, it is the module that ‘figures out’ how much time, labour hours, machine hours, materials the process will need.
Volkswagen is not only manufacturing the cars, but some of the cars’ parts too. After the production plan is confirmed, a multi-step manufacturing process begins. The FIS and the Group Business Platform systems have to make sure that every part that Volkswagen is buying from the suppliers or making on their own are on time for the assembly of the car, and that the materials for the parts they are making are on time so that the manufacturing of those parts can be finished and the parts are ready to use when the car manufacturing process needs them. For this to go smoothly an elaborate Bill of Materials should be defined for every car and car part they produce. They make sure that the inventory is ‘ready’ for the planned production. Volkswagen’s BoM is a complex multi-level ‘structure’. After the needed materials part is cleared up, it is very important for the process to be correctly ordered (for example not to start assembling the car and figuring out that the engine and the transmission box have not yet been made). The FIS system takes into account the requirements of the cars and parts and designs an optimal routing, assembly schedule. This schedule is the basis of the orders (when the materials and parts should be available for the manufacturing process).
The manufacturing procedure at Volkswagen is a continuous process, but unlike other car manufacturers, Volkswagen does not use the classic conveyer belt, it rather uses the whole room as a conveyer. The floor is designed so that it moves slowly at a constant speed.
To look at the whole manufacturing process we will have to start from the very beginning: first, the production plan is proposed based on previous experience and demand forecasts. After the plan is approved, the Bill of Materials is automatically generated by the FIS system, which in turn gives information to Routings to schedule the production, taking into consideration the machine and labour hours’ availability, the availability and the lead times of the inventory. After the schedule is established the information is used by the Procurement module to place the necessary orders. The manufacturing starts and ends at the determined time.
Even though the manufacturing process at Volkswagen is automated, human resources play a vital role for the company as humans are the drivers of change and innovation. Volkswagen is not keeping up with the trend of horizontal structures and does it the Volkswagen way, has a very vertical structure. Each department has its goals that they need to follow. The FIS system ensures that the departments are firmly linked with one-another and that the overall process is not damaged by seemingly lack of inter-connectivity. Since Volkswagen operates in many countries it is natural that they have a complex structure of personnel areas and sub-areas.
Volkswagen AG’s employees covered by collective pay agreements have a remuneration system that comprises three main elements:
• basic pay in the form of a competitive monthly salary;
• a performance-related pay component that additionally recognizes the achievements of each individual employee; and
• the right to a bonus arrangement anchored in the collective pay agreements.
Volkswagen AG offers its employees vocational trainings, where theory and practice is taught to the personnel. Volkswagen also offers professional trainings to further develop its employees. This shows the employees that Volkswagen has long term plans with them, which makes them feel secure about their job, and improves their performance which in turn benefits Volkswagen.
The FIS system contains Volkswagen’s organisational structure with information about individual employees. In the system, it is easy to check the employees job, info, salary, specific trainings. It is a good tool for employee evaluation. The system is also very helpful to keep track of the costs that company has in salaries of the employees.
As the main activity of the company is done by machines, asset management is very important at Volkswagen. They need to be sure that all machines are routinely checked and will not break down in the process, which would cause delays in the production.
Each machine has its serial number and every part made in the factory has a reference to the machine that made it. This way the company can keep track of the machines if, for example, some parts have defects. This makes the process of identifying the process much faster and simpler.
Operating 69 passenger car production sites, Volkswagen AG has a fair amount of assets. At the end of 2015 Volkswagen AG passenger cars area had net assets of 162,317 million, compared to 154,328 million at the end of 2014 (5.18% increase).
The following table shows the assets in Volkswagen AG: