International Trade and Supply Chain Integration: Volkswagen - Case Study Example

INTERNATIONAL TRADE AND SUPPLY CHAIN INTEGRATION: VOLKSWAGEN Table of Contents Table of Contents 2 Introduction: 3 Supply chain management in Volkswagen: 3 Technologies and service processes of Volkswagen: lean: 6 Distribution network of Volkswagen: 8 Factors influencing supply chain in international business scenario: 10 Integrating requirements of international trade in the supply chain management: 11 Conclusion: 12 Reference List: 13 Introduction: Operating in the international market requires a complete support from all the operational aspects of a business firm. The growth in competition has urged business organizations to expand their operations in the international platform for enhancing the future scope of growth and development (Min and Mentzer, 2004). This has however also increased the complicacies for the product manufacturing firms such as automobile and other technical firms as the supply chain management are subjective to the change in the balance between demand and supply (Gripsrud, 2006). Volkswagen, German automobile giant is an appropriate example of supply chain management in the global marketplace place. The study will analyze the process of supply chain management of Volkswagen in context of international business place. Supply chain management in Volkswagen: Volkswagen’s work process is developed on the concept of creating vehicles for the mass consumers (Volkswagen, 2014). It has to be noted that Volkswagen has been awarded for their spending in the research and development process. The initial model for the supply chain of the business was focused on creating a chain process that connected all the operational process of the company. The supply chain process started with the R&D results which set the objectives for process of production, assembling and distribution (Volkswagen, 2014). However, with their expansion in the international market place, Volkswagen has also incorporated innovative technological resources for boosting up their production capability and reducing operational expenses. The supply chain management process of Volkswagen is characterized with an array of technological resources and conceptual frameworks (Marcellus and Dada, 2006). Considering the diverse consumer groups and their needs, Volkswagen has increased the number of production units and distributors (Volkswagen, 2014). Unlike their previous model where production and assembling were done under single roof, the new model of supply chain process has changed this process. Each of the major market segments has designated number of assembling stores and distributor houses. The parts produced are sent into the assembling centre based on the market demand for the product (Germain, Claycomb and Droge, 2008). This has allowed the company to control the production of units and align with the market demand developing a proper balance between production expenses and market demands. However, this process also increased the cost of logistics as regular input and output of produced parts was based on the changes in market demand. In order to control their transpiration cost, the company started building manufacturing units for each of the market segments (Stevenson, 2002). In the current scenario, Volkswagen has 18 manufacturing units all over the world situated in different geographical regions. These manufacturing units are managed in a decentralized manner for generating market specific operations (Volkswagen, 2014). Figure 1: Volkswagen Supply Chain (Source: Goetsch and Davis, 2010, p - 351) The above diagram reflects a segment of the supply chain process of Volkswagen. The entire supply chain has been integrated with a technical edge which allows the functional departments to inter-connect with each other. The streamlined supply chain model has been implemented in all the production, assembling and storehouses of the company in a decentralized manner which provides a specific direction and routine for managing the daily operations (Bergman and Klefsjo, 2007). Apart from this, the holistic approach allows the company to evaluate and analyze the performance of the entire operational department of the firm and implement necessary changes. Technologies and service processes of Volkswagen: lean: Volkswagen’s new strategy towards developing a sustainable production and operations process has also helped them in developing a technology based system that can focus on the creating consumer communication and also connect the supply chain process of the firm directly with the business needs (Hines, Holweg and Rich, 2009). Volkswagen’s supply chain revolved around a single concept of developing cars that can be used by the mass population (Volkswagen, 2014). However, with the growing acceptance of technology and mobile concept all over the world, Volkswagen statred developing cars that can adapt with the technological changes in the market scenario. For instance, Volkswagen Jeeta has been awareded as the best hybrid car (Bergman and Klefsjo, 2007). Simialrly, Volkswagen Golf, UP and Polo have won the best car of the year numerous times. Figure 2: Technological Involvement in Supply Chain Management of Volkswagen (Source: Fine, 2009, p - 1301) From the above diagram, the integration of technology in the operational