Marketing. Automotive industry

The automotive industry is moving entire supply chain online at a faster rate than any other industries. The movement has been driven, in part, by the rapid adoption and growth of the Convisint online supplier exchange. Covisint was established in early 2000 by Detroit’s Big Three (Daimler Chrysler, Ford, GM) and later joined by Renault, Peugeot and Mitsubishi. The idea was based on each Company’s e-business initiatives Together to avoid the burdens the suppliers would endure if asked to interact with redundant proprietary systems.

Volkswagen AG group, the largest car manufacturer producing 5 million cars, trucks and vans each year. The Company has 300,000 employees and operates plants in Europe, Africa, the Asia Pacific, Rims and America and has purchases worth more than 60 millions euros annually in components, automotive parts and indirect materials and these accounts for 70% of VW’s revenue.

The VW Group was looking to create a more efficient relationship with its suppliers and reduce the cost of paper based procurement process. VW has chosen a private platform that would enable it to integrate with its suppliers more tightly with its own business processes operating a Private Industrial Network, VWGroup

What are the benefits to Volkswagen from using a Private industrial network instead of a more open exchange?

The benefits to Volkswagen for using a Private Network instead of private one is as following:

Transaction Cost Economics

1. A private exchange is easier to build and set up costs will be lower 2. Cost of integration into owns back end systems will be lower.

Resource Dependence

1. No mutual but a one sided dependence on a competitor might evolve.

Stakeholder Theory

1. Excluded stakeholders might show averse reaction

Organisational Learning

1. Newly generated knowledge resides in the consortium and not in the mother company 2. Confidential information might be available to competitors

Institutional Theory

1. Organization may be formed on short sighted external views

Strategic Choice

1. Any advantage provided by the e-market is available to all rivals 2. Managing a consortium is more complex than a single firm 3. The task to integrate too many players may be too complex 4. The organization may lose flexibility when bound to a consortium 5. Antirust regulation may prevent the consortium from leveraging all potential benefits

How does this system change how VW and its suppliers do business?

VW Group formation is to increase supply chains or better trading partner networks and are replacing the traditional company to Company competition.

Suppliers can find information on procurement, logistics and quality standards for the brands and the regions. They can click on every application and register themselves with their passwords. The suppliers have quick access to all components via the standardized group portal.

The Capacity Management System “e-Cap” suppliers and Volkswagen group can discuss requirements and capacities which results in lower storing and transport costs for all involved. The suppliers can use the “e-Cap” plan for longer term, react more quickly and communicate with us more clearly which increase competitiveness for both sides. The suppliers can see Volkswagen annual, monthly and weekly planning.

Process times have been decreased by up to 95 percent through the simplification of procurement procedures and the optimization of logical process. The harmonization of the file formats and processes is being pushed ahead at good speed. Volkswagen has within its market place not only reorganized its process but created the right technical requirements for an easy integration of the supplier industry.

Volkswagen long term goal is to connect business processes seamlessly and to thus set up a fully integrated internal and external “Volkswagen e-web”. The Final system should comprise of all development processes from development via planning to production from the supplier via the dealer through to the vehicle delivery.

What Value does provide to Volkswagon and to its suppliers

1. Sustainability(A concept for the future)

Environment protection and social rights are major fields for the sustainability. Sustainability is the concept derived from a discussion about the recognition of global ecological problems and globally increasing social problems of poverty as a result of economic development processes. It represents the extension of the social concept of responsibility in relation to the global development conditions of humanity and is based On the assumption that ecological, economical and social problems have to be solved by means of new integrated strategies involving guiding actions.

Operating as a social group of agents, multinational companies have a central role in the field of sustainability. Volkswagen admits its responsibility being the scale for its long term corporate responsibility.

2. Quality Assurance(Guarantee for High Standards)

The quality of vehicles is considerably influences by their suppliers. This can be seen by increase in purchase parts from 15% in 1950 for the Beetle to over 60% today.

The Group quality assurance sourcing as a central service provider of the Volkswagen group and works as a key interface between our suppliers and the plants of all brands. Volkswagen Global motto Zero defects in all parts purchased.

3. Collaboration(Achieving Success Together)

Volkswagen credits its suppliers for its success in achieving 5 million vehicles, 12% Market share and Group Revenue surpassing 95Billion.

They emphasise on a group wide on collaboration on 4 areas Procurement, Logistics, Quality and Technical development.

The target is for Best in Class supplier Communication and interaction. 4. Procurements(Partners Worldwide)

In 2005 Purchasing accounted for more than 62 billion. A global network of purchasing offices backs the sourcing activities. All key decisions on awarding contracts are taken in central decision committee. Decisions are taken in line with regional aspects, conditions in markets and provisions as well with brand participation.

Suppliers deliver over 60% of vehicle parts. Procurement is therefore crucial interface function, where all links converge. Close link between Marketing, Technical Development, Marketing Production and suppliers to tap synergy potential that set innovative and direction setting impulses for the entire Volkswagen group

5. Logistics(Flexible Control)

Logistics performs a complex coordination task. It integrates all involved in the process: from Research & Development on to Procurement, Production and Sales through distribution.

It ensures the market is supplied in time and enables continuous, economic production.

The logistics is organized in different units: Corporate Logistics, Brand Logistics and Region Logistics (North America, South America/Africa and Asia Pacific). They are supported by plant logistics and Volkswagen transport as a purchasing and planning unit for transport as a purchasing and planning unit for transport volume within the Volkswagen group.

CKD functions (Completely knocked down) are also allocated to Brand Logistics. The CKD units manage the consolidation and packaging of purchases and production parts for vehicle production on behalf of the Group and affiliated international companies.