OPERATIONS MANAGEMENT AT VOLKSWAGEN GROUP
OPERATIONS MANAGEMENT AT VOLKSWAGEN GROUP
OPERATIONS MANAGEMENT AT VOLKSWAGEN GROUP
In essence, operations management is a business discipline that has to do with the planning, organization, coordination, and control of organization’s resources for the production and delivery of goods and services (Slack, 2016, p. 4). In other words, operations management involves the management of information, people, technology, equipment, and other resources that help in the production and delivery of goods and services to markets. In this respect, the discipline is a core function of management in manufacturing organizations. As stiff competition and decline in demand become major characteristics of the contemporary global economy, international firms must consistently endeavour to maintain and develop customer value by offering quality products promptly.
The Volkswagen Group, commonly known as Volkswagen Aktiengesellschaft, was formally established on May 28, 1937, in Wolfsburg, Germany. As of today, the Group has over 130 manufacturing plants in over 31 countries. The Group markets its brand of automobiles in over 150 countries worldwide, with Europe leading in total sales. According to the 2015 Annual Report, the Group made net revenues of about 125 billion euros (The Volkswagen Group, 2015, par. 3). In the course of its corporate history, the Group has to date undertaken 37 major acquisitions, and its stakeholders have grown over the years standing at 28 as of today (The Volkswagen Group, 2015, par. 3). Indeed, the Group has grown tremendously over the years, and this trend is evidenced by the evolution of its brand portfolio, where from the first manufactured car- the Type 1- the Group now boasts of several brands. Today, the Group manages international brands, including Audi, Ducati, Bugatti, Scania, MAN, Skoda, Bentley, Porsche, SEAT, Lamborghini, and Volkswagen (VW) Passenger and Commercial Vehicles (The Volkswagen Group, 2015, par. 4).
Notably, Operations Management plays a fundamental role at Volkswagen Group; in essence, it is the discipline that oversees the production and supply of automobiles of high quality in a timely manner. Ordinarily, the operations department is primarily concerned with the processes of planning, organizing and supervising production and manufacturing to meet the criteria set by customers in different markets. In this regard, operations management at the Volkswagen Group ensures that the different vehicle brands are produced in the best quality possible, thereby meeting and exceeding the expectations of customers. When it comes to the overall production activity, both the supply chain and the logistics procedures have strong foundations in the operations management at the Group.
Operations Management at Volkswagen Group
Perhaps the most significant operations management milestone, the Volkswagen Group’s ‘Production 2018’ strategy is an engine that is at the centre of the current production trend (The Volkswagen Group, 2015, par. 4). According to the Group, this ambitious strategy is aimed at building the most powerful and fascinating car manufacturing system in the global auto manufacturing industry. In this respect, the Volkswagen Group has identified four core objectives as it relates to the various brands: to excite customers by supplying high-quality car brands; growing earnings and their contribution to the Group’s overall business strategy; structure production capacities to respond to the market changes; and to make production more attractive to the Group’s workforce (The Volkswagen Group, 2015, par. 5). In short, the primary objective of operation management at the Volkswagen Group is to design and control the process of production of automobiles utilizing resources efficiently with the aim of the meeting, and exceeding, customer demands and requirements. In short, it involves manufacturing high-quality cars and delivering the same to customers in the right place at the right time at the optimum cost.
According to Slack, Brandon-Jones, and Johnston (2013, p. xx), operations management is challenging, because it promotes creativity in organizations; this is essential in responding to the dynamism of the contemporary marketplace. Ordinarily, the global today’s market is characterized by constant changes that are brought about by various factors. According to Slack, Brandon-Jones, and Johnston (2013, p. 13), these factors include increased cost-based competition, rapidly developing technologies, increased ethical sensitivity among customer groups, as well as greater security awareness. Others include more choices and variety as far as products and services are concerned, robust legal regulations, frequent production of new products, and higher quality expectations. As a result, Slack, Brandon-Jones, and Johnston (2013, p. 13) observe that these factors are prompting operations responses from manufacturing organizations, such as the Volkswagen Group, in various ways. These include mass product customizations, development of efficient supply chain management, globalization of operations networking, employment of lean manufacturing process designs, and environmental sensitivity in production.