process of Volkswagen can be observed. Entire operational database and functional aspects of the business are being connected by a central database which monitors and stores the activities and planning process for the production as well as the designing system (Geunes, 2009). Some of the key technological factors in the supply chain process are the automated manufacturing process, RFID technology for the transportation process, assembling monitoring process, Turbocharged Direct Injection (TDI) has been implemented for enhancing the fuel efficiency for diesel cars, etc (Volkswagen, 2014). The technological dominance of Volkswagen has authorized them to gain a competitive advantage over their competitors. Distribution network of Volkswagen: The distributor network of Volkswagen is focused on the concept of increasing market share and availability of their products. They have maintained a simple yet detailed structure for developing their distributor network in the international market place (Geunes, 2009). As stated above, Volkswagen has expanded their manufacturing and assembling units for increasing decentralization and environment specific management system in their units (Volkswagen-Logistics, 2014). Furthermore, this has also enabled the company to reduce their cost of logistics as well as build a better foothold in the local market zones. The distributor network of the company focused on developing dealerships and wholesalers across the market place in a manner which can develop a balance between the supply and demand in the market (Ballou, 2007). Focusing on their logistics segment, Volkswagen has focused on integrating the logistics department and is known as the Volkswagen Logistics which provides service for the consumer base and also the organizational logistics requirements. The entire logistics process was initially segmented into four means namely air, ship, road and rail (Volkswagen-Logistics, 2014). However, with the increase in the number of manufacturing units Volkswagen has redesigned their logistics process and now operates mainly via rail, road and shipping means only. Figure 3: Logistics Process of Volkswagen (Source: Talluri, 2002, p - 3 The transportation process of Volkswagen begins from their manufacturing segment where the parts produced are brought into the assembling segment and also transported to the retailer warehouse (Burgess, Singh and Koroglu, 2006). The assembled and final product is then taken to the destruction centres via rail, road or shipping process. The regional distribution centre forwards the products to local distributors present or directly supply them to the consumers in the market. The entire process is connected by various stages of logistics process. Integration in the logistics segment has helped the company to achieve an accurate and timely delivery process. The logistics process also helps the organization to reduce the lead time and enhance the consumer satisfaction level of the firm (Talluri, 2002). Factors influencing supply chain in international business scenario: The international business place has experienced a dramatic increase in the number of firms functioning in multinational level. Along with the growth in competition came growth in technology which boosted the performance of the firms and created an alternative method of business development. Also operating in a market characterized by geographical and cultural diversity the business firms were urged to change and realign their operating processes (Burgess, Singh and Koroglu, 2006). Kaufmann and Carter (2006) mentioned that business processes face political challenges in the international market both from the international regulatory bodies and the Government of the host countries. For instance, Volkswagen’s entry in India was delayed because of fulfilling political norms which also delayed their production process. Kaufmann and Carter (2006) also stated that one of the most influential factors in the international business process is the changing needs of the consumer base and the competition from domestic firms. Considering the example of India again, Volkswagen is facing steep competition from international firms such as Honda, Hyundai, Ford, etc. and also from local business houses such as Tata and Mahindra (Ballou, 2007). The impact of diverse consumer needs on the supply chain functions is direct. Firms have to ensure that their products and service can deliver the requirements and expectations of the target customers. On the other hand, the supply chain process of an organization may not be initially designed in accordance with the changed expectations of the firm that can hamper the customer service or product development process (Burgess, Singh and Koroglu, 2006). Volkswagen developed its brand position on the aspect of being people’s car which allows the company to target mass consumers (Burgess, Singh and Koroglu, 2006). However, in emerging countries such as India, the purchasing power of the consumers is low and the consumers are also price focused. This forced Volkswagen to change their operational aspects and develop a more cost efficient process for production. Apart from this, infrastructural conditions of the host nation, environmental concerns and legal regulations are also major players in designing the operational process of a business (Ballou, 