Therefore, to respond to the aforementioned market dynamics and to respond appropriately, operation managers at the Volkswagen Group are critical components of the decision-making hierarchy when it comes to product design, quality management, and development and execution of operations strategy. In this regard, it can be argued that operation managers at the Group have analytical abilities that help in the analysis and evaluation of current market dynamics for the sole purposes of designing better product solutions.
When it comes to manufacturing high-quality cars and delivering the same to customers in the right place at the right time at the optimum cost, the production process is critical. According to the company website, the Volkswagen Group’s global production volume surpassed the 10-million mark in the fiscal year 2015 (The Volkswagen Group, 2015, par. 6). Despite the changes in the global auto manufacturing industry, as well as the challenging market conditions brought by the 2015 emissions scandal, productivity for the Group rose by 3.5 percent from the previous year’s figures (The Volkswagen Group, 2015, par. 6). Even though the Group has witnessed declining production volumes in its South American and Russian markets, this has been compensated by rising demands in Germany and Western Europe. Most importantly, the systematic implementation of a production system has seen the Group’s global production volumes increase year-on-year.
In order to achieve the objectives defined in the ‘Production 2018’ strategy, the Volkswagen Group has identified a number of challenges that need continuous work to overcome. Essentially, these challenges represent the main actions areas as far as production is concerned; as such, one action area is the implementation of the Modular Toolkit strategy (The Volkswagen Group, 2015, par. 8). Another action area is the expansion of the global production network. According to the Group, the responsibility to oversee the implementation of these action points has been placed on the Board of Management and the Executive Management Sponsorships (The Volkswagen Group, 2015, par. 7). Another group critical in overseeing the implementation of the action areas is the project teams from all the brands and regions.
As far as production locations are concerned, the Volkswagen Group has three locations in North America, six in South America, 38 in Europe, four in South Africa, and 18 in Asia (The Volkswagen Group, 2015, par. 8). In total, the Group’s global production locations at the close of 2015 stood at 119, where 69 specialized in the production of passenger cars, while the remaining 50 specialized in the manufacture of powertrain and automobile components.
- Flexible Automobile Production
It is important to note that the Modular Toolkit allows the Volkswagen Group to design manufacturing sites in a manner that enhances flexibility in production. Fundamentally, the global production sites are designed in a way that they generate synergy effects that result in the reduction of capital expenditure while at the same time optimizing existing capacities. Courtesy of these toolkits, the Group, for example, has managed to create conditions whereby several car brands are manufactured at the same production facility at the same time. Examples in this respect include the Kvasiny production site in Czech Republic that specializes in the manufacture of the SKODA brand (The Volkswagen Group, 2015, par. 9). The facility started producing cars under the SEAT brand in 2016. In fact, out of the 40 passenger car manufacturing facilities, 19 are now multi-brand production locations.
The Group has also developed another concept as far as flexibility in production is concerned; this is the ‘turntable’ concept (The Volkswagen Group, 2015, par. 9). Among other things, this strategy is employed to compensate for fluctuations in demand from various customer market segments or low demand due to market shifts. For example, when it comes to the manufacture of Volkswagen brands, the Emden site (which specializes in the Passat), the Zwickau site (which specializes in both the Passat and the Golf), and the Wolfsburg site (which specializes in the Golf), all employ the turntable strategy (The Volkswagen Group, 2015, par. 10). The Volkswagen Group realizes that as the complexity of production increases due to the factors driving change in the global auto manufacturing industry, the over 119 production sites must work at optimal levels. In this respect, operations managers at these sites are tasked with ensuring optimal production capacities to continually manufacture and take to markets products of high quality in the right place at the right time at optimal costs. Indeed, at the Volkswagen Group, this is all made possible by the standardization of manufacturing processes and operating equipment at every production stage.
Ideally, the basis for the constant production and delivery of high-quality products in the right place at the right time at optimal costs at the Volkswagen Group is the production standards employed at the various facilities. Otherwise referred to as the ‘concept consistency’ (The Volkswagen Group, 2015, par. 8), this framework ensures that all the manufacturing facilities worldwide employ the same design principles, such as joining techniques and sequences. Additionally, this standardization ensures commonality when it comes to the installation and connection concepts applied to all the brands and production sites. As such, the concept consistency principle is a fundamental principle at the Volkswagen Group as it allows the creation of an efficient manufacturing, supply chain, and logistics process design.
- The Production System
As aforementioned, standardizing and optimizing production processes are the critical ways in which the Volkswagen Group intends on becoming the most powerful and fascinating auto manufacturer. The Group’s production system, which is value-driven and synchronous (The Volkswagen Group, 2015, par. 10), avails the critical methodologies and instruments for achieving this objective. With the goal of establishing this production system across all the manufacturing facilities, the Group aims at achieving continuous and sustainable production of high quality and innovatively designed car brands. Even though the Group has already attained some milestones in this regard, it continues to focus its attention into the future courtesy of the Production 2018 strategy. As a first step towards this journey, the Group measures the degree to which the production methodologies and interments are employed across its global production facilities (The Volkswagen Group, 2015, par. 12). This is essential to identify the critical action areas, which are then used to inform a production plan. Being a synchronous organization, the Volkswagen Group incorporates all business areas in the Production 2018 strategy to systematically optimize production processes worldwide.
Notably, the Group is developing and managing a global manufacturing and logistics network as far as the movement of materials and vehicles from the factories to the customers is concerned. In this respect, logistics services at the Group are planned across all brand categories, where they are single-sourced and managed through the procurement and logistics services department (The Volkswagen Group, 2015, par. 12). Indeed, the Group recognizes the importance of adhering to uniform processes worldwide. Ideally, enduring efficiency when it comes to production is a fundamental component of competitiveness at the Volkswagen Group. The Group positions itself strategically to address challenges emerging in the global auto manufacturing industry through flexible supply streams and structures, holistic optimizations, agility in tea composition, and pioneering innovations. As a unit, the brands, facilities, and regions are designing the logistics of the future in a digital auto manufacturing world powered by emerging technologies (The Volkswagen Group, 2015, par. 14).
Undoubtedly, the continual rise in the availability of information is driving the aspect of transparency in production as well as delivery of products in the contemporary auto manufacturing world. In this respect, the Volkswagen Group employs innovation by utilizing animated planning tools when it comes to designing factories and supply streams worldwide. For example, the Group has already implemented the tracking of loaded delivery trucks by the use of GPS (The Volkswagen Group, 2015, par. 14). What is more, the Group’s production facilities are working in an automated and digitalized fashion, especially in logistics through driverless transport systems (The Volkswagen Group, 2015, par. 14). Even under this changing operational context, the traditional logistics objective at the Volkswagen Group of manufacturing and delivering quality products in the right place at the right time at the optimum cost still applies.
- Efficient Environmental-Friendly Production
In 2015, the Volkswagen Group was hit by a major emissions scandal that continues to affect the company to the present (Michaels, 2015, par. 2). Even though this setback has had ramifications on the Group’s global production levels as seen by the drastic drop in demand in South American and Russian markets, Europe, and especially Germany continues to drive sales volumes. When it comes to taking care of the environment, the Group has identified five key indicators: energy consumption; water consumption; waste disposal; carbon dioxide (CO2) emissions; and volatile compounds (VOC) emissions (The Volkswagen Group, 2015, par. 16). Under the Production 2018 strategy, the Group has a goal of lowering these levels by 25 percent for every car brand manufactured in all the facilities by 2018. In essence, every brand under the Group is expected to contribute to this goal through an individual production framework that reflects the brand’s corporate cultural identity. To date, the various brands have established environmental-friendly targets through various frameworks. For example, the Volkswagen Passenger and Commercial Vehicles have established the ‘Think Blue Factory,’ while Audi has created the ‘Ultra Strategy’ (The Volkswagen Group, 2015, par. 16). On their part, SKODA has established the ‘Green Factory,’ SEAT the ‘ECOMOTIVE Factory,’ and Bentley the ‘Environmental Factory’ (The Volkswagen Group, 2015, par. 17). Porsche contributes to environmental protection through what it calls ‘resource-efficient production,’ while MAN and Scania are committing to environmental protection through the; Climate Strategy’ and the “Blue Rating,’ respectively (The Volkswagen Group, 2015, par. 17).