2007). In the words of Kaufmann and Carter (2006), an organization has to align itself with the cultural and social values of a firm so that they can manage the business process. Integrating requirements of international trade in the supply chain management: International supply chain management process is primarily designed considering the organizational potential to provide the market requirements. Kaufmann and Carter (2006) added that international supply chain is influenced by consumer needs and consumer types which also relates to the organizational operational process directly. Vertical or Virtual integration are two most commonly used integration processes by the business houses in the contemporary scenario (Gripsrud, 2006). Big giants such as Apple, Google, Volkswagen, P&G, etc have involved into vertical integration for reducing their operational cost and customizing the product and service development processes (Burgess, Singh and Koroglu, 2006). Volkswagen’s supply chain integration with the international market demands has reflected numerous resource gatherings and high utilization of resources. The resource accumulation process mainly focused on creating alliances or acquiring firms who produce the raw materials for the final products of the company. They have also created reversed integration to serve their purpose as a supplier to many automobile firms such as Porsche, Bentley, etc (Geunes, 2009). The integration process of Volkswagen also includes adjusting their supply chain with the new and innovative technological resources for keeping up with the market trend. However, one of the biggest changes in the supply chain process of Volkswagen was the introduction of lean management system in a customized manner (Gripsrud, 2006). The lean management generally is a process for enhancing accuracy in measuring the demand and supply of the products in the market by reducing wastages. Volkswagen having targeted the mass consumer often faced the problem of over production which resulted in enhanced costs of production. Thus, the customized lean management technique included only two parts namely JIDOKA and Kanban card (Marcellus and Dada, 2006). The Kanban card is a system to develop a connected supply chain process which keeps all the functional aspects informed regarding the progress of other departments (Gripsrud, 2006). On the other hand, JIDOKA is mainly implemented for ensuring that the business process has control over its production process and stop the production when needed. These two factors have helped Volkswagen in integrating their supply chain with the international market. Conclusion: Volkswagen is considered to be an early entrant in the automobile industry. They have set high benchmarks for themselves and focused on continuous improvement with innovation and customer satisfaction. The supply chain process of Volkswagen has been designed in a decentralized manner which helps them in focusing on the detailed aspects of the firm. On the other hand, the growth of business process has helped them in increasing the production and assembling units all over the world and also develops a streamlined logistics system. Finally, with the implementation of lean management, Volkswagen was able to create sync between the demand of the market and the supply of their production system and gain control of the industry. Reference List: Ballou, R. H., 2007. The evaluation and future of logistics and supply chain management, European Business Review, 19(4), pp. 332-348 Bergman, B. and Klefsjo, B., 2007. Quality from Customer Needs to Customer Satisfaction, 4th ed. London: McGraw-Hill, Inc. Burgess, K., Singh, P. J. and Koroglu, R., 2006. Supply chain management: a structured literature review and implications for future research. International Journal of Operations & Production Management, 26, pp. 703-729 Fine, C.H., 2009. Quality improvement and learning in productive systems, Management Science, 31(10), pp.1301 Germain, R., Claycomb, C. and Droge, C., 2008. Supply chain variability, organizational structure and performance: the moderating effect of demand unpredictability. Journal of operations management, 26, pp. 557-570 Geunes, J., 2009. Applications of supply chain management and E-commerce research. 5th ed. London: McGraw-Hill Education. Goetsch, D. and Davis, S., 2010. Quality management: introduction to total quality management for production, processing and service. 5th ed. USA: Douglas Brooks. Gripsrud, G., 2006. Suuply chain management-back to the future? International Journal of Physical Distribution & Logistics Management, 36(8), pp.643-659. Hines, P., Holweg, M. and Rich, N., 2009. Learning to evolve: A review of contemporary lean thinking. International J. Operations and Production Management, 24(10), pp. 994-1011. Kaufmann, L. and Carter, C.R., 2006. International supply chain relationships and non financial performance – A comparison of US and German practices. Journal of Operations Management, 24, pp. 653-675. Marcellus, R.L. and Dada, M., 2006. Interactive process quality improvement. Management Science, 37(11), pp.1367 Min, S. and Mentzer, J.T., 2004. Developing and measuring supply chain management concepts. Journal of Business Logistics, 25, pp. 63-99. Stevenson, W.J., 2002. Operations Management. 7th ed. 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