In short, when it comes to production, the Volkswagen Group is encouraging a close integration and communication between the operation management functions across its brand portfolio. For example, the most important lever for lowering energy consumption in auto manufacturing at Volkswagen Group is on-demand operation in all plants (The Volkswagen Group, 2015, par. 18). A case in point is the Hanover facility, where the Group is switching production from two dryers to one lead-dependent operation. This move has resulted in the drastic reduction of energy requirements by close to 8,000-megawatt hours annually (The Volkswagen Group, 2015, par. 18). In terms of cost-savings, this is equivalent to 200,000 euros and 1,7000 tonnes of carbon dioxide. What is more, the Group is utilizing recycling facilities in some manufacturing locations, which have pre-cleaned waste water for reuse via the membrane process. When it comes to logistics, the Group’s Green Logistics initiative contributes to the overall ecological orientation. For example, the Group is now analysing its entire transportation chain with respect to carbon dioxide emission targets (The Volkswagen Group, 2015, par. 20). Through the logistics process partner management, the Group is improving the product pickup processes in collaboration with freight forwarders. This is important to ensure not only long-lasting cooperation but also efficiency and capacity utilization in the entire transportation network.
Conclusion and Recommendation
Indeed, operations management plays a fundamental role when it comes to the production and delivery or products to the marketplace. While the Volkswagen Group has so far performed incredibly in the global auto manufacturing industry, where it holds the second position behind Toyota, more needs to be done to entrench this position further. There is no denying that operations management remains a central pillar to the Group’s competitiveness. With the primary objective of ensuring the production and delivery of high-quality cars in the right place at the right time under optimum costs, the operations management function can do more. In this light, the Group should consider several recommendations, including:
- Focusing on emerging markets- Here, the Group should now focus on emerging markets like Africa China, and India and diversify its production infrastructure to incorporate these rapidly developing economies.
- Placing the production of hybrid and electric powertrains on priority- The Volkswagen Group should focus on electrifying every segment of its production process to create competitive advantages.
- Focusing on passenger safety- The 2015 emission scandal indicates an urgent need for the Group to address passenger safety in the manufacturing process.
- Positioning itself as a pioneer in sustainable mobility and synthetic fuels- the Volkswagen Group should evolve with the times and invest in the production of synthetic fuels that do not emit VOC.
- Bringing Porsche, Audi, Bentley and other brands to the global limelight- Currently, the Volkswagen Group in the United States is emphasizing on ‘Clean Diesel’ dynamism in its Volkswagen Passenger and Commercial vehicle segments. Through such initiatives, the Group should bring to the limelight other brands, including Audi, Porsche, and Bentley for high price segment and Skoda and SEAT for low price segments.
- Increasing focus on commercial vehicles- Ideally, the Volkswagen Group has two brands in the commercial vehicle segment- MAN & SCANIA. Even though these brands are doing remarkably well in Europe, there is a need for them to be marketed
- Increasing rigorous voluntary testing and certification- In light of the crises in the American and European markets, the Volkswagen Group should now go for certification as per local regulatory standards and also get clearance reports as far as safety tests are concerned.
Michaels, R. 2015. ‘VW Emission Scandal and the Global Car Industry.’ Reviewed on 01 May
Slack, N., 2016. Operations Management (8th edn). Harlow, UK: Pearson Education
Slack, N., Brandon-Jones, A., and Johnson, R., 2013. Operations Management (7th edn). Harlow,
UK: Pearson Education Limited. Retrieved from http://dl2.yazdanpress.ir/LIB/MANAGE/712017-MANAGE-4.pdf
The Volkswagen Group., 2015. Annual Report 2015. Retrieved from